Mo. tax credit panel pares back recommendations

JEFFERSON CITY, Mo. -- A gubernatorial commission pared back its recommendations for revamping Missouri's tax credits Friday, in a move that may reflect the political reality at the state Capitol but one that didn't go over well with representatives of education groups who served on the panel.

The report from the Missouri Tax Credit Review Commission calls for fewer cutbacks in tax credits for historic preservation and low-income housing than the panel recommended two years ago. If lawmakers enact the recommendations, the state treasury would save less.

The report softens other recommendations from 2010 that had sought to hold down state costs by prohibiting certain tax credits from being combined on projects and by placing automatic expiration dates on tax credit programs.

Democratic Gov. Jay Nixon had asked the commission to update its 2010 report because the cost of tax credits has continued to rise -- the state waived $629 million in revenue during the 2012 fiscal year -- while lawmakers have remained at loggerheads over whether to enact the suggested changes. The issue is expected to come up again during the legislative session that starts in January.

Commission co-chairman Chuck Gross acknowledged "reality did creep into the recommendations" in the new report.

"I'm hoping this time that we'll be able to get past the skeptical side" of legislators, said Gross, a former Republican state senator from St. Charles.

Tax credits provide a direct reduction in the amount of income taxes owed by an individual or business. They are awarded by the state for a wide variety of reasons, including to encourage business expansion, entice donations to not-for-profit social services and provide a financial break for elderly and disabled residents.

Tax credits reduce the amount of money available in the state budget for such things as education, social services and prisons. Because many credits can be carried forward to future tax years, it's difficult for state budget writers to know exactly how many outstanding tax credits will be redeemed annually.

Nixon said in a written statement Friday that the report "reaffirms the urgent need to reform our system of tax credit expenditures, demonstrating how the costs of these programs too often outweigh their benefits to our economy and our communities and consume a large and growing portion of our state budget."

In its 2010 report, the commission estimated Missouri eventually could save as much as $220 million annually by reducing, revamping or eliminating dozens of tax credit programs that had outlived their usefulness or weren't of much benefit. Friday's updated report takes a less aggressive approach.

For example, it recommends that the current $140 million annual cap on historic preservation tax credits be reduced to $90 million annually, instead of $75 million as suggested in the 2010 report. The $90 million cap was recommended by an 8-6 vote of the commission last week after members deadlocked 6-6 on a proposal to stick with the $75 million cap.

Commission member Tom Reeves, the president of Pulaski Bank, said at last week's meeting that a $90 million cap was fair given the current economy.

"We're talking about freezing the program at recessionary levels," Reeves was quoted in the St. Louis Post-Dispatch. "We need to keep it in perspective."

Other commissioners, including many with education backgrounds, said the recommended cuts aren't large enough. Eight commissioners issued a "minority report" Friday acknowledging "political and practical difficulties" in implementing the 2010 recommendations. But they said that backing off their "principled ideals" from 2010 effectively "compromises the value of an independent commission's report."

Dissenters included Columbia attorney Craig Van Matre, a former member of the state Coordinating Board for Higher Education; Alan Marble, president of Crowder College in Neosho; Mike Wood of the Missouri State Teachers Association; Penney Rector, a former lobbyist for the Missouri Association of School Administrators; Melissa Randol of the Missouri School Boards' Association; Luana Gifford of the American Federation of Teachers; Columbia attorney Russ Still, who is a member of the State Board of Education; and Sen. Robin Wright-Jones, D-St. Louis, a former teacher.

The report also pares back the recommended cuts to Missouri's tax credits for low-income housing developers. Missouri offers a tax credit equal to 9 percent of the eligible development costs, paid out over 10 years. It also offers a tax credit equal to 4 percent of the development costs for projects financed by tax-exempt bonds.

The 2010 report recommended that the 4 percent low-income housing tax credit be abolished and the 9 percent tax credit be capped at a total of $80 million over a five-year period. The new report recommends both housing programs continue, with a $115 million cap over 10 years for the 9 percent tax credit, and a $20 million cap over 10 years for the 4 percent credit. As an alternative, the new report suggests there should be a transition period if lawmakers want to reduce the tax credits to a five-year payout.

Whereas the original report also recommended "sunset" dates by which tax credit programs would end, the new report merely suggests that legislators should periodically review all tax credit programs.

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