Missouri audit says state’s $584 million tax credits need more oversight

Mo. audit calls for review of tax credit system

JEFFERSON CITY, Mo. — Missouri’s vast tax credit system, which cost about $585 million last year, needs better oversight and a more accurate means of measuring its benefits, according to a state audit released Monday.

The report by State Auditor Susan Montee points to systematic flaws in how state agencies estimate the economic impact of tax credits and how often they are reviewed for fiscal viability. The audit states that Missouri lawmakers should place tighter controls on how the economic benefit of the credits is determined and how much money should be spent.

Montee specifically focused on whether lawmakers are getting accurate enough information from state agencies about how tax credits will affect the state’s economy.

“Even if the legislature is getting this information, the data is faulty,” Montee said. “The information is just not there.”

The audit comes as lawmakers and the governor are debating whether to modify tax credit programs to help balance future state budgets. A tax credit reduces the taxes owed by a person or business with the intent of encouraging particular activities.

Missouri has about 60 tax credit programs. They include tax credits for businesses that hire new employees, moviemakers who film in Missouri and developers who renovate historic buildings or construct low-rent homes. Other tax credits reward donors to food pantries, crisis pregnancy centers and domestic violence shelters.

Gov. Jay Nixon, a Democrat who last year backed an expansion of state tax credits for businesses, now says tax incentives have grown so much that they threaten other essential government functions. He said last week that money not paid to the state because of tax credits could otherwise be going to education.

Nixon’s administration has proposed capping Missouri’s annual authorization of tax credits at around $314 million. His plan also would reorganize the state’s tax credit programs under six general categories and give the Department of Economic Development greater flexibility to decide how much should be spent in each area.

The Department of Economic Development oversees the bulk of tax credit programs. Montee’s audit points to problems within the department and other agencies in estimating a tax credit’s impact as reasons the state spends so much on the credits.

“The department is still fully reviewing the auditor’s report, but the audit certainly demonstrates that tax credit programs need greater accountability and reform, as Gov. Nixon has proposed,” Department spokesman John Fougere told the Associated Press in an e-mailed statement.

Some Republican senators have been pushing for two years to limit Missouri’s tax credits. One proposal would give greater authority to legislative budget writers to determine how much to allot to each program. House Republican leaders have spoken against the idea. They point to the economic benefits of tax credits and insist that significantly limiting them could severely harm the economy.

Monday’s audit supports both a cap on tax credits and annual legislative review of the amount given to programs as a way to better contain costs. Currently, only some tax credits are capped or reviewed.

Montee said the problems identified in her audit would still exist under the governor’s plan, because it does not address how the economic benefits of tax credits are identified.

In 2009, individuals and businesses redeemed about $585 million in state income tax credits — an 86 percent increase since 2000. That was four times the growth rate of Missouri’s general revenues, which rose by 21 percent during that time.

“It is a larger and larger share of our revenues,” Montee said. “It is a huge issue for us, and when you have to do budget cuts, you have to look at the revenue side.”

The audit found flaws with how state agencies determine the economic impact of tax credits. Tax credit redemptions in 15 programs reviewed by auditors exceeded the amount projected when they were enacted by $1.1 billion between 2005 and 2009.

The auditor’s report notes that tax credits are governed using a wide range of methods. It suggests lawmakers establish annual and cumulative limits and expiration dates for all tax credits.

__

On the Net:

Auditor: auditor.mo.gov