Missouri Senate passes overhaul of tax credits

JEFFERSON CITY, Mo. -- Missouri senators passed a sweeping revision to the state's tax credit programs Wednesday that immediately was questioned by House leaders, a clear sign that Missouri's special legislative session will stretch into a third week as lawmakers struggle for consensus on its marquee issue.

The legislation approved 26-8 by the Senate would scale back or eliminate many of Missouri's existing tax credits for businesses and social causes and use some of the savings to finance new incentives for particular businesses. The plan would consolidate several current incentives under the umbrella of a new "Compete Missouri" program overseen by the Department of Economic Development.

The tax-credit restructuring is backed by Democratic Gov. Jay Nixon, who summoned lawmakers into special session to consider revamping Missouri's business incentives.

House Speaker Steven Tilley, R-Perryville, said Wednesday that his chamber would make changes to the Senate version before bringing it up before the full House, likely sometime next week.

"I'm just not a big fan of Compete Missouri, where you take all of our economic development incentives, plug them into one, and then DED has sole discretion" on how to award the incentives to business, Tilley said.

The objections from the House's top lawmaker are the latest twist in what's been a particularly curvy path since House and Senate leaders this summer announced -- perhaps somewhat prematurely -- that they had reached an agreement on the outlines of an economic development bill. That agreement was significantly altered in the Senate in order to appease concerns and win enough votes for passage.

As it stands, the bill would reduce tax credits going to the developers of low-income housing by a greater amount than originally proposed by leaders of the two chambers. It also would scale back incentives for the restoration of historic buildings, end tax breaks for international adoptions and place expiration dates on numerous other state tax credit programs.

The Senate bill would authorize new tax breaks for computer data centers used by the likes of Google or Amazon, as well as new incentives to bring amateur sporting tournaments to Missouri. It also grants up to $60 million of tax credits for companies that coordinate exports through Lambert-St. Louis International Airport. But senators axed a companion provision that would have allowed up to $300 million for tax credits for the construction of warehouses and manufacturing plants in the St. Louis area to handle those international products.

Tilley said he supports the original, larger "aerotropolis" proposal for the St. Louis airport, but added: "I don't want to make any solid-lines-in-the-sand statements."

Although it was part of the original proposal, senators struck from the bill a provision that would have ended a tax credit for low-income seniors and disabled residents who live in rental housing. Tilley gave no indication that the House would try to restore that provision.

The Senate bill is projected to provide a net savings of about $1 billion to the state over 15 years.

Senators who supported the bill said it makes a significant stride toward reigning in Missouri's expansive system of tax credits, which waived about $545 million in taxes during the 2011 fiscal year -- up more than one-third from 2001.

Senators said that money could have otherwise gone to public school districts or universities, both of which sustained funding cuts as the recent recession sent state revenue downward. The bill's backers contend that the legislation will do a better job of ensuring that new tax credit programs generate at least as much money in new tax revenue as they provide in tax breaks.

"There are reforms in this bill that taxpayers need," said Sen. Luann Ridgeway, R-Smithville.

But some senators said the legislation merely tinkers with the way the state passes out tax breaks to favored industries -- essentially picking winner and losers -- without making broader changes in tax policy that could benefit all residents and businesses.

Sen. Jim Lembke, R-St. Louis, referred to the legislation as "a boondoggle."

"It is just beyond comprehension that government believes that it can do the marketplace better than the marketplace," Lembke said.

A separate bill, passed by the Senate 30-4 on Wednesday, also would create a fund to offer incentives to science-based businesses. To finance that effort, the Legislature could divert a portion of state tax revenue based on the growth rate of employees' wages in "science and innovation" companies.