While Missouri lawmakers remain in a four-year impasse about how to reform the state’s menu of tax credits, the market appears to taking matters into its own hands.
New data from the Missouri Department of Revenue highlight a growing shift of dollars away from programs that finance real estate and toward those that directly subsidize new jobs. And that shift is likely to speed up as state economic development officials announce streamlined programs that will put tax credits in the hands of smaller companies that add jobs, too.
The Revenue Department reported this week that Missouri companies and residents cashed in $512.9 million worth of tax credits in the 12 months ending June 30. That’s down $103 million from the record set the year before, even as state tax revenue grew.
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Redemptions represent the money that the state actually pays out after a firm gets initial tax credit approval and then complies with the state’s requirements.
While Missouri has more than 60 tax credits that subsidize everything from wineries to wood fuel pellet production, the bulk of their half-billion-dollar cost comes from a few programs.
One of the biggest — the historic preservation tax credit — saw redemptions fall $55 million, while another — the low-income housing tax credit — fell $20 million. Meanwhile, redemptions under Missouri’s Quality Jobs tax credit grew by $5 million and have nearly tripled since 2010.
The trends jibe with the priorities of Gov. Jay Nixon and some Senate Republicans, who have pushed to rein in the costly historic and low-income housing programs and focus efforts on credits that directly reward job creation. But they’ve happened even as those priorities have been stymied time and again in the House.
No, this isn’t policy at work. It’s the market.
The Department of Economic Development said as much in a statement Thursday, calling the amount and type of credits redeemed “a direct reflection of the state’s economic activity.”
And in the historic program, which reimburses one-fourth the cost of renovating old buildings and has been a boon for St. Louis, today’s low bills reflect yesterday’s light pace of activity.
“Historics being low represents when the market fell off during the recession,” said Brian Schmidt, a veteran state tax policy analyst. “It takes two to five years for a project to go from (initial) authorization to credits being redeemed, you’re seeing the effect of the downturn now.”
Indeed, authorizations under the program peaked at $212 million in 2009. The next year they fell by more than half — to $99.5 million — and have stayed roughly flat ever since as the commercial real estate market struggles to recover. Last year, the program had $93.9 million in authorizations, led by $14.8 million to help turn an old telephone factory into lab space in the Central West End. That’s well below the program’s $140 million annual cap.
It may still make sense, though, to lower that cap, said Sen. Eric Schmitt, R-Glendale, who chairs the Senate committee that deals with tax credit bills.
In recent years the Senate has passed legislation capping historics at about $90 million, but those bills were rebuffed by the House. Schmitt said that it was too soon to know if they’d try again next year but that a lower cap would make the program more predictable.
“I still think the issue is worth pursuing if it helps provide certainty down the road,” he said. “To the extent there are ideas, we ought to talk about them.”
Meanwhile, the Missouri Quality Jobs program, which pays back employers that create good-paying jobs, has been booming. There were $109 million in credits authorized through the program last year, going to companies ranging from corporate giants such as 3M and Wells Fargo to biotech startups and small manufacturers, all in exchange for adding jobs. In 2010, that number was $57 million.
Those credits are issued only after the jobs have been generated, meaning some will never leave the state treasury. But issuances and redemptions have grown quickly, cashing out an record high of $39 million last year.
“That’s a good sign for Missouri,” Brian Schmidt said. “Redemptions mean there’s actually jobs being created.”
And just last week, the state announced some tweaks to its incentive packages that economic development officials hope will lead to more tax credits — and more jobs.
The Missouri Works program bundles Quality Jobs with a few other credits that focus directly on job generation into a single program. That’ll make it much easier to pitch the state, and its incentives, to companies that are thinking of moving here, said Jim Alexander, vice president of global client solutions at the St. Louis Regional Chamber.
“Simplicity is what a lot of companies are looking for,” he said. “It makes our really good incentives that much more clear and accessible.”
It also changes the program to allow more smaller companies to qualify — in some cases with as few as two new employees — and to give the state more flexibility to close big deals.
That, Alexander said, could help Missouri better match offers from states that have less-complicated pools of money to woo new companies.
It may well lead the tab for Quality Jobs tax credits to keep growing, he acknowledged. But if that means more quality jobs in Missouri, that’s not so bad.
“This gives us another tool to go out and compete,” he said.
