House passes, Senate mulls tax credit reforms

Following a pair of critical reports by the Missouri auditor on state historic preservation credits and low-income housing credits, Gov. Jay Nixon has renewed an old call for incentive reform. While many politicians on both sides of the proverbial aisle want to see the state’s tax-credit programs trimmed, improved or eliminated, a divide among conservatives on the proper approach to reform has long held up progress.

On March 6, the Missouri House of Representatives voted 96-54 in favor of House Bill 1501, which would cap historic credits at $90 million for projects over $275,000 from the current limit of $140 million. The bill also would drop low-income housing credits to $4 million per year from $6 million.

However, the fate of a reform package in the Senate is still unclear.

Credit dependence
In Auditor Tom Schweich’s March report on Missouri’s historic preservation tax credit program, he determined Missouri redeemed $79 million in credits in fiscal 2013 – more than any other state spends to renovate historic homes and commercial buildings. During the past decade, $1.1 billion in historic credits have been redeemed, according to the report, but much of that money doesn’t go toward renovations. Because building owners typically sell their credits at a discount to brokers to raise money for renovations, the auditor found only 49 to 85 cents of each credit dollar goes directly toward renovation expenses.

The Low Income Housing Tax Credit program generated $144 million in redemptions in fiscal 2013, according to a separate March audit. In that report, Schweich said only 42 cents of every tax-credit dollar issued actually goes toward the construction of low-income housing.

The auditor gave each program a “fair” rating, which is below “good” and “excellent” but surpasses “poor.”

Following the reports, Nixon said in a statement released by his office he is ready to sign a reform bill.

“There is overwhelming evidence and growing bipartisan consensus on the need to rein in wasteful tax credit expenditures,” Nixon said in the statement. “Until the General Assembly takes action to protect Missouri taxpayers and reform this out-of-control spending, discussion of tax cuts is a nonstarter.”

George Connor, director of Missouri State University’s political science department, doubts the bill approved in the House has a realistic chance of becoming law this year.

He said while Republicans are divided on the issue of credit reform – with some seeing sweeping reform as necessary and others believing the business benefits of credits make them too critical to cut – legislators supporting reform can’t agree on a singular reform package.

“I think it is the institutional differences that still are a stumbling block,” Connor said. “Despite the auditor’s report, these two programs still offer political benefits to members of the General Assembly.”

Missouri Sen. Bob Dixon, R-Springfield, serves as a vice chairman of the committee that last week passed HB 1501 to the Senate floor without any changes. However, he doesn’t think the bill will receive a vote on the floor without changing first.

“I suspect, based on my private discussions, that there will be a substitute bill when it gets to the floor,” Dixon said by phone from Jefferson City, shortly after the bill moved through committee.

On April 10, Schweich also released a highly critical report on his audit of the Brownfield Remediation Tax Credit program, which generated a “poor” rating. Out of 15 projects examined, developers on 10 projects estimated that 2,500 jobs would be created. Audit staff members found only 448 full- and part-time jobs were actually created.

Stalemate situation
Locally, the Springfield Area Chamber of Commerce supports tax-credit reform – just not too much reform, according to Sandy Howard, vice president of public affairs for the Springfield chamber.

“Low-income housing tax credits and historic preservation tax credit programs are valuable programs that have contributed to significant redevelopment in our region,” Howard said in an email. “Yet, ensuring that as a state we are investing at reasonable levels that are competitive with surrounding states is important. We encourage the legislature to find common ground on this issue.  

“The stalemate has created a situation where all economic development legislation has failed to pass the legislature in the last days of the session for several years in a row.”

Acknowledging low-income housing and historic preservation programs are important to the Springfield area, Dixon said he ultimately supports tax-credit reform.

“We need reasonable reforms. The spectrum of opinion on the Senate side has really run the whole gamut,” Dixon said, pointing to complete elimination of state tax credits to no program changes. “I think the correct answer is probably somewhere in the middle.”

He said the tax credit programs have improved center city Springfield, with such projects as the historic renovation of Gillioz Theatre and the former Landmark building, turned into affordable housing called The Frisco, getting assistance. Dixon said the low-income housing credits date back to President Ronald Reagan’s administration, when the program launched to address the poor conditions for government-assisted housing.

“The living conditions for people in low-income housing have improved drastically,” Dixon said, noting the programs shouldn’t remain unchecked.

Dixon said he generally supports the independent findings of the citizen-led tax credit commissions – the first of which was launched by Nixon in 2010 after incentives he was known to promote across the state faced criticism for being wasteful. The commissions called on lawmakers to reduce the state’s dependence on credits by establishing caps or sunset provisions.   

Connor said the governor might be disingenuous in his call for tax credit reform.

“It’s easier for Gov. Nixon to champion something when he knows it’s not going to get through the legislature,” Connor said.

The situation in Jeff City is messy, Connor suggests, because those who would like to keep programs in place still see a political benefit to dragging their feet.

“If you were a legislator and the auditor said, ‘These two programs are a big waste of money,’ you might say, ‘We’ll do something about that right away,’” Connor said. “Obviously, that’s not the case because the auditor’s reports did not spur the response the ordinary citizen might take.

“That’s because for supporters of both of these programs there is money to be made – in a business sense – but, there is also political capital to be gained in terms of donations.”