Audit cites poor oversight of tax credits

JEFFERSON CITY, Mo. -- A state audit released Wednesday chided Missouri officials for poor oversight and inflated estimates of the economic benefits the state receives from a pair of business tax credit programs.

The report from Auditor Susan Montee came the same day a commission appointed by Gov. Jay Nixon began a review of Missouri's many tax credits with a goal of recommending the elimination or reduction of some of them.

Missouri granted about $585 million of tax credits through 53 programs during the 2009 fiscal year, the audit said. Nixon, a Democrat, said tax credits are projected to again cost around $500 million this year. He wants to diminish that to save money in future state budgets.

A tax credit reduces the amount of income tax owed by an individual or business, thus decreasing the money available for state aid to schools, prisons and social services. Tax credits function as incentive for various activities -- business expansions, the renovation of historic buildings, low-income housing developments and contributions to food pantries and domestic violence shelters, to name a few.

The audit focused on two versions of Missouri's enterprise zone program, which gives local property tax and state income tax breaks to businesses that locate or expand in areas with high unemployment and low personal income levels.

Montee's audit said the Department of Economic Development has not adequately verified data submitted by some businesses about the number of jobs created or money invested in plant expansions.

Nor has the department adequately monitored the businesses, the audit said. As of March 30, staff had visited just 15 of 51 businesses issued Enhanced Enterprise Zone Tax Credits since the program was created in 2004, the audit said. Staff had visited none of the 158 businesses authorized since 2000 to receive tax breaks under an earlier version of the program.

In a written response attached to the audit, the Department of Economic Development said limited money and personnel have forced it to prioritize its compliance efforts and prevented it from making as many on-site visits as it would like.

The audit said the department overstated the economic benefit of some tax credits in reports submitted to the legislature, because it relied on estimates from businesses instead of actual data. Auditors said a review 19 businesses authorized for tax credits in 2007 found that the actual jobs created were 6.1 percent lower than estimated by the businesses and their actual investment was 29.5 percent less than estimated.

In other cases, the audit said, it appeared the department was responsible for supplying lawmakers poor figures. For example, one business estimated to the department that it would invest $11.4 million in a project, but the department used an assumption of $49.4 million in its economic forecast.

In another case, the department blamed a data entry error for assuming a businesses would invest $87.6 million on a project when the business had told the department it intended to invest $5.7 million.

Many of the state's top economic development officials were present earlier Wednesday when Nixon kicked off the first meeting of the Tax Credit Review Commission he appointed.

Nixon gave the commission until Thanksgiving to complete an analysis of which tax breaks create jobs, spur economic development and improve communities. He wants to use the report to persuade lawmakers in 2011 to pare back, eliminate and restructure some tax credits.

He said tax credits have increased from about 5.6 percent of Missouri's revenue collections in 2006 to 8 percent in 2010, resulting in $125 million in cuts to state programs and services.

The commission's review "is not about taking us away from the field of economic development," Nixon said. "This is about measuring those tools and making sure that the taxpayers are getting the best return."

The commission plans meetings in Cape Girardeau, Columbia, Joplin, St. Joseph and St. Louis to gather public comment on tax credits.