Audit questions value of tax credit for agriculture

JEFFERSON CITY, Mo. -- A tax credit that is often used by investors in ethanol, biodiesel and other biofuels costs the state more than the additional revenue it sparks, an audit released Friday found.

The audit by State Auditor Susan Montee estimated that by the time the program stops issuing new tax credits in 2010, it will have cost the state $37.1 million, even when accounting for the additional economic activity the credits are expected to spur.

In a letter highlighting the audit's findings, Montee noted that the audit could not account for quality of life improvements and other social benefits that could not be accomplished without the tax credit.

She also recommended lawmakers clarify who is eligible for the tax credit and that those overseeing its administration improve internal controls and reporting.

The New Generation Cooperative Incentive tax credits have been administered by the Missouri Agricultural and Small Business Development Authority since 1999.

The quasi-governmental agency, in a written response to the audit's findings, questioned the accuracy of the analysis technique used by Montee and accused her of using an accounting system that is biased against agriculture.

The agency wrote that, "it is our belief that the tax credits do provide direct benefits at both the state and local level."

For evidence, the business development authority cited a report released earlier this week by the Department of Economic Development that projects the ethanol and biodiesel industries will annually create more than 6,000 jobs, with an average wage of $25,000 per year, through 2013.

That study also estimated that state subsidies and tax credits for ethanol and biodiesel would result in a $14.8 million annual loss in state revenues but a net gain in Missourians' personal income of $492 million annually.

But after 2013, biofuels would bring in more state revenue than had been spent because state incentives are being used to build a baseline of biofuels plants, the study said. As more plants go online, the state's investments start coming back through taxes and economic development.

The credits are awarded to investors in new agricultural-based operations, ranging from ethanol to soy-based beer.

In 2005, 192 farmers were given $1.4 million worth of tax credits for investing in biofuels companies. By 2006, that number jumped to 1,039 farmers getting $4.2 million.

Two of the state's four operating ethanol plants -- Northeast Missouri Grain and Golden Triangle -- are involved in the tax credit program. Each has received $1.5 million since June 30. Another two proposed ethanol plants also received $1.5 million each.