GASB 77: Tax Abatement Disclosures, Scope, and Who Must Comply

GASB Statement No. 77, on tax abatement disclosures, requires state and local governments that report under Generally Accepted Accounting Principles to disclose, in the notes to their financial statements, how much tax revenue they gave up through economic development agreements, and how much they lost when other governments granted abatements affecting their tax base. The standard took effect for fiscal years beginning after December 15, 2015.¹

Who Has to Comply

GASB 77 applies to every state and local government that prepares GAAP financial statements. That reaches general-purpose governments, states, counties, cities, and towns, along with public benefit corporations, authorities, public utilities, hospitals, public colleges and universities, and public employee retirement systems.¹ School districts and special-purpose districts that rely on property tax revenue are equally subject to it.

Skipping the required notes is a departure from GAAP. Auditors flag it, and because bond investors and rating agencies read GAAP-compliant statements to assess risk, the effects can reach into borrowing costs.

What Qualifies as a Tax Abatement Under GASB 77

The standard uses a narrow definition, and a deal only qualifies if every element is present. There must be an agreement between a government and a specific individual or entity in which:¹

The government promises to forgo tax revenue it would otherwise be legally entitled to collect.
The individual or entity promises to take a specific action after the agreement is in place that contributes to economic development or otherwise benefits the government or its residents.²

Timing is part of the test. The agreement has to come before the taxpayer performs the required action. A business that builds a factory first and negotiates a tax break afterward falls outside the definition.³ The agreement itself can be a written contract or an arrangement both sides understand to be binding.

What Is Not Covered

Broad-based deductions, exemptions, and credits available to any qualifying taxpayer through a routine tax filing are excluded. They relate to actions the taxpayer has already taken, and they lack the one-on-one agreement the standard requires.³

Tax Increment Financing is the harder call. Whether a given TIF falls under GASB 77 depends on its substance rather than its label. A pay-as-you-go TIF, where the government reimburses a property owner directly for development costs, resembles a standard abatement and likely requires disclosure. A TIF funded through bonds or interfund loans, where no tax revenue is directly forgone to a private party, probably does not.⁴ Look at what the deal actually does.

What Your Own Government Must Disclose

When your government has entered into qualifying agreements, the notes must organize disclosures by major program and cover both descriptive information and dollar amounts.¹

Descriptive Information

For each program, provide brief descriptions of:

The tax being abated, whether property, sales, corporate income, or another revenue stream.
The legal authority for the abatement, such as the statute or ordinance that permits it.
The eligibility criteria that determine who qualifies.
The mechanism by which the reduction works, such as an exemption, credit, or refund.
Any recapture or clawback provisions the government holds if the recipient fails to deliver.
The commitments the recipient made, such as job creation or a minimum investment.¹

Dollar Amounts and Other Commitments

Report the gross dollar amount of taxes abated during the reporting period. That is the headline figure. If the government made commitments beyond the tax break itself, like building roads to a facility or providing a direct grant, disclose those separately.⁵

Governments with many smaller agreements under a single program can aggregate the figures by major program rather than listing every deal.¹ GASB 77 sets no specific dollar threshold that forces individual agreement disclosure; that judgment rests with the preparer and auditor under standard materiality principles.

What You Must Disclose When Another Government Grants the Abatement

A city may negotiate a property tax abatement with a developer, but the same property also generates revenue for the county, the school district, and other local taxing entities. Those affected governments lose revenue from a deal they did not negotiate, and GASB 77 requires each of them to disclose, in its own financial statements:

The name of the government that entered into the agreement.
The specific tax being abated.
The gross dollar amount of taxes the reporting government lost during the period.¹

These disclosures are organized by the government that made the deal and the specific tax involved.¹ So if a school district loses $500,000 because of a city’s incentive package, that figure appears in the school district’s financial report.

Why the Standard Exists

Before GASB 77, a government could promise millions in forgone revenue and the only public record might be the contract itself. The financial statements said nothing. The standard does not tell governments whether to offer abatements. It requires them to state what those abatements cost, and to disclose the downstream cost when someone else’s abatement reduces their revenue. That lets council members, residents, and analysts weigh the reported number against whatever development the deal was meant to produce.

1
Governmental Accounting Standards Board. Summary of Statement No. 77 – Tax Abatement Disclosures
2
North Carolina Office of the State Controller. GASB 77 – Tax Abatement Disclosures
3
Auditor of State. Auditor of State Bulletin 2017-001 – Governmental Accounting Standards Board Statement 77, Tax Abatement Disclosures
4
MN Office of the State Auditor. GASB 77 and Tax Increment Financing
5
Governmental Accounting Standards Board. GASBS 77 – Tax Abatement Disclosures