A gubernatorial commission wants to substantially scale back some of Missouri’s largest tax credit programs, which could set up a contentious fight during next year’s legislative session.
Earlier this year, Gov. Eric Greitens formed The Governor’s Committee on Simple, Fair and Low Taxes to examine the state’s tax policies and tax credit programs. After holding meetings across the state, the committee issued a slate of recommendations Friday that reconfigure tax credit programs that are designed to spruce up historic buildings and cultivate low-income housing. (You can read the 33-page report by clicking here.)
Among other things, the committee recommended:
- Allowing tax credits to be denied for projects that “fail to meet a public purpose,” “would occur without a state incentive” or “fail to demonstrate a positive fiscal return to the state.” The commission also recommended that legislators should have more say in whether tax credit programs get funded every year and that a governor should be allowed to withhold money for the programs.
- Converting the Low-Income Housing Tax Credit program into a low or no-interest loan program. Commission members also suggested buying low-income tax credits that have already been approved and exchanging them for bonds. (As noted earlier this week, roughly $3 billion worth of tax credits have been authorized but not redeemed. A big chunk of that cost is from the low-income housing tax credit.)
- Merging the Historic Preservation Tax Credit (which is used to refurbish buildings) with the Brownfield Tax Credit (which cleans up contaminated properties). The commission also would lower the cap for the program from $140 million a year to $50 million a year and bar the credit from being used for private residences.
In an interview with St. Louis Public Radio, Department of Revenue director and commission chairman Joel Walters said the commission agreed that tax credit programs have “laudable goals and do serve economic and social benefits for the state that are worthy of investment.” But he contended some of the biggest programs are inefficient and don’t always provide a financial benefit to the state.
“So these provisions are designed to take out fraud, waste, abuse and inefficiency throughout the supply chain, such that when we deliver a dollar of credit into a program it maximizes the return in those laudable social and economic objectives,” Walters said.
While earlier drafts of the commission’s report included multiple changes to the state’s income, sales and fuel taxes, the final document generally focuses on tax credit programs. The commission did recommend that the Department of Revenue “repeal all outdated or inapplicable regulations” and advocate for the creation of a “statewide tax advisory committee.”
“We believe that this is an issue that has been focused on and has not been solved for many years and the time is right now to take action in those specific areas,” Walters said. “And we believe that by coming up with unique solutions that haven’t been proposed in the past, this was an opportunity to move forward in those very specific areas and really make immediate difference for the citizens of Missouri by acting today in these specific areas. And that’s where we focused our attention and our recommendations.”
Not without a fight
In many respects, the recommendations aren’t surprising. Greitens has been critical of tax credit programs since he started running for governor. And many of the commission members, such as former Sens. John Lamping and Jason Crowell, supported reining in the incentives while they were in office.
Still, Walters acknowledged a tough legislative fight ahead.
Tax credit backers contend that without the historic preservation tax credit, it would have been significantly more difficult to redevelop parts of Downtown St. Louis. And low-income housing tax credit supporters point to how the incentive helped provide poor, elderly and disabled residents with affordable places to live.
Both the historic and low-income housing tax credits have support from both major political parties, as well as powerful interest groups in the banking and development industries.
Jerry Schlichter, a St. Louis attorney who helped create the historic preservation tax credit in the late 1990s, told St. Louis Public Radio that if the commission’s recommendations pass “it will be the death of historic revitalization in St. Louis and the state of Missouri.”
With the limits the commission recommended for the incentive, Schlichter said “there is no way banks would finance any projects because of all these obstacles that have been created.”
“The historic tax credit has worked, because it’s a market program. If you jump through the hoops and do what you’re supposed to do, the credit is available,” Schlichter said. “This slashes the credit down to near zero by combining Brownfield credits with the historic credit and reducing the combined credits to a third of what the historic credit alone was.”
In a statement, Missouri Growth Association’s Executive Vice President Megan Werner said her organization, which represents the commercial real estate industry, was concerned "these recommendations would gut initiatives that have resulted in new investments in Missouri communities that deliver economic growth while preserving their history and character."
"There is a cost of not doing business and we should all agree that we want to keep Missouri competitive and this should include incentive programs that deliver on intended results," Werner said. "The Missouri Growth Association is looking forward to working with all 197 members of the Missouri legislature from every part of the state to ensure they review these recommendations with the data, facts and testimony ignored by the commission."
"Wait and see"
Senate Minority Leader Gina Walsh, D-Bellefontaine Neighbors, said that the historic and low-income housing tax credit program have been beneficial to state. She added that she expects there will be bipartisan pushback if there's an effort to constrict the programs.
But Walsh said it's worthwhile for lawmakers to debate the worthiness of tax credit programs. She said she's taking a "wait and see" approach on the issue.
"The governor and I might disagree about which credits work and which ones should be looked at," Walsh said. "But there’s a growing consensus out there that they are out of control. And in fact, the state auditor has issued a report that found special interest tax breaks have cost us $5.4 billion over the last 10 years. So that lost revenue has hurt the state budget, making it harder for us as legislators to fund schools, public safety and other services."
For his part, Walters said that there's legislative momentum to get the commission's recommendations passed.
“These are issues that have been around for a while. They continue to build. They continue to grow. There have been reports and commissions and attempts to deal with this previously,” Walters said. “The view of the legislators and former legislators and full commission was that now is the time to act. We have a unique opportunity to move forward and we have specific solutions that haven’t been proposed in the past that we think we can move forward in a way more impactfully and different than we have in the past.”
Back in 2011, Democratic Gov. Jay Nixon supported efforts to scale down the state’s tax credit programs. Those efforts failed in dramatic fashion during that year’s special session.
Follow Jason on Twitter: @jrosenbaum
