Disclosure Rules and the Slow Arrival of Transparency

Watchdog databases fill a gap, but they are a workaround, not a solution — a healthy system would not depend on nonprofits to reconstruct what governments could simply disclose. The more durable fix is a rule that forces disclosure by default. One such rule arrived from an unglamorous quarter, and it did more to change the landscape than a decade of advocacy: an accounting standard.

The Governmental Accounting Standards Board — GASB, the body that sets accounting rules for state and local governments in the United States — issued Statement No. 77, titled Tax Abatement Disclosures, in 2015, effective for financial statements beginning the following year. In plain terms, it required governments, for the first time, to report in their annual financial statements how much revenue they had foregone through tax abatement agreements. Before this rule, a tax break was largely invisible in a government's books: money not collected does not appear as a line item the way money spent does, so a jurisdiction could give away a substantial share of its tax base without that giveaway ever surfacing in a budget the public could read. Statement No. 77 dragged the number into the light by making it a required disclosure.

Understand what this changed. A direct expenditure — a grant, a check written to a company — has always been visible; it shows up as spending. A tax abatement achieves the same economic result, moving public value to a private firm, but does it by declining to collect, and uncollected revenue left no footprint in the accounts. The genius and the limit of Statement No. 77 is that it treats these as what they are: economically equivalent transfers that should be equally visible. Its limit is that it is a disclosure rule, not a restriction. It does not cap abatements, condition them, or require clawbacks. It only requires that the foregone revenue be counted and shown. But visibility is the precondition for everything else. You cannot debate the wisdom of a subsidy whose cost never appears on the ledger, and you cannot enforce a clawback on a benefit the books do not acknowledge.

Around this accounting floor sits a patchwork of statutory transparency and clawback measures that varies enormously by jurisdiction. Some states maintain public online databases of their incentive awards and require companies to file annual progress reports that are open to inspection. Some mandate that incentive agreements include clawback provisions by statute rather than leaving them to each negotiation, so that the protection does not depend on whether a particular agency official thought to insist on it. Some require regular, independent evaluation of whether incentive programs achieve their stated goals, with sunset provisions that terminate programs that cannot show results. And some, it must be said, do very little of this, treating executed agreements as confidential and leaving the public to the watchdogs and the records request.

For a practitioner, the transparency regime of the relevant jurisdiction is not background — it is a primary variable in how much you can trust a deal. In a jurisdiction with mandatory clawbacks, public reporting, and independent evaluation, the default assumption can be that an agreement carries real terms and that its performance will be measured. In a jurisdiction with none of these, every protection must be individually negotiated and independently verified, and the absence of a public record means the announcement may be the only document you can readily see — which returns you to the opening problem of the whole course.

The deeper point is that transparency and enforcement are joined at the root. A clawback is a legal mechanism, but legal mechanisms live or die by the information environment around them. Mandatory disclosure creates the record that makes a shortfall knowable; independent evaluation creates the finding that makes it official; public databases create the visibility that makes non-enforcement costly. Statement No. 77 did not require a single government to claw back a single dollar. What it did was ensure that the dollars given away would at last be counted — and once a thing is counted, it can be argued about, defended, attacked, and, eventually, enforced. In fiscal policy as in engineering, you cannot manage what you refuse to measure. The transparency rules are the instrumentation. Everything the clawback does downstream depends on whether the gauges were installed.