Government & Politics

‘Sweetheart deal’ or ‘wording issue’? Missouri tax credit tailored for Burns & McDonnell

When Gov. Mike Parson signed his centerpiece economic development bill earlier in the month, lawmakers and state officials gathered around his desk to praise its $50 million in tax incentives for General Motors’ Wentzville plant and the new programs for workforce training.

But there was one provision of Senate Bill 68 that went unmentioned: expansion of a tax credit tailored solely for the benefit of Kansas City’s Burns & McDonnell, a measure that could cost the state more than $300 million over the next 15 years.

The tax break, known as the Business Facility Tax Credit, has been on the books since the late 1990s. It allows the architectural and engineering firm’s physical property in Missouri — buildings, leased space, equipment, machinery and furniture — to be claimed as a capital investment and applied against the value of the credit. Calculations include either the original cost of the property or eight times the rent.

Since 2011, Missouri has issued $39 million in tax credits to Burns & McDonnell, according to state records. The company can receive credits for every 25 new jobs it creates and $1 million it invests in its headquarters.

The expanded credit, inserted into the economic development package with almost no debate, will cover not just its physical assets but investment in cloud computing services. It would allow the company to claim 8 times the value of a software license.

In the past, when the company wanted software updates, it would send for CD-Roms in the mail. Now, they come through the cloud.

“We always used to back up our Apple computers to hard drives,” Denny Scott, Burns & McDonnell chief financial officer, said. “Now we push it up to Apple Cloud.”

Benefits offered to other Missouri companies under the same tax credit were phased out in 2005. The definition for those who qualify now leaves very little room for other contenders.

Eligible firms must be architectural, engineering or accounting businesses headquartered in Missouri for more than 50 years with at least 500 employees and a $20 million investment in the state.

“That would be us,” Scott said, with a chuckle, when he was read the description.

The arrangement is a measure of the the clout wielded by the company known colloquially as “Burns & Mac,” founded in Kansas City in 1898 and now a global powerhouse with 50 offices and annual revenues of more than $2 billion. It is also one of the state’s most active corporate contributors to political campaigns and underwrites five lobbyists in Jefferson City.

Scott said that for years the tax credit has been a “highly key factor” in the company’s expansion in Missouri--from 2,200 employees to about 3,600 over the last decade. Since 2012, it has averaged $300 million a year in capital investments in the state.

“It’s been a great return for the state of Missouri,” Scott said.

The tax credit expansion was championed by Republican and Democratic lawmakers from the Kansas City area, some of whom believed that if General Motors was to receive $50 million in tax credits to retool its Wentzville plant, the major employer in their backyard should be rewarded, as well.

State Rep. Jeff Coleman, R-Grain Valley, the sponsor of the expansion, downplayed the measure, calling it “a wording issue.” Rather, the legislation represented an update to the needs of businesses.

“People are renting space online now,” he said.

Scott lauded lawmakers for recognizing the company’s changing technological needs.

“They are recognizing how we operate and we are operating much more in the cloud than we ever have in the past,” Scott said.

And though some lawmakers knew Burns & McDonnell would benefit, many were not aware it was the only company to have received the credit in the past.

State Sen. Cindy O’Laughlin, R-Shelbina, said taxpayers shouldn’t have to foot the bill for Burns & McDonnell to replace their software.

“It’s rigged,” said O’Laughlin. “They can afford to send people here to be here every single day and go around and meet different senators and figure out who’s the most likely to go along with them and write them a deal that’s a sweetheart deal that lands on the back of the middle-class taxpayer. We are supposed to think that’s a good deal? It’s a good deal for them.”

The actual long-term cost to the state in lost revenues is not clear.

A legislative staff estimate, or fiscal note, placed it at $21.6 million a year for 15 years. Researchers based their findings on information provided by the Department of Economic Development (DED).

The fiscal note said last year Burns & McDonnell attempted to receive $36 million in tax credits that included investments in software but was turned down by the department.

“DED told (legislative researchers) the statute is written for a specific company that tried to get this amount previously but was denied because a software license is not real and depreciable personal property,” the fiscal note stated.

Shortly after the fiscal note was created, a Burns & McDonnell lobbyist sat down with researchers to complain the fiscal note was too high, according to a meeting log obtained by The Star.

In an interview the day after the bill passed, Coleman said the fiscal note was wrong but could not articulate why. He argued that fiscal notes created by legislative researchers were often incorrect.

