Lawmakers divided on job incentives

If politicians, legislators and businesspeople can agree on anything, it’s likely considering job creation as a key issue this election year. In Missouri, the primary vehicle for job growth since the economic downturn has been tax credits, but the incentives’ effectiveness has come under fire by legislators and others.

For the Missouri Chamber of Commerce and Industry, however, tax incentives are an important item in the state’s job creation toolbox. President and CEO Daniel Mehan said the chamber is calling on lawmakers to consider establishing an economic incentives package – aka new tax credits – to stimulate job growth.

Plans for a China hub – now dubbed by the chamber as the Midwest cargo hub – last year drew the ire of lawmakers concerned about targeted tax credits benefiting a small number of companies in the St. Louis area. Mehan, however, said an export hub is critical to state business, and it is time to take a fresh look at the issue with a proposal for incentives tied to export volumes.  

“We really need to have better and sharper tools to compete globally with opportunities that are out there,” Mehan said. “If we can create exports, that’s going to be a big factor in job creation.”

George Connor, director of Missouri State University’s political science department, said the use and effectiveness of tax credits have garnered a lot of debate in Jefferson City lately. He said while the economy and job creation are key talking points in any election year, Republicans, in particular, are divided on tax credits.  

“Both [legislative] chambers are becoming more ideologically conservative, and if you take a Tea Party argument that government should be smaller, then we should be eliminating these tax credits and let the free market take care of these things. There is a wing within the Republican Party – mainly in the Senate – that favors elimination of these tax credits,” Connor said. “But you also have entrepreneurial or pro-business Republicans who view them as a way to help and support business.”

On Aug. 29, Gov. Jay Nixon reconvened the Missouri Tax Credit Commission, which had been established in 2010 to review the effectiveness of tax credits available through the Missouri Department of Economic Development. In fiscal 2012, the state’s 61 programs generated a record number of tax credit redemptions – $629.3 million – which is up 15 percent compared to fiscal 2011, according to Nixon’s office. The governor’s move to reconvene the bipartisan commission comes two months after Missouri Auditor Tom Schweich issued a scathing report on the DED’s Quality Jobs program, stating that while the state had projected job growth of more than 45,000 from the program since 2005, only 7,176 jobs had actually been created.

In February 2011, the tax-credit commission recommended elimination of 28 programs not providing positive returns on investment, but there has since been little movement, Connor said. “I think everyone has paid attention to those findings, but not everyone, I think, has been willing to act on those findings,” he said.

Within the tax credit debate is the issue of sunsets or establishing limits on the length of tax credits. In the most recent session, Connor said there was much debate on sunsets, but no consensus among lawmakers.

“One of the reasons these issues weren’t resolved  … was that everyone is running for re-election. It’s one thing to run on a platform of job creation, but actually putting your money where your mouth is means you would have to go on record and say what you would do,” Connor said. “It’s a lot easier to get down to brass tacks after an election than before.”

Democrat Charlie Norr, a former state representative who is currently running in the 132nd district, said it is important to offer incentives to create jobs, but tax credits should be closely monitored because they often take revenue away from schools. Norr said he’d like to see cooperation between the aisles in Jeff City on this issue to ensure that only the effective credits remain.

“I think tax credits should definitely be revised and more scrutinized to make sure they are doing what they say,” Norr said.

State Rep. Eric Burlison, R-Springfield, who is running for office in the 134th district, said he stands against targeted tax credits that only benefit certain businesses.

“Some people view it that it is legislators’ jobs to be investors, or use taxpayers’ dollars as business investments, but I don’t,” Burlison said. “In my opinion, the best way to invest is to invest universally in all businesses, including the smallest of businesses, by keeping taxes low and broad.”

Both Burlison and Norr said reducing regulations on businesses, particularly startups, could foster job growth.

While tax credits are a key issue this year, there are others that affect businesses, according to Mehan. He said progress was made in the areas of tort reform and workers’ compensation during the last legislative session, but work still needs to be done. In particular, he said fixing or eliminating the state’s Second Injury Fund is a chief concern.

Earlier this year, legislators passed House Bill 1540, which prohibits employees from suing co-workers or receiving workers’ compensation for an injury that occurs on the job, but the bill failed to bring occupational diseases back under the umbrella of the workers’ comp system or to fix the Second Injury Fund. With tort reform this session, initiatives designed to protect employers from product liability beyond the effective life of the product and protect businesses from the criminal actions of third parties on their properties saw movement in both chambers at the Capitol, but fell short of receiving Nixon’s signatures.

The chamber reacted this month by endorsing Republican governor candidate Dave Spence, citing Nixon’s objections to tort and workers’ comp reforms.

Richard Moore, the chamber’s assistant general counsel and director of regulatory affairs, said the Second Injury Fund is an issue that has worsened since 2005 when caps on insurance rates were put into place.

Since early 2011, when the state stopped making payments on Second Injury Fund awards, there have been 272 judgments against the fund with awards of $22.8 million through Aug. 15. Moore said there were 28 attorneys in the Missouri attorney general’s office handling 29,000 cases – a caseload of more than 1,000 per attorney.

“This is an outstanding issue that has been pushed aside for a very long time,” Moore said.

At this point, he said the chamber would be satisfied with either legislators keeping the fund in place but making significant changes that would make it viable long-term or winding the fund down completely.