Fighting
FASB Corporate Welfare Disclosure
Large
corporations spend a lot of time complaining about their obligations to
government, such as paying taxes and complying with regulations, while saying
very little about what they get from taxpayers in the form of financial
assistance.
The organization that sets corporate accounting standards now wants
to see the magnitude of that assistance disclosed in financial statements, and
the business world is howling in protest.
In
November, the Financial Accounting Standards Board (FASB) issued a proposal that would require publicly
traded corporations to disclose details on a wide range of government
assistance — such as tax incentives, cash grants, and low-interest loans — when
that help is the result of an agreement between a public agency and a specific
firm, as opposed to provisions in tax codes that any business can claim.
The
proposal mirrors the one adopted by the Governmental Accounting Standards Board
(GASB) that will require state and local government
agencies to disclose the amount of revenue they are losing as a result of tax
incentive deals.
The
FASB proposal has some flaws, such as the decision not to require companies to
provide estimates of the value of multi-year subsidy deals and a lack of
clarity on the degree to which the information would have to be disaggregated.
Still, it would be a major advance in financial transparency, giving investors
and others important information on the extent to which companies are dependent
on the public sector.
The
business world sees it differently. During a recently completed three-month
comment period, about two dozen trade associations and large corporations
submitted statements on the
proposal that were overwhelmingly negative.
At
the center of the backlash are the U.S. Chamber of Commerce and the National
Association of Manufacturers, which submitted joint comments arguing that the
scope of the accounting standard is “overly broad,” that compliance costs would
be “significant,” and that companies could place themselves in “legal jeopardy”
by disclosing the information proposed by FASB.
The
big-business-sponsored Council on State Taxation also invoked the privacy
rights of corporate taxpayers and warned that the disclosures would “assist
those who wish to harass a company regarding credits or incentives received
pursuant to an economic development agreement.”
Similar objections were presented
by the American Banking Association, which represents entities that received
trillions of dollars in assistance from the Federal Reserve and the U.S.
Treasury in the wake of the financial meltdown that some of those same entities
brought about.
Perhaps
most infuriating are the negative comments submitted by large companies that
are among the biggest recipients of public assistance.
We know who they are
because numerous government agencies already reveal a substantial amount of
company-specific subsidy data, which my colleagues and I at Good Jobs First
have collected for our Subsidy
Tracker search engine.
Although we’ve gotten a lot from the
agency disclosure, having more information in the financial reports of all
public companies would allow us to make Subsidy Tracker even more complete.
Several
of the corporations commenting against the FASB rule have received more than $1
billion each in federal, state and local subsidies, including two whose totals
put them among the top ten recipients: General Motors ($5.7 billion) and Ford Motor ($4 billion). These totals do not include the
tens of billions they received in loans and loan guarantees, whose value after
repayments is difficult to calculate.
GM,
which survived only after being taken over by the federal government, whines
that the FASB disclosure proposal “would be costly and difficult to prepare
given the complexity of global entities and the wide variations of such
arrangements” and claims that the information could be “misleading” or could
benefit “special interest groups questioning tax incentives offered by
governments as perceived abuses of the current taxation system.”
In
what might be a dig at its competitor, Ford Motor, which did not require a
federal takeover, suggests that FASB limit its disclosure requirement to
bailouts and exclude “incentives” that are offered in exchange for a commitment
to invest or create jobs.
IBM,
which has been awarded some $1.4 billion in subsidies, asserts that
the costs of the disclosure would outweigh the benefits and says that if FASB
moves ahead with the new standard it should “not require disclosure of specific
terms and conditions, which may include confidential or proprietary information
for both governments and entities.” In other words, make it as vague as
possible.
In
case there was any doubt, these comments confirm that big business is in favor
of transparency only when what is to be disclosed puts a company in a favorable
light. Let’s hope FASB stands fast and joins with GASB in bringing corporate
welfare out of the shadows.
