Foundations Should Push for Disclosure of Corporate ‘Welfare’ Deals

For the first time ever, the body that oversees government accounting standards is proposing that state and local governments report how much revenue they lose to business tax breaks granted in the name of economic development.

While many foundations and nonprofits might not think this matters to them, this accounting change could be a major boon in helping channel public attention and advocacy to stem the loss of billions of dollars that go into company coffers, instead of helping the poor and providing education, health care, housing, and other local services.

What the Government Accounting Standards Board wants to do is require governments to report on what some people call “corporate welfare” and others call “business incentives.”

This is a landmark opportunity for increased accountability and greater equity: States and cities spend an estimated $70-billion a year offering tax breaks in the hope of attracting more jobs to their communities.

When a large company gets a multimillion-dollar deal boosting its bottom line, the taxes they are absolved from paying (think, more teachers, classrooms, road lanes, and trash pickups) must be shouldered by everyone else who must pay more. But because so little is known about these deals now, it is difficult to mobilize local residents to ask tough questions, debate whether they really like these deals, and perhaps put pressure on lawmakers to end them.

While tax expenditures that attract business to a region can be an appropriate use of government resources, they should be just as transparent and accountable as the money lawmakers appropriate to support education, infrastructure, and other public goods.

Foundations and other nonprofits have a short window in which to make a meaningful difference. Through January 30, the Governmental Accounting Standards Board will be accepting comments on its disclosure proposal.

Cynics might wonder, Why bother?, especially those who have dealt with the governmental rule-making process, in which the comment period often seems pro forma. The Governmental Accounting Standards Board is different: Its members listen to meaningful commentary, and the board always improves its guidance to accountants based on insights it receives.

And foundations don’t have to worry that they will, in any way, be violating lobbying bans by commenting on the rules. Since the standards board is a project of a nonprofit, the Financial Accounting Foundation, sending it comments does not constitute lobbying. The board’s rules are known as Generally Accepted Accounting Principles, or GAAP, to which nearly all state and local governments conform. The standards board is best known in recent years for its new rules on public-pension and infrastructure accounting.

The issue of huge public expenditures for jobs has flared since 2008, as more and more nine-figure and even 10-figure incentive deals have been awarded to some of the world’s largest companies, such as the enormous recent deals for Boeing ($8.7-billion in Washington State) and Tesla Motors ($1.3-billion in Nevada).

Perhaps nobody would be helped more by the accounting board’s disclosure rules than the poor, and for that reason the new approach should be considered a major victory for equity.

Cities and inner-ring suburbs — those places that can least afford to do so — surrender a bigger share of tax revenue to companies than their wealthier neighbors. Perversely, communities that are home to people of color and immigrants, or those that have large numbers of jobless and low-income people, are the ones that most need government revenue for public services like schools, policing, transportation, and other critical services. But it hasn’t been possible to systematically examine spending patterns in cities across the United States in part because of the lack of disclosure requirements for corporate deals. Nor has it been possible to see systematically whether fringe suburbs are over-subsidizing “job sprawl” office parks and big-box retail outlets.

In Chicago, where deals to subsidize companies take one out of every 10 property tax dollars away from public services, the issue has flared up in both the 2013 teachers strike and in a recent contentious proposal to raise the property tax rate. In Memphis, where one in seven property-tax dollars is lost to property-tax abatements, neighborhood fire stations are suffering capacity cutbacks.

The accounting board’s disclosure rules will also be vital for public education: For the first time ever, school districts would be required to report how much revenue they lose to tax deals granted by city councils and county boards, in what has been dubbed the “intergovernmental free lunch.” Long treated as stepchildren in the economic-development spending process, school boards will finally be required to account for these losses, empowering education advocates to better see the big spending picture.

Once school boards, cities, counties, and states are all reporting uniformly on the same kinds of expenditures, it will finally be possible to look for patterns that demonstrate whether governments are treating citizens fairly. Foundations and grantees concerned about adequate and equitable funding for education and all public services will gain a powerful new form of analysis. Tax and budget activists seeking to help more people understand how public revenues are affected by interactions between government bodies will gain useful new data.

Good Jobs First, a nonprofit public policy group, has posted a primer on the Governmental Accounting Standards Board proposed standard, with direct links to documents posted by the board,, as well as answers to common questions about the rules and how to comment. Good Jobs First is also raising several technical issues, seeking to improve the new rules to ensure they capture all major kinds of economic-development tax breaks, and with more detail about recipients and future tax-break obligations.

This is a precious chance for foundations and nonprofits to make a big difference in how governments account for scores of billions of dollars. For anyone who cares about economic opportunity, government accountability, and equitable development, the accounting board’s proposed standard deserve a strong push.