GASB February 16, Government Finance Officers Association of Arizona

Transcription

1 GASB February 16, Government Finance Officers Association of Arizona

2 Discussion points GASB 77 Overview Reporting considerations Disclosure requirements Implementation challenges Page 2

3 GASB 77 Overview Page 3

4 Overview What is GASB GASB stands for the Governmental Accounting Standards Board. GASB establishes accounting and financial reporting standards for U.S. state and local governments that follow Generally Accepted Accounting Principles (GAAP). GASB standards are recognized as authoritative by state and local governments, state Boards of Accountancy, and the American Institute of CPAs (AICPA). Page 4

5 Overview GASB Statement 77 What is GASB 77? The GASB issued Statement 77, which requires disclosures about a government s tax abatement agreements, in August of Why issue GASB 77? Information about revenues that governments forgo is essential to understanding financial and economic conditions, interperiod equity, sources/use of financial resources, and compliance with legal or contractual requirements. GASB 77 effective date? Effective for periods beginning after December 15, Page 5

6 Overview Why disclose tax abatements? Financial statements assist users in assessing: Whether current-year revenues are sufficient to pay for current-year services (inter-period equity). Whether compliant with legal and contractual obligations. Identifies where funds are generated and utilized. Snapshot of government s financial position and how economic conditions have changed over time. The reduction of revenues (e.g., that result from a tax abatement) are currently not captured in financials. GASB 77 will allow users to better understand governments financial position and ability to meet financial obligations. Page 6

7 Overview Potential stakeholders County assessor CAFR responsibility: comptroller, controller or treasurer Economic development officials Auditor Local governments Other taxing jurisdictions County commissioners City managers and controllers City mayors and councils Page 7

8 Overview Reporting dates Example: Governmental entities with FYE 12/31 GASB 77 reporting covers 1/1/ /31/2016 Typically reported by May 2017 Begin evaluating readiness in March 2016 Example: Governmental entities with FYE 6/30 GASB 77 reporting covers 7/1/16 6/30/17 Typically reported by November 2017 Begin evaluating readiness in Sept 2016 Page 8

9 Reporting considerations Page 9

10 Reporting considerations What is a tax abatement? A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which: (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments. Page 10

11 Reporting considerations Transaction requirements GASB Statement 77 applies to transactions that include three key characteristics: 1. Existence of an agreement A promise by the government to reduce the individual s or entity s taxes and a promise from the individual or entity to subsequently perform a certain beneficial action. 2. Revenues are reduced 3. Purpose Non-exchange transaction: lacks an equal exchange of value between willing parties. Utilized as part of an economic development program. Program benefits a government and/or its citizens. Page 11

12 Reporting considerations Important factors and indicators Tax abatement as opposed to a general tax expenditure. Tax expenditure programs may include exemptions, deductions, credits, rebates, loans and transfers of capital assets. Less emphasis on overall tax policy - more focus on individual decisions to accept less revenue for something of value from an individual / entity. Substance over form determination May or may not include tax increment financings, payments in lieu of taxes or as-ofright agreements. Primary focus is on the amount of revenue not collected as a result of the tax abatement agreement(s). Page 12

13 Disclosure requirements Page 13

14 Disclosure requirements What will governments have to disclose? In the notes to financial statements, governments should disclose the following information related to tax abatement agreements entered into: Name and purpose of the tax abatement program Specific taxes being abated Authority under which tax abatement agreements are entered into Criteria that make a recipient eligible to receive a tax abatement Mechanism by which the taxes are abated Provisions for recapturing abated taxes Types of commitments made by the recipient of the tax abatement (e.g., jobs, investment ) Page 14

15 Disclosure requirements What is not required to be disclosed? Information that is legally prohibited from disclosure However, must describe the general nature of information omitted and the source of the legal prohibition Names of tax abatement recipients Number of tax abatement agreements entered into and in effect at the end of the reporting period Future amounts to be abated under existing agreements Duration of tax abatements Recipient compliance with commitments Amount of abated taxes recaptured during the reporting period or eligible for recapture as of the end of the reporting period. Page 15

16 Disclosure requirements Risks of delay or non-compliance? Audit implications Risk of restatement (additional cost and public scrutiny). Bond Rating Impact May decrease or be re-evaluated if tax abatements are not correctly reported. Public Scrutiny Hinders ability to craft a positive message regarding the impact of the abatements to the jurisdiction. Covenants related to bonds or debt instruments may require GASB standards. Page 16

17 Implementation challenges Page 17

18 Implementation and compliance challenges As state and local jurisdictions begin a dialogue surrounding implementation and compliance, some immediate challenges are expected: Coordination of departments/required information Differing level of record keeping and/or incomplete records due to disparate locations Computation of the tax revenue forgone (including impact to other government units) Initial presentation and level of disclosure Page 18

19 Challenge your readiness Do you know the universe of tax abatements offered in your state, county, and local municipalities and districts? What is the accessibility of your tax abatement data? Where is it? Is it consolidated or decentralized? Have you reached out to the agencies that need to give you the data? Is it electronic? Will you need to submit an inquiry to GASB for opinions on more complex agreements? Has your auditor spoken to you about his/her independence issues? What resources can you allocate to comply with GASB 77? Page 19

20 Questions Page 20