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Missouri Tax Credit Program Challenges

In 1775, Paul Revere, on the way to Lexington, rode along the countryside, stopping at each house to proclaim, “The British are coming; the British are coming!”  His alarm served to warn his fellow countrymen that it was time to prepare to defend their communities.

Now almost 240 years later, the Missouri school districts and other governmental agencies are under attack, not by the British, but by the consequences of the Missouri Tax Credit Programs.  The first of the Missouri Tax Credit Programs were put into place in the early 1990’s. During this time frame, Missouri experienced a rapid growth of state revenues, thus triggering the possibility, posed by the Hancock Amendment, of issuing tax refunds.  Instead of using the refund approach, the General Assembly chose to create entitlements in the form of Tax Credits.  This policy is now a major contributing factor of the fiscal challenges that Missouri currently faces, and will face into the future, without serious discussion and adjustments to the program.

Currently Missouri has 60 plus different tax credit programs.  All programs are outside of the General Assembly appropriation oversight and control.  Each program is a dollar for dollar reduction in taxes owed to Missouri revenue.   Currently $652 million tax credits have been issued but not yet redeemed.  Using the current trend, the tax credit obligations over the next 15 years are estimated to require $2.5 billion.  It should be noted that many of Missouri’s legislators are more interested in annually adding tax credit programs (new legislation) rather than taking the approach of getting this entitlement spending under control.

Two of the most expensive Tax Credit programs in Missouri are the Historic Tax Credit and the Low Income Housing Tax Credit.  In the Fiscal Year 2010, these two programs accounted for 41.7% of the total tax credit dollars authorized.  In Fiscal Year 2011, the programs accounted for 38.3% of the total tax credit dollars authorized.

Facts on the Missouri Historic Preservation Tax Credit Program:

  • Created in 1997 with an annual estimated fiscal note for the state of $14 million.
  • More funds go to support this program than state appropriations for Community Colleges.
  • Over the last 10 years, every $1.00 that went into the program, the state realized a gain of only 21 cents.
  • Missouri has more Historic Preservation credits available than the 13 original colonies.

Facts on the Missouri Low Income Housing Tax Credit Program:

  • Initially created in 1990 and amended in 1997 when the General Assembly increased the cap of the program from 20% to 100% of the value of the companion federal credit.
  • Only 15 states offer such a program with only Missouri and Georgia supporting $1.00 for $1.00.
  • The tax credit authorizations have increased from $2 Million in FY-96 to approximately $149 Million in FY-10.
  • Over 15 years, every $1 spent on this program realized a return to the state of just 11 cents.

The Missouri General Assembly has spent a great deal of time during the 2012 session grappling with budget issues, attempting to find necessary funds to support what is expected and required of state government.  As is written in state statute, the expectation of the Missouri government is to fund the Public Debt, Public Education, State Infrastructure (roads, bridges, state buildings) and Public Safety.  Of course the disappointing factor is that Missouri is 32nd in the nation for funding of public education and 45th in funding higher education.  At the same time Missouri is NUMBER 1 in providing tax credits for Historic Preservation and NUMBER 2 for providing tax credits for low-income housing.  SO WHERE ARE THE PRIORITIES OF OUR STATE GOVERNMENT!

Looking at the proposed FY-13 budget the following points are clear:

  • Currently projected tax credit requirements of $685 millionAt the same time:
  • Education Foundation Formula underfunded by $466 million.
  • Transportation Funding has been cut by $60 million.
  • Career Ladder program completely eliminated.
  • Cuts are being made to Parents as Teachers and Early Childhood Education.
  • Higher Education cut by $89 million and $16.9 million more in higher education scholarships.

In 2010 Governor Nixon appointed a State Commission to study and make recommendations on the future of the Missouri Tax Credit Program.  Some of the recommendations that were suggested and that have currently been incorporated in SB 548 are:

  • Establish Caps on programs where feasible.
  • Identify the Sunset date on ALL tax credits.
  • To NOT subject tax credits to appropriations.
  • Cap the Historic Preservation Tax Credit.
  • Cap the Low-Income Housing Tax Credit.
  • Eliminate some tax credit programs.

The Missouri Senate seems to be on track with the introduction of SB 548, as a first step in getting the tax credit issue under control.  It is projected that by just ending the tax credits for Historic Preservation and Low-Income Housing, the State of Missouri could fully fund the foundation formula for Missouri’s public schools WITH NO TAX INCREASE.

Education Associations across Missouri are calling on its members to contact their respective House of Representative members and let them know that now is the time to get tax credits under control and put a higher priority on:

  • K-12 Education
  • Higher Education
  • Roads and Bridges

With the passage of SB 548, it is estimated that state revenues would increase by $1.7 billion over the next 15 years.

NOW IS THE TIME TO END CORPORATE WELFARE and turn our priorities around!!