Area contractors defend state tax credits as boost to economy

Sunday, April 25, 2010

The debate over tax credits for economic development can be viewed as an attempt to balance the local benefits of individual projects with the systemic problems of a state government that projects a chronic cash shortage.

For developers like Chad Hartle, who recently renovated the Schultz School on Pacific Street into Schultz Senior Apartments and wants to do a similar job on Mount Vista Apartments on Lorimier Street, the answer is clear -- all those local benefits add up to a big boost for the state economy.

Hartle used historic preservation tax credits combined with low-income housing tax credits to finance the Schultz project. He has been awarded $4.1 million state low-income tax credits, redeemable over 10 years, for the Mount Vista project to renovate that property into moderately priced family apartments. Hartle received an equal amount of federal tax credits and a $450,000, 1 percent loan for 30 years as well.

"The state can pump money into the economy at no cost this year by using tax credits," Hartle said. "The investors pay their money up front to create jobs now when the economy needs it the most. The state will start paying back the 2010 credits no sooner than 2012, and it will be one-tenth of the amount issued for the years 2012 through 2021 -- the perfect installment plan for stimulating the economy."

Sen. Jason Crowell, R-Cape Girardeau, has been questioning the effectiveness and size of tax credit programs for several years. And as state budget woes have grown, support for action has grown and been joined by Gov. Jay Nixon.

The day after hosting a news conference with educators from across the state, Nixon announced he was cutting an additional $45 million in state spending for the year that will end June 30. So far, Nixon has been forced to veto or withhold $900 million from the $23.7 billion state budget.

Tax credits issued today and redeemable later only add to the long-term problem, Crowell said. The state has $2.4 billion in outstanding tax credits and tax credit redemptions from more than 60 programs will cost nearly $500 million this year.

Nixon set a goal of reducing tax credit redemptions to $314 million annually.

"What everyone has to understand is that this is a broader realignment of government trying to retool itself in an efficient manner that it can afford," Crowell said. "When we are No. 1 in the nation in historic tax credits and 37th in education funding, something is messed up in those priorities."

Contractors who provided materials and skilled trade workers for the Schultz project contend the state budget problems that concern Crowell would have been more severe without the work spurred by the credits. Housing construction in Cape Girardeau last year was abysmal, with builders erecting only one quarter of the homes constructed in 2005. Commercial construction did well, due in part to big hospital projects.

Bill Bonney of Dutch Enterprises, the heating and air conditioning contractor at Schultz, said his company's bread-and-butter business is refurbishing large buildings. Employment by Dutch Enterprises is generally 60 to 80 people, depending on the workload, he said.

"If we didn't have that project going on last year we would have had to send people home," he said. "That kept those families working. In this economy right now in the contracting end, it is slow and jobs are a little farther in between than they used to be."

The overall picture

Those workers pay taxes and support the state's needs rather than consume taxes to sustain themselves while unemployed, Bonney said. "It leaves a guy like me who struggles to keep people busy, struggles to create jobs and get jobs, baffled how a guy like Jason Crowell cannot see the overall picture."

Crowell said he does see the overall picture. He's not trying to take away any tax credits already issued or delay their redemption, he said. He's looking to the future and wants the legislature to allocate spending to tax credits the way it allocates spending to colleges and mental health centers.

The Missouri Housing Development Commission should not control how much in tax credits are issued for low-income housing construction, Crowell said. Current law allows the commission to issue credits equal to the annual allocation of federal tax credits, and the commission generally does match the federal amount.

"I can't just look at what is in the best interest of people who benefit directly or indirectly from tax credits," Crowell said. "I have to look at all the faculty and staff at" Southeast Missouri State University "that lose jobs. I have to talk to teachers that lose their jobs. And I have to think about mental health patients who depend on the state."

Dennis Meyer of Meyer Supply Co. said he kept three of his six workers employed for seven months last year solely due to the Schultz project. A full review of all the benefits of a tax credit project like Schultz would show that it is good for the state's overall fiscal health, not a detriment, Meyer said.

"I think those tax breaks are made up, in due standing, by workers who have worked on it, by the multiple, multiple facets of different contracts like carpeting, heating and electrical, and it impacts a lot of people," Meyer said. "I think it is a revenue pass that has extreme benefits."

But one contractor who helped on the Schultz project said Crowell is right to force tax credit projects to stand alongside education and other state programs in an equal contest for state funding. T. Robin Cole III, owner of Rite Group, is also both vice president of Cape Area Habitat for Humanity and chairman of the Cape Girardeau School District foundation.

Schultz was important to his company's bottom line, Cole said. But the needs of schools are also important, he said.

"The state has many choices to make and when it has less money it has to carefully and particularly attend to every resource decision," he said. "Putting them on the budget and lining them up with all the other needs is what we select our representatives to do, and I am all in favor of it."

Habitat for Humanity uses the Affordable Housing Assistance program to leverage the purchase of construction materials and professional help, Cole said. The credit gives a donating business a tax credit good for 55 percent of the value of goods.

While Low Income Housing tax credits are sold on the open market for 25 to 30 percent of their face value, the Affordable Housing credits by almost twice their value in goods and services, Cole said.

"It should be a two-pronged test," Cole said. "Is the tax credit, which is a use of state resources, 100 percent used for its purpose or not? Then there is the value judgment, what do the citizens want state resources used on -- a Habitat house, textbooks or football teams? When that value judgment is the second test, Habitat has to be able to compete."

rkeller@semissourian.com

388-3642

Pertinent address:

101 S. Pacific St., Cape Girardeau, MO

Map of pertinent addresses

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