Auditor: Historic building tax credit costly

JEFFERSON CITY, Mo. -- Missouri's tax incentive for the renovation of historic buildings is the largest such program in the nation but is inefficient and not adequately overseen, the state auditor said Tuesday.

A report from Auditor Tom Schweich said Missouri has paid out $1.1 billion of historic preservation tax credits during the past decade, resulting in average annual rehabilitation expenses that are significantly higher than any of 29 other states with similar programs.

"There's a lot of money going to this compared to other states, and there are inefficiencies involved in the program," Schweich said.

The Republican state auditor raised similar concerns in a report released two weeks ago about a Missouri tax credit for the developers of low-income housing. He is expected to release an audit next month on a third tax credit program for those who redevelop contaminated sites.

The audits come as lawmakers are considering whether to further limit the amount of tax credits that can be issued annually for the development programs. Similar efforts have failed in past years as proponents have stressed the benefits of rehabilitating historic buildings and constructing new, affordable housing for low-income residents.

Schweich's audit acknowledged the historic preservation tax credit has a laudable goal and "has been a significant factor in helping rehabilitate hundreds of the state's historic properties."

Missouri provides tax credits equal to 25 percent of the rehabilitation costs of historic buildings. A 2010 law allows up to $140 million of tax credits to be authorized annually, but smaller projects such as the renovation of many owner-occupied homes don't count toward that limit.

Schweich's audit said the current annual cap is essentially pointless, because the state has not come close to hitting that mark in recent years.

As with the low-income housing tax credit, Schweich said the historic preservation program is inefficient because a substantial amount of the money doesn't go to the renovation of buildings. For every dollar of tax credits, Schweich said between 49 cents and 85 cents goes to rehabilitation costs. He said the rest goes toward the payment of taxes, investors and brokers as the tax credits are sold to raise cash or pay down construction-related debt.

The audit said the tax credits could be more efficient if they were refundable or issued through a governmental organization or not-for-profit entity that could sell them and then grant the proceeds to renovation projects.

Although the audit did not identify specific instances of fraud in Missouri, it noted fraud has occurred in Virginia's historic tax credit program. Schweich said the Missouri Department of Economic Development should conduct on-site visits of projects and analyze the cost per square foot to ensure the state isn't getting ripped off.

The department said in a written response included in the audit that officials extensively review photos of completed projects and do periodic site visits. The agency said it will evaluate opportunities for more site visits. But it said an analysis of the cost per square foot may not be of much value, because it has no legal authority to deny tax credits based on such standards.