NEWS CONFERENCE CALL with the Platte Institute
Contact: Adam Weinberg
New Report: Accounting for Property Taxes
Transparent Budget Reporting Can Help Property Tax Reform
OMAHA, NE – A new report says a lack of transparency in local government accounting may be adding to Nebraska’s already high property tax burden.
The new Platte Institute report, “Accounting for Property Taxes,” is now online at PlatteInstitute.org/Policy. A PDF copy of the report may be found at this link.
A news conference call with Platte Institute Policy Director Sarah Curry to discuss the report will be held Friday, January 11, 2019 at 10:30 a.m. Central Time. To call in, dial (605) 475-4000, Access Code: 106202#. The call may be recorded for broadcast and will include Q&A.
While much of the statewide debate over property taxes revolves around education funding and the tax structure, local spending decisions can also cause significant increases in property taxes. In “Accounting for Property Taxes,” Curry argues that current local accounting practices may give policymakers a skewed view of their financial health and encourage overspending.
Under current state law, most local governments are not required to use Generally Accepted Accounting Principles (GAAP). The method that adheres to GAAP, known as accrual basis accounting, records spending at the time spending decisions are made. This is the same accounting method used by public, for-profit companies for purposes of transparency, and is required by law for at least some local governments in most states.
Instead, most local governments in Nebraska use cash basis or modified accrual accounting, both of which are not GAAP-compliant. A chart of the three accounting methods is available in the report on page 5.
“A disadvantage of the cash method is that it might overstate the health of a government that is cash-rich but has large amounts of future payables or liabilities that far exceed the cash on hand,” said Sarah Curry.
York is one example of a Nebraska locality whose accounting and spending choices have impacted property taxpayers.
In August 2018, officials in York discovered the city had unknowingly spent down its reserve funds over a period of eight years, requiring tax increases, along with a freeze in infrastructure and personnel spending. Those core services have suffered while the city funded a $9 million baseball field complex in previous years.
“Local policymakers face many challenges and demands from taxpayers, but one thing they all have in common is their need to adopt a budget to pay for local priorities,” said Curry.
“Unfortunately, most local governments in Nebraska use accounting methods that are not standardized, which can make financial documents harder to read, and could even convince local officials they have more room to spend than they really do,” said Curry.
Here are additional highlights from this new report:
- According to a survey issued by the Governmental Accounting Standards Board (GASB) in 2008, 36 states have either laws or regulations that require at least some of their political subdivisions to follow GAAP. School districts are required to follow GAAP in 34 states and 28 states require GAAP for their counties. In 27 states, other local governments are also required to follow GAAP.
- In rounded terms, if all local governments legally required to follow GAAP were in compliance, 61 percent of school districts, 52 percent of counties, and 23 percent of municipalities nationwide would adhere to the accounting standards.
- School districts are the largest single consumer of property tax revenues in Nebraska, yet all school districts with the exception of Omaha Public Schools report their finances with cash basis accounting, which is not GAAP-compliant. Omaha Public Schools uses modified accrual, while reporting to the Nebraska Department of Education on a cash basis.
- The Nebraska Legislature should require cities, counties, and school districts of a certain size to use GAAP-compliant accrual basis accounting and adopt a uniform approach to financial reporting.
- If a local government’s financial report uses GAAP standards, it can lower their costs for borrowing, such as the interest charged on bonds, because the financial statements are easier to follow and there is more transparency. For example, if the city of York, which has over $27 million in outstanding debt as of September 30, 2017, were to switch to GAAP accrual basis accounting, it could possibly lower their debt service cost as well as allow the city to receive a bond rating.
- As lawmakers continue to scrutinize economic development incentives at the state level, a switch to Generally Accepted Accounting Principles would enable a similar assessment in local government. A new guidance for compliance with GASB requires for local economic development incentive programs, including Tax Increment Financing and other tax abatements, to be disclosed as part of financial reporting.
To schedule an interview with Sarah Curry on this topic, please contact Adam Weinberg at (402) 452-3737 or email firstname.lastname@example.org.
The Platte Institute advances policies that remove barriers to growth and opportunity in Nebraska. For more media resources, please visit PlatteInstitute.org/Media.