Project Pages

Tax Abatement Disclosures

Project Description: The objective of this project would be to consider developing disclosure guidance for governments that have granted tax abatements. For purposes of this project, tax abatements are a reduction of or exemption from taxes, offered by a government to a specific taxpayer, typically for the purpose of spurring economic development. The project would not consider guidance for programs that reduce the tax liabilities of broad classes of taxpayers, such as senior citizen or veterans, and which are not the product of individual agreements with each taxpayer. The project also would not consider issues related to recognition.

Status: Added to Current Agenda: December 2013

Tax Abatement Disclosures—Project Plan

: Tax abatement programs are highly prevalent in the U.S.—governmental entities in 44 states currently have them. The results of external research conducted under a Gil Crain Memorial Research Grant from the GASB suggest that tax abatements are an issue of concern among citizen groups, county board members, and municipal bond analysts, and that each group desires to receive information about the level of abatement activity and the results of the abatement programs. However, the researchers found relatively few states (six) with statutes requiring any level of external reporting after tax abatements are granted. These findings indicate that there is an important information need that is largely unmet.

Tax abatement programs are widespreadand the dollar amounts and number of governmental entities involved can be substantial. For example, 40 percent of localities in Michigan granted at least one tax abatement between 1980 and 2001 under a statewide industrial development abatement program that abated local government taxes by an estimated $1 billion annually.1 That is the equivalent of approximately 4.2 percent of all sub-state tax revenue in Michigan.2

Further, the academics awarded the Gil Crain grant for 2010 found that 44 states have statutes regarding programs in line with the definition of a stand-alone property tax abatement program. (This is consistent with a 2007 study that concluded governments in 42 states are allowed by their states to offer tax abatements.3). However, they identified just six states with statutes addressing reporting requirements. Fourteen states addressed accountability for abatement programs in their statutes by including provisions for benefit recovery (clawbacks) in instances of nonperformance by the recipient of the abatement. It may be possible that more states require reporting or impose consequences for nonperformance in policies and procedures outside their statutes.

Their review of websites involved 36 counties (across 14 states) which had been identified through a Lexis-Nexis search as having tax abatement programs. The review turned up only one of the 36 county websites with any reporting on tax abatements after they were granted.

The academics concluded, “While other county websites included information about tax abatements in general or about the granting of a particular abatement, none provided information that would be useful in monitoring abatements currently in effect. Finding even limited information on these websites required much effort and diligence. Certainly, the average citizen could not be considered to have reasonable access to tax abatement information from any of these counties’ websites.”

Constituents have periodically raised the possibility of a pronouncement requiring governments to disclose additional information about tax abatements. At present, generally accepted accounting principles do not require state and local governments to disclose information related to tax abatements.

In September 2013 the project staff conducted interviews and received feedback from 78 individuals responsible for keeping records on tax abatements within governments that had been identified as authorizing stand-alone tax abatements. This research indicates that governments generally do keep records on the type of information identified by users as being necessary for their decision-making and assessment of a government’s accountability of stand-alone tax abatements that have been authorized.

Finally, some tax abatements, depending on how they are structured (for example, refunds, rebates. or credit), do involve cash inflows and cash outflows. In these instances, the taxpayer first pays the taxes and the government refunds, rebates, or credits the appropriate amount back to them once they have fulfilled their obligations associated with receiving the tax abatement. In other tax abatements, there is no flow of resources but rather a foregone cash inflow and associated cash outflow. In these instances, the taxpayer pays a tax amount that is net of the tax abatement authorized. However, this foregone flow of resources has affected the government’s net position. Users also have expressed a need for this information to make assessments of how other taxpayers have subsidized the taxes that have been abated to other taxpayers.

User needs. The survey of users was conducted by the academics awarded the Gil Crain grant was administered to staff and members of citizen groups, municipal bond analysts, and county board members. Responses were received from 38 citizen group staff and members (response rate of 26.4 percent), 68 county board members (8.8 percent), and 114 bond analysts (10.3 percent). The overall response rate of 10.9 percent is low but in line with typical responses to targeted email surveys (10–15 percent) and characteristic for these populations.

One portion of the survey offered statements about tax abatement programs drawn from the literature and asked respondents to rate their agreement or disagreement with the statement on a five-point scale (1 = strongly disagree, 5 = strongly agree). The statements specifically relevant to financial reporting were:

  1. Governments should report annually on tax abatement agreements outstanding.
  2. Legislators (for example, county commissioners or county board members) involved in granting tax abatements should receive timely reports comparing expected performance to actual performance.
  3. Citizens and other interested parties should have access to annual reports comparing expected performance to actual performance for all tax abatement agreements outstanding.
  4. Information about taxes recovered through recapture provisions should be reported to legislators who grant tax abatements.
  5. Information about taxes recovered through recapture provisions should be accessible to citizens and other interested parties on an annual basis.
Overall, the level of agreement in each of the three groups of users was very high on all five of these statements (an average greater than 4.0). Citizen group members and staff particularly agreed with statements a (average ranking of 4.53), b (4.54), and c (4.62). The difference between the rankings by citizens and county board members was statistically significant for several of the statements, and the county board member rankings were lower across the board (though still above 4.0 on each statement). The highest level of agreement among county board members was with statement b (4.23). The rankings by municipal bond analysts fell in between those of citizens and county board members. Municipal bond analysts most strongly agreed with a (4.31), c (4.40), and d (4.33).