“The people who are working with me here in the House were the ones who told me this,” Coleman said, when asked why he thought the fiscal note was incorrect. He would not name his source of information.

Coleman then pointed to a fiscal note attached to a 2015 bill that he regarded as the correct cost: $5.2 million a year. That bill was to extend the tax credit, which had been set to expire, until 2025. It did not mention the new benefit designating software as investment.

“We are allowing any funds they are currently getting to be split between data storage on site and data storage in the cloud,” Coleman said. “That’s the only change.”

Scott noted that the only way the company would be eligible for the credit if it proposed to increase its investment. Last year, it invested about $450 million in capital expenditures.

Since there is no limit in state law on how many Business Facility tax credits the state can issue, the House Budget Committee, citing the cost in the fiscal note, authorized only $12 million in a May hearing four days before the legislative session ended.

House Budget Chair Cody Smith, R-Carthage, and ranking Democrat Kip Kendrick said the $12 million estimate was based on conversations with Burns & McDonnell representatives.

“We are putting a cap in higher than what we were told that the cost of this expansion - the change in the actual program - would actually cost the state,” Kendrick, D-Columbia, said. “I can’t imagine this change would cause a problem with (Burns & McDonnell) hitting that cap.”

Some lawmakers protested, saying they didn’t want to limit the tax break. State Rep. Deb Lavender, a Kirkwood Democrat, said Burns & McDonnell representatives told her they were “thankful” to not have a cap.

“Earlier this week, we gave a $50 million tax credit to GM with not even an agreement that they wouldn’t lay people off,” state Rep. Greg Razer, D-Kansas City, said during the hearing. “Now we are taking a company that for years and years invested in the state of Missouri and the city of Kansas City, and in my district down the street from my house, and telling them we are capping you at how much we are going to support you in growing.”

Unlike the GM incentives, which were the talk of the legislature and the focus of a 27-hour filibuster in the last days of the session, Burns & McDonnell was barely mentioned in floor debate.

After Coleman introduced the amendment to Senate Bill 68 that changed the tax credit, lawmakers talked about it for 8 minutes before moving on to argue about the General Motors incentives.

“So everyone understands this is a language change to help with evolving technology for a Missouri company that is a great corporate citizen in Kansas City, for our state, and have continued to be here and invest in our state,” Razer said.

“While that is true, there is one company involved in this, it is true for all companies,” Coleman replied.

Though there were references to “a company,” Burns & McDonnell was mentioned once — by Kendrick, who briefly voiced his concern about the potential cost to the state.

While on the Senate floor, throughout the 27-hour discussion, the last week of session, the tax credit change only came paired with veiled references to “corporate welfare.”

“To me, it is the epitome of what we don’t want to do,” O’Laughlin said. “It was written so that only (Burns & McDonnell) qualify for it. I would be willing to bet that 90 percent of the people don’t even understand that it’s in there. Did you ever hear anyone speak about that? I didn’t. Not out loud. Not on the floor.”

State Sen. Denny Hoskins, R-Warrensburg, said lawmakers most likely didn’t spend a lot of time talking about the tax credit because it wasn’t new.

“It wasn’t something that was slipped in the last minute,” Hoskins said, pointing out the measure was publicized through hearings for standalone House and Senate bills that never reached the full chamber. Senate bill sponsor Mike Cierpiot, R-Lee’s Summit, did not respond to a request for comment.

The tax credit change was not mentioned during the bill signing in the governor’s office.

Lawmakers and stakeholders, including a representative from General Motors, crowded around Parson minutes before he signed the bill and touched on different provisions in brief comments. Coleman was present but did not speak.

“It was one of those issues that emerged for us during the course of the legislative process and was not a part of the original discussion from the department’s perspective,” Rob Dixon, DED director, said in an interview after the bill signing.

A press release from the governor’s office outlined four programs that were “designed to meet employer needs and help Missouri compete for major business expansions across the state.” It did not mention the credit.

“The priority for us has always been workforce development and infrastructure,” Parson said, when asked after the bill signing ceremony whether the “Burns & Mac” tax credit was a priority for him.

When asked whether that included the Burns & McDonnell tax credit, Parson laughed and said The Star had already asked its one allotted question.

Crystal Thomas covers Missouri politics for The Kansas City Star. An Illinois native and a graduate of the Missouri School of Journalism, she has experience covering state and local government.