Missouri Tax Credits, Their Impact on Budget, and Proposed Reforms

Report
MISSOURI TAX CREDITS
Brian Schmidt
April 16, 2012
Tax Credits: What are they?


Dollar for dollar reduction in taxes owed in Missouri
Tax credit process




Authorized
Issued
Redeemed
Features of tax credits determine their value to the taxpayer and
the extent of their use






Refundable
Transferable
Carry-back
Carry-forward
Clawback or Recapture
Streamed over a designated time period
Examples of Tax Credit Programs
Neighborhood
Distressed Area Land
Assistance Program
Assemblage
Community
Business Development
Development
Redevelopment
Feature/Program
Low Income Housing
Purpose
Affordable Housing
Carry-back
3 years
No
No
No
Carry-forward
5 years
No
5 years
6 years
Refundable
Yes
No
No
Yes
No
Yes
Annual Cap
No
Yes- within ownership
structure
100% of federal credit
for 9% credits, $6M for
4% credits
$80,000,000
$16,000,000
$20,000,000
Program Cap
No
No
No
$95,000,000
Entitlement
No
Yes
No
Yes
Discretionary
Yes
No
Yes
No
Streaming
Yes, 10 years
Yes, 3-5 years
No
No
Sunset
No
No
No
8/28/2013
Transferable
Quality Jobs
Creation of Tax Credits

1973


1990




Historic Preservation Tax Credit
Expansion of Low Income Housing Tax Credit
Created 8 tax credit programs
1998


Low Income Housing Tax Credit
1997


Senior Citizen Property Tax Credit
Created 5 tax credit programs
1999

Created 6 tax credit programs
Tax Credits and the Budget


Off the budget books
Revenue never comes into the state treasury
 Except

refundable tax credits
House Budget and Senate Appropriations
committees required to review and approve tax
credit estimates
 Form
14
Past Impact of Tax Credits on Budget
Fiscal Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Amount Redeemed (in Amount Redeemed as a
Millions)
% of General Revenue
$143
2.33%
$262
4.27%
$298
4.66%
$287
4.63%
$309
5.21%
$370
5.83%
$427
6.36%
$431
5.87%
$500
6.47%
$504
6.66%
$585
7.86%
$521
7.74%
$545
7.59%
Future Impact of Tax Credits on Budget

Over the next 15 years, Missouri has outstanding
tax credit obligations of approximately $2.5 Billion
 Credits
issued but not redeemed
 $652,165,016
 Streaming
tax credits
 $1,415,114,554
 Credits
authorized but not issued
 $476,572,618

Most of these credits are “front-loaded”
 Impact
the budget in the next 5 years
Joint Committee on Tax Policy Review

3 year review of state’s 61 tax credit programs

2007
Environmental
 Training and Educational
 Social and Domestic


2008
Redevelopment
 Housing
 Agricultural


2009
Business Recruitment
 Financial and Insurance
 Community Development

Senior Citizen Property Tax Credit




Program designed to offset the regressive nature of the
property tax
Renters with incomes between $14,300 and $27,500
($16,300 and $29,500 for married couples) are
eligible receive a refundable tax credit of up to $750
Homeowners with incomes between $14,300 and
$30,000 ($18,300 and $34,000 for married couples)
are eligible to receive a refundable tax credit of up to
$1,100
Program costs $115-120 Million per year
Historic Preservation Tax Credit




Incentive to rehabilitate historic buildings- usually
these are located in the downtowns of cities
Piggy-backs off of a federal program
Tax credit is equal to 25% of “Qualified
Rehabilitation Expenditures”
Past few years of tax credit authorizations under
program have ranged from $82-212 Million
Low Income Housing Tax Credit


Provides an incentive for developers to build or rehabilitate
rental housing for low income individuals and families
Developers are awarded tax credits over a 10-year period
(streamed) in exchange for reducing rents for a 15-30 year
period





9% Credits
4% Credits
Piggy-backs off of a federal program
MHDC can authorize up to 100% of federal credit for each
project
Program has been authorizing $102-160 Million in tax
credits the past few years
HB 191 (2009)


First legislation of tax credit reform
Capped Historic Preservation Tax Credit
 $140
million
 Exemption for small projects ($275,000 or less in tax
credits)

Capped Low Income Housing 4% Credits
 $60

million in authorizations
Capped MDFB Infrastructure Tax Credit
 $25
million hard cap
Tax Credit Review Commission



27 member commission appointed by Governor Nixon
to study Missouri’s 61 tax credit programs
Members consisted of business, community, education,
and legislative leaders from across the state
Co-Chairs
Senator Chuck Gross
 Steven Stogel


The commission was created in summer of 2010 and
was tasked with developing recommendations for tax
credit reform by Thanksgiving 2010
TCRC Committees










Low Income Housing
Historic Preservation
Social Contribution/Community Development
Senior Citizen Property Tax Credit (Circuit Breaker)
Agriculture and Environment
Economic Development
Distressed Communities
Banking and Insurance
Tax Law
Global Issues
TCRC Major Recommendations









Establish caps on programs, where feasible
Sunset dates for all tax credits, staggered over 2, 4, and 6 years
Do not subject tax credits to appropriations
Cap Historic Preservation at $75 Million with an exemption for certain Low
Income Housing Projects
Cap Low Income Housing at $80 Million ($16 Million each year for 5 years)
Eliminate eligibility of renters to receive Senior Citizen Property Tax Credit
Eliminate some tax credits
Implement a tax law change that is intended to improve efficiency of
certain tax credits
Consolidate Business Development Programs into One Flexible Program“Missouri Works” (last year called Compete Missouri)
2011 Legislation





SB 280
HB 116
SB 100
July 20 Agreement
SB 7 & SB 8 (Special Session)
2011 Legislation- Key Components

Sunsets



Program Reductions/Establishment of Caps





Low Income Housing
Historic Preservation
Circuit Breaker
Brownfield Remediation
Program Elimination




Mandatory review
Extension of existing programs
Self-Employed Health Insurance
Neighborhood Preservation
Brownfield Jobs/Investment
Consolidation of Business Recruitment Programs (Compete Missouri)
2011 Legislation- Key Components



Tax amnesty and other revenue enhancements
Missouri Science and Innovation Reinvestment Act (MOSIRA)
Aerotropolis tax credits



Amateur sports attraction tax credits






$60 million (total) for freight forwarders
$300 million (total) for facilities
$3 million
Donation-based tax credit
Data Centers
Developmental disability care provider tax credit
Distressed area land assemblage
Various other provisions
Scoring Model

Tax credits tracked differently
 Uses
past authorization, issuance, and redemption data
for programs
 Accounts for differences of programs

Model predicts impact new tax credits and tax
credit reforms will have on budget in future
 Expected
value analysis

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