The Missouri budget is on the hook for $3 billion worth of tax credits that have been authorized but not redeemed, according to a report Wednesday from Missouri Auditor Nicole Galloway.
The report is the latest examination of Missouri’s tax credit programs. In recent years, the Missouri auditor has issued reports questioning the efficiency and return on investment of various tax credits.
Gov. Eric Greitens earlier this year also called for a committee to review tax credits, saying they haven’t lived up to promises and benefit “special interests and lobbyists.”
But Kansas City political and civic leaders say two tax credit programs — Low Income Housing Tax Credit and the Historic Preservation Tax Credit — have been invaluable for the redevelopment of downtown, Midtown and East Side.
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Tax credits are generally meant as inducements for businesses and individuals to provide some type of social benefit in return for tax breaks. Missouri has 63 tax credit programs, seven of which take up the lion’s share — 76 percent — of overall tax credit redemptions. The low income housing and historical preservation credits, which are used extensively in Kansas City, are among the largest programs.
Sean O’Bryne, vice president of business development for the Downtown Council of Kansas City, credited housing and historical credit programs for the renovation of several buildings in Kansas City’s Library District that would not have occurred without the tax credits.
“I do wish, and I have yet to see it, a comprehensive analysis of the positive benefits of historic tax credits,” O’Byrne said.
Tax credits work almost like coupons: Someone or some business receives a tax credit from a Missouri agency to perform a specific task, such as fixing up a historic building, and that tax credit can be used later to on reduce taxes they would otherwise owe.
Galloway’s audit found that tax credit redemptions have totaled $5.4 billion over the last decade. Total annual tax credit redemptions have averaged $556 million from 2012 to 2016 and are projected to exceed $600 million by 2018.
The audit said programs that allow tax credits to be redeemed over long periods of time create significant liabilities to the Missouri budget, which in turn creates “uncertainty in the budget process.”
The report suggested changing tax credit programs to reduce the period of time during which credits can be redeemed.
The report also said low income housing and historical preservation programs were inefficient tax credit models. It said not every dollar invested went to the project itself but also went to pay investors and tax credit syndicators.
“There’s an industry around it,” O’Byrne acknowledged, adding that, “when you look at the product at the end of the day and what they’re able to do for the economy and surrounding community, the positives far outweigh the negatives.”