Nixon looks to tax credit reform to solve education budget crisis

JEFFERSON CITY - Gov. Jay Nixon held public teleconferences Tuesday to discuss his plan on reforming Missouri tax credits in spite of having less than three weeks left for the General Assembly to take action.

University of Missouri Chancellor Brady Deaton, opened the first conference call, applauding Nixon for his commitment to higher education and stressing the critical nature of passing some sort of reform immediately.

Last week, the governor met with public school teachers and leaders from elementary and secondary schools as well as community and four-year colleges and universities to discuss making a comprehensive plan for tax credit reform legislation.

Teleconference participants were mainly from higher education boards throughout the state, and most callers who posed questions supported Nixon's initiative to reduce or eliminate certain tax credits.

During the teleconference, Nixon outlined three general ideas for tax credit reform: tax credit caps, accountability and transparency.

"The growth of entitlement tax credit programs in Missouri is simply unsustainable," Nixon said. "Over the last ten 10 years, the use of state tax credit has ballooned to $585 million a year. That's an 86 percent growth."

Nixon said Missouri has a total of 60 different tax credit programs. He singled out two programs, Missouri's historic tax and low-income tax credits, as areas through which the state could save between $150 and $170 million in expenditures with his proposed reductions.

In 2008, Nixon said Missouri spent nearly $161 million on historic tax credits, and in 2009, the state expended $186 million.

Diza Eskridge, a member of Missouri Western State University's Board of Governors, said the historic tax credit program is out of control.

Another caller said he couldn't "believe we're in a situation where we're weighing the importance of historic tax credits versus educating our workforce and leaders of tomorrow."

"It sounds silly that this is even an argument, that we're either going to fix up an old building or educate a young person," the caller said.

Referring to a report created by State Auditor Susan Montee, Nixon said Missouri approved $176 in low-income tax credits in 2007, the second highest of any state in the U.S. The governor said California, whose population is about six times the amount of Missouri's, spent half the amount Missouri did on low-income tax credits in 2007.

But with only three weeks left in the General Assembly legislative session, the tax credit reduction bill would have to pass both the House and the Senate before appearing on the governor's desk to be passed into law. Nixon said he is optimistic, and with one of the most seasoned and experienced legislatures Missouri has had in history, he said he thinks the General Assembly will act swiftly and with support for tax credit reduction.

"The vast majority of both the House and the Senate support the controlling, the accountability and the transparency of (reform)," Nixon said. "We just have massive special interests pushing on the other side."

After Nixon spoke, state Budget Director Linda Luebbering provided an outlook at the monumental budget deficits the state must overcome.

Luebbering said Missouri's budget relies heavily on state income taxes, which comprise 65 percent of general revenue taken in by the state. As a result, she said sales tax, which accounts for nearly 25 percent of Missouri's general revenue, has declined.

"When people aren't working, they aren't buying things, and our second largest source of income comes from sales tax" Luebbering said.

In 2007, Missouri spent $470 million on tax credits, and Luebbering said for fiscal year 2011 the tax credit amount has been projected to reach $670 million.

"At the same time that we've had to make some serious reductions in basically every area of state government, tax credits have continued to climb," Luebbering said.

Director of Economic Development David Kerr said reform would provide the state with the right tools to provide Missouri with better funded education and economic development.

Nixon has restricted nearly $1.2 billion in budget spending since becoming governor, and $900 million of that comes from this year alone. He has made recommendations to the House and Senate to trim an additional $500 million from the fiscal year 2011 budget to maintain a balance budget for the following fiscal year.

Nixon ended the teleconference with what he said would be the implications of not passing tax credit reform as soon as possible.

"There will be significant constraints on the budget, and the budget challenges we have faced this year will magnify in years to come."