Ridgeway: Holding the Line on Government Spending: Tax Credit Reform Update

Would you invest your own money in any business that guaranteed you would lose at least 75 cents for every dollar you invested? Most rational people would “Just say NO” to such a losing venture. I agree.

Unfortunately, there are those in Missouri’s Legislature who continue to defend the status quo on programs that have a track record of poor returns for every tax dollar invested. Most studies show two tax credit programs (Historic Preservation and Low Income Housing) return somewhere between eleven and twenty-three cents to the state for every dollar spent. Needless to say, this slices a huge hole in the budget each fiscal year.

Some key House members don’t even want to add a sunset clause to these programs – meaning these programs go on forever unless a majority of legislators could gather a collective political will to outright repeal these programs.

“Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!” said Ronald Reagan. He’s right.

This issue launched the core debate in Missouri’s special legislative session that is currently ongoing in our state capitol.

Each year, the Missouri House and Senate meet in regular session from January through mid-May. We were called into special session on September 6^th. The Governor’s call asked us to consider everything from tax credit reform, enactment of new tax incentive programs, transferring control of the St. Louis police from a police commission to direct control of the City of St. Louis, repealing the school “Facebook” law and other provisions. You can read the full call of the Governor into special session at: http://governor.mo.gov/orders/2011/2011specialsession.html

The centerpiece of the call was an economic development bill similar to what was discussed during regular session. It called for reducing or eliminating a variety of existing tax credits while enacting others in response to changing technology and opportunities. Key to the proposal was a provision placing lower caps and sunset clauses on two of the most expensive and least productive tax credit programs: Historic Preservation and Low Income Housing. Let me be clear: Legislation filed seeks to amend, not end, these programs by lowering the amount that can be spent on these programs each year and to add sunset clauses for accountability.

Estimates of what the credits would cost at the time of original passage were exponentially lower than the $250 million per year they have ballooned to today. There are no caps on the programs and they continue indefinitely. Our state treasury has a current obligation to pay $1.3 Billion over ten years for just one of these programs.

We have found an example where the “low income housing” tax credit was used to build apartments that cost over $325,000 per unit in areas where the average cost of the typical three bedroom single-family residence cost less than $150,000. Why should taxpayers subsidize such expensive “low-income” apartments when larger single-family houses could be purchased for less than half of the price of a much smaller unit in an apartment complex?

I have always said it is easier to begin a new government program than it is to end one. The situation in which we find ourselves is a perfect example. There is no dispute these tax credits are contributing to the state’s financial difficulties. Their cost continues to rise while revenues are declining. Despite this, key members of the House do not even want to allow a sunset to be placed on them seven years into the future. A sunset clause on its own does not eliminate a program. It simply requires a vote of the legislature for it to continue. Frankly, it is common practice for sunset clauses to be extended by the legislature.

It does not seem appropriate that certain tax credit programs that support important services (such as the Pregnancy Resource Center tax credit) are subject to a sunset clause yet other tax credit programs are not. A sunset clause is a means to keep accountability for every tax dollar woven into the fabric of tax credit programs.

So far, the legislature has passed two bills during special session. One bill (MoSIRA, SB7) creates a tax incentive program aimed at encouraging new businesses to our animal health science corridor. The other bill, SB1, revises the so-called “Facebook” law for our educational facilities in Missouri. All other bills remain in limbo. I will keep you updated as special session continues.

As always, if you have any comments or questions about special session or any other issue of importance, you may contact me by replying to this email or by writing me at luann{dot}ridgeway{at}senate{dot}mo{dot}gov