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.