State threatens tax credit pool

Don Flatau is based in Springfield, but he’s responsible for John Deere’s global remanufacturing operations – and he says Missouri could be at a disadvantage. When a decision is made about where Deere will remanufacture a specific product, local and state economic development departments aren’t just competing with other states, Flatau said – they’re competing worldwide.

State tax credits have long provided a potential edge over rivals, but that edge is now under threat in Missouri.

As the state scrambles to cut $500 million from its fiscal 2011 budget, Gov. Jay Nixon and Department of Economic Development Director David Kerr are proposing a $135 million reduction in Missouri’s tax credit programs.

The recommendation comes at a time when cities and counties are relying heavily on the credits to spur job creation. On April 8, Springfield and Greene County received DED approval for an expansion of existing enhanced enterprise zones, allowing companies that impact growth within a designated area to receive state and local tax credits. Two other city-county EEZs are awaiting state approval. Webster County received approval for a countywide EEZ in February.

Kraft Foods Inc. and Boyd Aluminum Manufacturing Co. in Springfield, Mid-Am Metal Forming in Rogersville and Service Vending Co. in Aurora each announced tax credit-funded expansions earlier this year.

In March, John Deere Shared Services announced an $11.5 million expansion in Partnership Industrial Center that would create 75 jobs within five years. The company will receive $341,000 in enhanced enterprise zone tax credits during that period.

Flatau, who is general manager of global operations for John Deere Remanufacturing, said the credits didn’t play as much of a role in this decision to expand, but he said there were other decisions about locations where such incentives would hold more weight.

“Decisions on where to remanufacture certain products are ongoing, and it’s very much a global perspective,” he said.

Nixon and Kerr’s proposal would trim roughly $135 million from the tax credit pool, and eliminate tax credits dubbed “entitlement programs,” such as the Neighborhood Preservation Act, Historic Preservation and Rebuilding Communities tax credits, DED spokesman John Fougere said. In fiscal 2009, $301.1 million in entitlement tax credits were authorized and $218.2 million were redeemed, Fougere said.

“By law, somebody applies for one of the entitlement tax credit programs and they meet the requirements, they’re entitled to the benefits, no questions asked,” he said.

Instead, the governor and DED director are suggesting an approval process for tax credits that prioritizes projects that create the largest and most immediate benefits to taxpayers. That process would be developed if the cap were approved by the state legislature, and the DED would have the final approval for projects receiving credits.

Nixon and Kerr recommend an umbrella cap of $314 million in fiscal 2011 for all but two tax credits – the Missouri Property Tax Credit Claim, also known as the circuit breaker, and the Homestead Preservation Credit, which assists elderly and disabled homeowners. The recommended cap in fiscal 2011, Fougere said, is 70 percent of the $448 million redeemed in fiscal 2009. A total of $650 million was authorized for 2009.

Tax credits would be divided into six categories: affordable housing, business development, community assistance, finance and insurance, public infrastructure and redevelopment. Each category would receive a minimum percentage of the $314 million pot, and an additional, at-large pool would allow 20 percent of the total cap to be used in any of the areas.

The recommendation is being considered by the state legislature through House Bill 2399, which was completed on April 6, and Senate Bill 895, which is a combination of the governor’s tax credit proposal and several job creation bills.

Ideally, Fougere said, lawmakers would adopt the proposal so it could take effect in fiscal 2011, which begins July 1.

“That’s when it would start if it were passed during this legislative session. That’s only until May 14,” he said. “We believe it is our absolute responsibility to ensure that every program is providing a tangible return on investment to Missouri’s taxpayers.”