Missouri Tax Credit News
Missouri tax credts, where are we headed? Our rant. - May 03, 2010
It seems like there is an article in the newspaper every day concerning the future of Missouri tax credits. Opponents contend that Missouri tax credits need to be reined in. Their belief is that we simply cannot afford to hand out money to wealthy developers while all state expenditures are in jeopardy. I don't know about you, but most of the developers I know are really suffering, even with the current Missouri tax credit programs in place.
Governor Nixon has proposed slashing the total amount of Missouri tax credits issued and allowing the Missouri DED to allocate the smaller supply of Missouri tax credits. The proposed logic and plans are so outrageous that we don't know where to begin. The Missouri historic tax credit program is by far the largest, so let's use it as an example. Let's start with the notion that lowering tax credits helps the budget. Under the current system, Missouri historic tax credits are approved before a project begins. The developer must spend all off the money, have the costs certified in a report, and then go through a thorough DED review. All of the money is injected into the economy before the credits are issued and redeemed. You should remember that the Missouri historic tax credits are equal to 25% of the qualified rehabilitation expenses. This means that if all of the costs are qualified (never the case) the developer gets back a credit equal to 25% of those dollars. If no new tax credits were issued from today forward, it would take 3-4 years for all of the Missouri tax credits in process to be issued and redeemed! Hopefully the economy will be back on track by then.
The state legislature has also failed to recognize that the economy operates in cycles. When tax receipts increase in good times, they use all of the surplus to increase spending. We will have declines every decade or so and government spending should be geared accordingly.
It is also amazing that Missouri tax credit opponents fail to acknowledge that reducing Missouri tax credits negatively impacts the economy. They want to pound their chests about the savings, but ignore the increase in jobs and economic stimulus that occur when Missouri tax credits are available. Several years ago, a study by the accounting firm of Rubin Brown concluded that for every dollar of Missouri tax credits created over $3 of economic benefit to the state. More recent studies by Rutgers University and St. Louis University reached similar conclusions. Historic tax credits create jobs and more than pay for themselves. I have personally confronted a legislator opposed to Missouri tax credits with these facts. He said, "every group that wants something from us has a study generated that supports their position." I find it offensive and ignorant that rigorous professional studies can be dismissed in such a cavalier manner. Even if you think the local studies are biased, the Rutgers study is a national study and it opines on historic tax credit programs all of over the US, not just Missouri.
We currently have an objective system for awarding most Missouri tax credits. If you complete the application for Missouri historic tax credits and meet the criteria, you are awarded tax credits. The proposal to give the Missouri DED the authority to allocate credits as it sees fit will politicize the process. We believe that this step is designed to create so much uncertainty surrounding the availability of Missouri tax credits that developers and investors will avoid historic tax credit projects because they will have no assurance that the credits will be available prior to making a commitment to acquire a historic property. These properties are of little value if they cannot be rehabilitated and no one wants to be stuck with them if a major source of project funding (Missouri historic tax credits) are not certain.
It appears that the clock will run out on Governor Nixon and other enemies of Missouri tax credits and economic development. The Governor is trying to make the ridiculous assertion that supporting the reduction of Missouri tax credits helps support education. Even if we get by with no reductions in this session, the same circus will be back in full force in the next legislative session. Stay tuned!
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