This week, we took up an issue that has been stewing in the Legislature for years. Tax credits are an economic development tool that offers incentives to businesses for a variety of projects — from job training to housing rehabilitation. In recent years, these credits have grown significantly, and while some are effective, the return on investment on others is questionable. This week, we took up Senate Bill 280, a tax credit reform package that I support to help our state remain fiscally responsible.
An Explanation of Tax Credits
Tax credits are a dollar-for-dollar reduction in tax liability. For example, the Historic Preservation Tax Credit program provides incentives in return for the rehabilitation of historic properties. The Enhanced Enterprise Zone program gives tax breaks to businesses that expand or establish in certain areas.
The first tax credit in our state was issued in 1973. Since then, tax credits have expanded to include 61 programs. In recent years, these programs have ballooned as redemption has grown from $143 million to $521 million, a 407.9 percent increase. As the number and cost of tax credits has grown, general revenue in our state has not grown at the same rate. As we struggle to close our budget gap and work to cut costs, it is hard to justify the $521 million that was lost to tax credits last year.
Legislation to Better the System
We need to make sure that the credits that the state does offer have a positive return on investment for our state. In 2008, the state auditor released a report on the Low Income Housing Tax Credit Program showing that for every $1 in tax credits issued, only $.35 goes towards the development of housing. The remaining $.65 goes to investors, syndication firms, and to the federal government in the form of increased taxes resulting from the use of state tax credits.
Senate Bill 280 goes through the many tax credit programs in the state and makes changes to improve the system and make sure that some of these credits are brought under control. Many of the provisions in the bill come directly from the recommendations of the Tax Credit Review Commission formed by the governor this past summer.
One component of the bill would add efficiency to the state’s job training incentives by combining existing programs. This program, which would be named the Compete Missouri Program, would provide tax incentives for job creation, job retention, and capital investment. Financial assistance would also be available to business and technology centers established by Missouri community colleges, or state-owned post secondary technical colleges, to provide business and training services for growth industries.
Necessity for Reform
The House completed work this week on the budget, which means the 13 bills that make up the state spending plan will now move to the Senate. As we work to cut costs and keep Missouri living within its means, we must make sure that every state spending obligation is carefully reviewed. With almost every state agency taking a 5 percent cut and public universities and colleges facing a 7 percent reduction in their budgets, tax credits should not be immune from our work to reduce state spending.
If you have any questions or comments about this or any other matter regarding your state government, please feel free to contact me at (573) 751-1503; you are also welcome to e-mail me at jay.wasson@senate.mo.gov.