Bond analysts were asked to rate how often they consider five issues related to tax abatements when analyzing municipal securities on a five-point scale (1 = never, 5 = always):
  1. Revenues forgone through property tax abatements
  2. Expected and actual outcomes related to existing property tax abatements
  3. Taxes recovered through recapture provisions when abatements recipients fail to meet conditions in the tax abatement agreements
  4. The degree to which a government uses property tax abatements to attract new businesses or to retain and expand existing businesses
  5. The degree to which a government uses tax incentives to encourage economic development.
Four of the five factors linked to tax abatements were identified by bond analyst respondents as being considered somewhat regularly (average mean of approximately 3.0—1, 2, 4, and 5).

The surveys of all three user groups asked them to rank the importance of seven items that could be reported by governments about tax abatements they have granted:
  1. Name of recipient
  2. Date abatement was granted
  3. Amount of tax abatement in the current year
  4. Length of tax abatement and projected abatement amounts in future years
  5. Commitments made by the government (e.g., infrastructure improvements)
  6. Contractual promises made by the recipient (if any)
  7. Recipient's compliance with contractual promises.
The survey again used a five-point scale (1 = not at all important, 5 = very important). All three groups rated the importance of items iii–vii highly (average of 4.0 or greater). Citizen respondents rated i and ii highly as well, and county board member respondents rated those items near 4.0 (3.97 and 4.02, respectively). Citizen respondents rated items iv–vii particularly highly (each over 4.5). Those items also were the most highly rated among county board member respondents. The highest-ranked items among bond analyst respondents were iii and iv.

The surveys concluded by asking the three groups of users their opinions about how, if at all, tax abatements should be reported in audited financial reports. The questions were posed to all municipal bond analysts and to citizens and board members who responded with a 2 or higher when asked to rate their familiarity with audited government financial reports (1 = not at all familiar, 5 = extremely familiar; the average citizen response was 3.42 and for board members 3.60). Respondents were asked to identify their preference among five reporting options:

Tax Abatement Reporting Options


% Selecting Option

(n = 30)

(n = 44)

(n = 99)

As a reduction in revenues (e.g., total revenues – amount abated = net revenue)




As an expenditure or use of government resources




Only as a disclosure in the notes to the financial statements




Only as unaudited supplementary information after the notes




Not reported in an audited annual financial report




The greatest support across the three groups was given to recognition as a reduction in revenues and disclosure only. In fact, recognized property tax revenues do not include abated taxes either because they were not levied on the abatement recipients or they were levied but are not expected to be collected. The academics acknowledge that a part of the explanation of the relative popularity of the reduction of revenues option may be the parenthetical specification of “total revenues – amount abated = net revenue.” Respondents may have been signaling a desire to know all three components of that equation; whereas the net revenue is an issue of recognition in the financial statements, the reporting of gross revenues and the amount abated may be more suitable to note disclosure.

Accounting and Financial Reporting Issues: The project will consider the following issues:
  1. What information about tax abatements, if any, should be disclosed in the notes?
  2. What tax abatement information do governments currently have available?
  3. What costs, if any, might a government incur to collect information about tax abatements?
Project History: The GASAC considered this topic during its discussion of priorities at its March 2012 and 2013 meetings. The GASAC members have ranked the topic among the highest in priority of all research activities and potential projects in the GASB’s technical plan.

Work Plan:

Board Meetings Research

January-February 2014:

Appointment of task force.

March 2014: Review project history and relevant literature.
April 2014: Discussion of criteria for identifying what types of tax abatements would be within the scope of the project.
May 2014:
May 2014: Discussion of whether and what tax abatement information should be disclosed.
July 2014: Continue discussion of whether and what tax abatement information should be disclosed.
August 2014: Review draft standards section.
September 2014: Review preballot draft of Exposure Draft.
October 2014 (T/C):  Review ballot draft and issue Exposure Draft.
November 2014-January 2015: Redeliberate issues based on respondent feedback.
July 2015: Review preballot draft of final Statement.
August 2015: (T/C): Review ballot draft and issue final Statement.

Tax Abatement Disclosures—Project Plan

Minutes of Meetings, March 3-5, 2014

The Board received and discussed the results of staff research on the key issues of the Tax Abatement Disclosures project. Preliminary research findings were presented covering the following areas: nature and extent of tax abatements; commitments made in tax abatement agreements; user needs; and the availability of information. No formal deliberations took place at this meeting.

1Sands, Gary and Laura A. Reese. Public Act 198 Industrial Facilities Tax Abatements: Current Practices and Policy Recommendations. (East Lansing, MI: Land Policy Institute, Michigan State University, October 2007).
22007 Census of Governments, State and Local Government Finances, U.S. Bureau of the Census. Available at:
3Wassmer, Robert W. “The Increasing Use of Property Tax Abatement as a Means of Promoting Sub-National Economic Activity in the United States” (December 12, 2007). Available at SSRN:

Wassmer, Robert W. “The Increasing Use of Property Tax Abatement as a Means of Promoting Sub-National Economic Activity in the United States” (December 12, 2007). Available at SSRN:

2Sands, Gary and Laura A. Reese. Public Act 198 Industrial Facilities Tax Abatements: Current Practices and Policy Recommendations. (East Lansing, MI: Land Policy Institute, Michigan State University, October 2007).

32002 Census of Governments, State and Local Government Finances, U.S. Bureau of the Census. Available at:

4Dalehite, Esteban G., John Mikesell, and Kurt C. Zorn. “Variation in Property Tax Abatement Programs Among States.” Economic Development Quarterly, 2005, pp. 157–173.