Tax credit review group outlines savings opportunities

JEFFERSON CITY, Mo. -- The state tax credit programs of tomorrow will be much different from today's programs if Gov. Jay Nixon and the Missouri Legislature support a raft of blue-ribbon recommendations heading their way.

The Missouri Tax Credit Review Commission completed the meat of its work Tuesday when, after two days of hashing over the details of 10 subcommittees, it finalized its stance on the issues before them. All told, the revisions represent a projected savings of about $247 million, though expanded eligibility recommendations in some areas could reduce the savings total.

"The governor's charge to the commission was to examine all 61 tax credit programs with an eye toward protecting the state's triple-A rating, to find efficiencies, measure return on investment, protect people who made investments, rebuild communities, and, with all those conflicting missions, get it all done in four months," commission co-chairman Steve Stogel said after the day's business concluded. "It's an amazing net result."

Among the recommendations with the most potential to ease state budget strains are the substantial alterations advised for the two largest tax credit programs -- historic preservation and low-income housing. Savings could also be achieved by limiting projects to just one of the two funding options, eliminating so-called "stacking," the committee said.

It recommended lowering the annual cap on historic preservation from $140 million to $75 million. That still represents the nation's largest historic tax credit offering, but the programs in some states are uncapped and have historically exceeded Missouri's proposed cap. Historic preservation credits available for single-family homes should be capped at $50,000 with houses purchased for more than $150,000 ineligible for credits, the committee said.

The budget strain imposed by future authorization of low-income housing credits could be lessened by dropping the credit period from the current 10 years to five with an annual cost cap of $16 million or a project total of $80 million, the committee said.

Missouri's tax credit expenses increased 57 percent to $584 million during the eight-year period ending in fiscal year 2009, according to a state audit released in April. By comparison, general revenue increased 15.7 percent during that period.

To rein in expense and achieve greater budget certainty, the committee recommended capping all programs, where feasible, and putting them on a regular sunset schedule, which sets them up for routine evaluation.

Instituting a buyback program can also yield savings, the committee said.

Six of the 61 existing programs were recommended for elimination, including the film tax credit, wood energy and wine grape programs. Other programs have already exhausted their credits or are already set to sunset, further dropping the number of existing programs.

The committee also evaluated federal and state tax law, and recommended some changes to increase the efficiency of state tax credit programs. According to a subcommittee report, "embedded [federal] cost can be as much as 35 percent of the credit applied."

A global cap -- a cap on the combined cost of the tax credit programs -- was rejected as commissioners voiced fears that better-financed interests, such as development, may end up gaining a greater percentage of available credit funding at the expense of programs desired to aid vulnerable populations. Opening tax credit programs up to the annual legislative appropriations process was also rejected based on the argument that such a move would introduce funding uncertainties great enough to eliminate all business interest in such programs.

Commissioners also identified a race to the bottom of sorts ongoing as states try to undercut each other's efforts to incent business, and issued a resolution asking Congress to investigate the issue.

Commission co-chairman Chuck Gross, a former state senator, said that he saw many of the proposals advanced by the commission rejected by the legislature in years past. While skeptical that all the committee's recommendations will be adopted in the upcoming session, Gross said the current economic climate increases the seriousness with which the report will be weighed.

"It raises the level of need for that discussion to happen in the legislature ... and increases the likelihood that something positive will happen to get these programs under control because there's just less money so you have to look at every place there are dollars being spent a little more closely," he said.

Based on the work of the committee during the past two days, the meat of the report is most done, Gross said, noting he and Stogel will now write a summary and fold into the report's final draft, which they expect to be finished, approved by the committee and ready for presentation to the governor and the public by the end of next week.

In addition to greater savings, Gross said he is hoping to see greater clarity and by extension, greater fairness -- emerge in the state's tax credit programs as a result of the review process.

"Maybe if there is a feeling among the public that incentives have grown to large, that they're taking up too much of our budget, that special favored groups are receiving too much favor? And that there should be a fairer process for distributing tax dollars. ... If that kind of thing could happen, I think that'd be a huge step," Gross said.

Greater clarity is exactly what private citizen Greg Young of Bolivar, Mo., is seeking.

He had questions about how credits are priced, how project deals are approved and how the efficacies and the efficiencies of the projects are evaluated. Questions that remained unanswered at the conclusion of the two-day meeting.

"They have to go beyond caps and look at the deals they're approving," Young said.

Several times during the course of the week's meeting, Gross emphasized to Missouri Housing Development Commission staff the need for more diligent cost-benefit evaluation of project proposals. The final report will underscore the need to maximize the cost-benefit ratio of approved deals.