State panel proposes changes to tax-credit changes, would affect historic-building redevelopment

A state plan unveiled Friday would restrict the use of Missouri's historic-preservation tax-credit program, which has been a tool for downtown redevelopment in Cape Girardeau.

Key parts of the plan would require legislative action to implement, according to the committee that drafted the plan.

Cape Girardeau city development director Alex McElroy said preservation tax credits have been a "key tool" for renovating old buildings and revitalizing the downtown.

Limiting the use of such tax credits could affect future downtown development projects, he said.

The historic-preservation program and other tax-credit programs would be reworked under a plan released by Gov. Eric Greitens' Committee on Simple, Fair and Low Taxes.

The committee made four major recommendations:

• Convert the historic-preservation and Brownfield redevelopment programs to a new rehabilitation tax-credit program with an annual cap of $50 million as opposed to the current historic-preservation cap of $140 million. The Brownfield program has no cap. Additionally, the incentive would not be available for renovation of private homes and the credits would be capped at a maximum of $2 million per project.
• Subject tax-credit programs to the legislative appropriation process. Deny credits if there is not a "positive fiscal return" to the state, the recipient fails to show a technical or financial ability to implement the project or the activity would occur without state incentives.
• Convert low-income housing tax credits to a low-interest loan program for affordable housing construction.
• Require the Revenue Department director repeal outdated or inapplicable regulations, create a statewide tax advisory committee and present a slate of candidates to the governor for the appointment of a taxpayer advocate. Enact a "General False Claims Act" to rein in waste, fraud and abuse.

The 32-page report, displayed on Missouri's Economic Development and Revenue Department websites, said the state's use of tax credits is "extensive and expanding."

Since adopting the first tax credit in 1973, the use of tax credits has expanded to several dozen programs, accounting for more than $575 million in redemptions in fiscal 2016.

A call for reforms

Proposed reforms would reduce "excessive spending" on tax credits, add transparency and efficiency and increase legislative and executive oversight to prevent waste, fraud and abuse, the Missouri Department of Economic Development said in a news release.

The committee, as part of its work over the past three months, met weekly and held four town-hall meetings across the state, including one in Cape Girardeau.

Joel Walters, the committee's chairman and the director of the revenue department, said in the news release the proposed changes would better "meet the needs of the business community while instilling a higher level of accountability."

Missouri has the largest historic-preservation tax credit (HPTC) program in the nation, the committee said.

The state issued more than $59.5 million in preservation tax credits in fiscal 2016, the report said.

According to the report, proponents touted the program as a powerful tool to recover blighted areas and spark economic development.

But the committee said the program "was not designed to combat blight or generate economic growth, and it contains no statutory safeguards to incentivize these goals."

Calculating the benefits

According to the report, "the numbers paint a stark picture" regarding the benefit of such tax credits.

Missourians realized only 26 cents of direct and indirect economic benefit from each preservation tax-credit dollar awarded from fiscal 2005 through fiscal 2015, as calculated by the Economic Development Department, the committee said.

In fiscal 2016, the preservation program provided only 16 cents of direct and indirect economic benefit for each tax-credit dollar awarded, the report said.

The committee recommended a five-year sunset for the program, which would require the Legislature to conduct an in-depth review and determine whether the program is meeting its purpose or if changes are needed for the program to continue.

Five-year sunsets are recommended for several other tax-credit programs too.

Missouri's tax credits fall into three areas, according to the report. They are economic development, community development and programs that have combined economic development and social-purpose goals such as low-income housing.

The 10-member committee, which included former state senator Jason Crowell of Cape Girardeau, concluded "a number of Missouri's tax-credit programs are not well designed. Many programs are structured as entitlements with little or no oversight."

The report said, "Broad, general reforms are necessary to ensure that Missouri's tax-credit programs provide a positive return for the taxpayers' investment."

Crowell, who tried to cap some tax-credit programs when he was a state senator, referred questions about the committee's recommendations to Walters, the committee chairman.

Walters told the Southeast Missourian he plans to work with lawmakers to draft legislation for the 2018 session that would enact the recommendations.

The committee looked at a variety of tax issues, including those involving corporate and individual taxes, but decided unanimously to focus its report on reforming tax-credit programs, Walters said.

"I think we have done a good job," he said.

mbliss@semissourian.com

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