Taxing Politics: Task force wants reforms for low-income, historic preservation programs

Rep. Crystal Quade, D-Springfield, was on the outside looking in. That was before June 30, when the Governor’s Committee on Simple, Fair and Low Taxes submitted a 32-page report the day of its deadline with key recommendations for Missouri’s tax credit programs.
                                
Gov. Eric Greitens first announced the committee via Facebook in January.

“For decades, special interests and lobbyists have received billions of taxpayer dollars in the form of tax credits,” Greitens said in a post. “Every year, more money flows out of this shadowy system – into the pockets of insiders – and no one asks hard questions about how the system works, or doesn’t work, for the people of Missouri.”

Following the announcement, the committee comprised of 10 handpicked Republicans were assigned four particular goals: compare Missouri’s tax credit programs and its tax rates to those of peer states, evaluate the economic impact of existing tax credit programs, assess the possibility of financing cuts to overall tax rates with cuts to tax credit programs, and recommend comprehensive tax credit reform to the governor no later than the end of June.  

“I can only tell you about the things I’ve heard,” Quade told Springfield Business Journal two days before the recommendations came out. “I don’t know what the group plans to do.”

However, she had her suspicions.

“The low-income tax credit is something that is generally one of the first things on the table when tax credit reform is being discussed, because it is such a large amount of the tax credit burden, financially,” Quade said.

According to the recommendations, Quade’s right. Over the past 10 fiscal years, Missouri has authorized more than $1.6 billion in low-income housing tax credits and received less than $192 million in return, for a loss of $1.4 billion. Low-income housing tax credits are Missouri’s largest tax credit program.
 
“Then, historic [preservation] tax credits are always on the table, as well,” Quade added. “It’s a little worrisome for our area.”

Both tax credit programs are used often in Springfield, particularly in Quade’s district.

Change to come?
Task force member Sen. Will Kraus, a Republican small-business owner from Lee’s Summit, spoke to the recommendations.

“The biggest two are historic and low income,” Kraus confirmed, though he expressed his satisfaction with their reforms. “The low-income change is a really innovative idea. We’re going to give low-interest loans for low-income housing.”

More specifically, the program, which currently returns 42 cents of housing for every state dollar invested, according to the recommendations, will be converted into a low-interest loan program for affordable housing construction.

“This will result in the same amount of money being available for low-income housing construction, without wasting millions on well-connected insiders,” the report reads.

Missouri Workforce Housing Association Executive Director Jeff Smith was unhappy with the low-income tax credit recommendations. In a prepared statement, Smith said the report’s inaccuracies led to uniformed proposals concerning the credit.

“First, the committee proposes using forgivable loans as a more ‘efficient’ way to build affordable housing,” Smith said. “But tax credits are the most efficient means of providing capital for affordable housing as they’re less taxable than other mechanisms. In the quest for increased ‘efficiency,’ then, the committee would actually make the program less efficient.”

Four town halls were held in Springfield, Maryville, Hannibal and Cape Girardeau to draw out public input and hear from subject matter experts, who also were invited.

Quade attended Springfield’s June 7 event.

“The low-income housing credit – that was definitely one they asked a lot of questions about. [They] wanted some suggestions from organizations that use the credits…ideas on how to make it more efficient,” Quade said.

And though Quade felt the task force was asking the right questions during the town halls, she wasn’t sure if the committee had received enough community input.

Kraus believed the meetings to be enough to make informed recommendations.

“This is the third or fourth committee that has studied the tax credit structure,” Kraus said. “We had a lot of different resources.”

The historic preservation tax credit program saw the biggest changes, too. The program will be converted to a new State Rehabilitation Tax Credit Program. It will have an annual cap of $50 million, according to the report, as opposed to its current cap of $140 million.

Additionally, Kraus said, the incentive will no longer be available for single-family homes, and each project may not exceed $2 million in tax credits.

A bill submitted to the Senate, however, sponsored by Sen. Ron Richard, R-Joplin, would change the aggregate cap of historic preservation tax credits to $120 million annually and would allow for historic credit donations to the Capital Complex Fund.

Other recommendations of note in the report included creating a statewide tax advisory committee to improve tax administration and enacting a General False Claims Act to rein in waste, fraud and abuse of tax credits. The committee also made the recommendation that a state-issued tax credit should be denied if it does not show a positive financial gain to the state, if the recipient shows failure of performance or if the project would occur without state incentives.

Seven of the 10 committee members could not be reached for comment by deadline.

“I don’t have any information that is specific to a legislator, because we don’t have any Democrats on that commission,” Quade told SBJ.

On track
Kraus is pleased with the final recommendations.

“I’m glad to have tax credits done for the year,” he said. “It was a good way to get started.”

“The next step is to be prioritizing what we’ll be focused on for next year.”  

Task force member Rep. Elijah Haahr, R-Springfield, said the committee completed productive discussions on ways to create a tax system that would grow jobs and bolster the economy, noting he signed the final report with the recommendation that any savings from this reform be used to lower the tax burden on Missourians.

“There will be a lot of discussion during the next legislative session the committee’s recommendations and how best to implement any reforms,” he said.

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