Government & Politics

Parson may restart Missouri low-income housing tax credit program without legislature

Missouri Gov. Parson outlines priorities in State of the State address

Missouri Governor Mike Parson outlined his priorities in his State of the State address Wednesday afternoon in Jefferson City.
Up Next
Missouri Governor Mike Parson outlined his priorities in his State of the State address Wednesday afternoon in Jefferson City.

The state hasn’t issued any new tax credits for developers of low-income housing since former Gov. Eric Greitens maneuvered to shut the program down in 2017.

The program helped to create as many as 2,500 housing units each year for Missouri’s most vulnerable residents, including senior citizens, veterans and the disabled. But Greitens railed against the tax credit during his 2016 campaign for governor, calling it a special-interest boondoggle that largely benefited deep-pocketed developers.

Less than a year after being sworn in, he appointed enough members to the tax credit’s governing board to snuff it out.

When Gov. Mike Parson took over following Greitens’ resignation last summer, he was adamant that the $150 million program would remain dormant until the legislature passed significant reforms.

“The reality of it is, it can’t go like it was,” Parson told The Star shortly before the beginning of the 2019 legislative session. “It’s just not going to work and I’m not going to allow that.”

But with time running out before the legislature must adjourn for the year at 6 p.m. Friday, and with the Senate and House at a stalemate on the issue, Parson has changed his tune.

The governor’s office said this week that Parson will take steps to revive the tax credit without the legislature.

“The governor has been pretty clear for the need for reform and accountability measures before restarting the program,” said Steele Shippy, communications director for the governor’s office. “The governor would prefer legislative reforms. But if (the legislature) is unable to get that done, he will consider what steps administratively could restart the program.”

The move is not completely unexpected. Parson is a longtime champion of the tax credit, and many of its biggest supporters and inner circle of advisers have deep ties to the industry.

Next week Parson will attend a fundraiser in St. Louis hosted by several prominent businesses and individuals in the low-income housing industry. Each of the co-hosts has pledged to donate $25,000 to Uniting Missouri, a pro-Parson political action committee.

“We are having events all across the states and have been for a while,” said John Hancock, chairman of the pro-Parson Uniting Missouri PAC.. “We’re getting support from a broad cross section of donors and a myriad of industries.”

House Majority Leader Rob Vescovo, R-Jefferson County, panned the idea of unilateral action by the governor.

“It would be irresponsible,” he said, “to reinstate the low-income housing tax credit program without the substantive reforms approved by the House to make the program more accountable and transparent.”

Sen. Scott Sifton, D-St. Louis County, said the program should have never been shut off in the first place.

“When Gov. Greitens and his appointees shut things down, it was absolutely unnecessary and hurt lots of Missourians’ access to affordable housing,” he said. “And Gov. Parson has not reversed that and should have already.”

The tax credit was not just controversial because of its image as free lunch for developers. While fending off criminal charges and likely impeachment, Greitens accused the low-income housing industry of conspiring to publicize allegations of sexual misconduct against him that upended his political career.

He asked the House committee investigating him as a precursor for impeachment to subpoena Sterling Bank, which his attorneys believed was involved with $120,000 in cash payments Missouri Times Publisher Scott Faughn made to the attorney of the ex-husband of the woman who accused Greitens of coercive and violent sexual misconduct. Sterling is a co-host of the Parson fundraiser.

The House never issued the subpoena, and Greitens resigned not long after his attorneys made the request.

‘Meaningful reform’

An estimated 100,000 people are on waiting lists for low-income housing in Missouri, a number growing every day that the state keeps the tax credit program shut down, said Jeff Smith, the executive director of the Missouri Workforce Housing Association.

“It means more people getting left out in the cold,” Smith said.

Congress established the federal low-income housing tax credit program in 1986, through which each state receives an annual allotment of federal credits. Missouri lawmakers voted in 1990 to match 20 percent of federal credits, and by 1997 voted to approve a 100 percent, dollar-for-dollar match of federal funds.

The Missouri Housing Development Commission (MHDC), a 10-member board of elected officials and gubernatorial appointees, awards the credits to developers through a competitive process. Developers sell the credits to generate equity for their projects.

The program has been instrumental in several Kansas City projects, including the St. Michael’s Veterans Center for homeless veterans, Curls Manor and Paseo Gateway.

But studies over the years have questioned its efficiency.

A 2017 report from State Auditor Nicole Galloway found that only 42 cents of every $1 of credit was used for low-income housing projects. Her findings match those of previous state auditors.

A committee established by Greitens suggested transforming the tax credit into a low- or no-interest loan program.

Because the tax credit has been frozen since 2017, both sides of the issue have finally been forced to the negotiating table, making it possible to enact “meaningful reforms,” said Rep. Derek Grier, R- Chesterfield.

If the program were to restart without those reforms, Grier said, the opportunity will have been wasted.

“This is the largest tax credit program in the state and one of the largest in the country,” Grier said. “We have a responsibility to make sure it is as efficient as possible.”

House vs. Senate

In response to Parson’s demand that lawmakers revamp the program, the Missouri Senate unanimously approved legislation earlier this year that would cap the amount of credits issued at 72.5 percent of the federal level.

Last week the House overwhelmingly approved its own version of the bill that keeps the 72.5 percent cap but adds a hard dollar limit of $123 million annually.

The changes would reduce the credits allocated over 10 years by around $600 million.

The House bill would also create a scoring system to evaluate the merits of project submissions and would allow developers to transfer credits between projects in certain circumstances.

These reforms are “impossible to argue against,” said State Treasurer Scott Fitzpatrick, a Republican and longtime critic of the program who serves on the MHDC.

“Our research says other states do all these things and have functioning tax credit programs that are operating fine and their credits are generating more equity,” he said.

Vescovo said the Senate bill just didn’t go far enough.

“I don’t want to kill the program, but I think there needs to be more accountability,” he said. “I want the opportunity to get this across the finish line, but it needs better transparency measures.

Proponents of the credit have expressed little concern about the scoring system. And while they’d prefer the program return at full capacity, most have gotten on board with the 72.5 percent cap.

The hard dollar cap has caused heartburn in the industry because it does not fluctuate based on inflation or population growth. And the transferability provision has sparked concern that it could create uncertainty in the market and tax issues for those involved in the program.

Fitzpatrick said he believes the MHDC can implement much of the House bill without legislative approval, with the exception of the transferability.

Smith said there are a lot of misconceptions about how efficient the low-income housing program really is.

Credits are selling for 60 cents on the dollar, Smith said, and only a fraction of the remaining 40 cents actually goes into the developer’s pockets.

“The so-called greedy developer, out of every tax credit dollar the developer gets about a dime,” Smith said. “From that dime, a developer has to pay overhead, taxes, and pre-development cost.”

Tax credits are not redeemed until after all units in the development are filled. And then only one-tenth of the award is issued every year for 10 years.

“No bank would loan you a dollar today in exchange for a dollar in 13 years,” Smith said. “A lot of people say we need to reform the program, but when you get right down to it, the program already operates pretty efficiently. And it helps thousands of people every year.”