GASB 77 and Tax Increment Financing

Governmental Accounting Standards Board statement number 77 (GASB 77) requires disclosures in the notes to a local government’s financial statements for tax abatements. Are TIF obligations subject to the required disclosures for tax abatements under GASB 77?

TIF is not explicitly included or excluded as a tax abatement. The definition of tax abatement in the GASB statement focuses on agreements between one or more governmental units and an individual or entity in which the governmental unit(s) will forgo tax revenue in exchange for economic development or other actions by the individual or entity. The transaction’s substance, not its form or title, is a key factor in determining its qualification as a tax abatement.

In many cases, a TIF obligation will not meet the GASB 77 definition of a tax abatement. A TIF bond or interfund loans used by the TIF authority in financing public development costs would not likely include an agreement to forgo tax revenue that would meet GASB 77’s definition of tax abatement.

A pay-as-you-go (PAYG) TIF obligation, by which tax increments are directly reimbursed to a property owner for development activity the taxpayer performs pursuant to an agreement, may be more likely to fall within the definition and require disclosures.

Development authorities should consult with their auditors to ensure that the proper disclosures are being made in the annual financial statements.

Published Date: April 2017