Lawmakers have yet to make major cuts to state tax credit programs
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Lawmakers have yet to make major cuts to state tax credit programs

Date: April 24, 2013
By: Marie French
State Capitol Bureau
Links: SB 120, HB 698, SB 20, SB 10

JEFFERSON CITY - Despite touting it as one of this year’s legislative priorities, Missouri lawmakers remain divided on reducing the state’s tax credit programs.

Instead they’ve opted multiple times to create new tax credits and extend others. Among the first bills sent to and signed by Gov. Jay Nixon were ones that extended benevolent tax credits and created a tax incentive for organizers of amateur sports events.

While several other bills related to tax credits have passed in one chamber or another, significant pieces have yet to make it to the governor’s desk. Nixon has previously called for the scaling back of tax credits for developers that cost the state hundreds of millions of dollars per year.

During a Senate committee hearing Wednesday, Rep. Anne Zerr, R-St. Charles, presented her omnibus tax credit bill as a starting point for discussion between the two chambers.

“More than anything, this is an attempt to keep the discussion going,” Zerr said. “This is not a perfect bill.”

Zerr’s bill, clocking in at 104 pages, deals with more than 25 different tax credit programs. It lowers caps and eliminates some tax credits while creating or extending others.

The bill includes incentives for the creation of data storage centers, investments in startups and promoting international trade at Lambert-St. Louis International Airport. The measure would also reauthorize tax credits for investments in businesses located in lower income areas and reduce caps for two of the state’s most expensive tax credit programs -- the historic preservation credit and low-income housing tax credit.

The Senate Jobs Committee did not take any action on the bill immediately after the hearing, but Committee Chairman Sen. Eric Schmitt, R-St. Louis County, said a vote would be taken promptly on a substitute identical to one that passed the Senate in February and has been stalled in the House since.

For the last couple of years, the House and Senate have gridlocked over tax credits for developers. The Senate has pushed deeper cuts in developer tax credits than the House has been willing to accept.

Currently, there is a nearly $280 million difference over three years between the budget effects of the House-passed version of the bill and a substitute pending before the Senate committee, which has been approved by the full chamber.

Between expanded business tax breaks and tax-credit cuts, legislative staff estimate the House-passed version would cost $66 million in lost tax revenue for state government revenue in the 2016 budget year. The substitute pending before the Senate committee would have a positive tax-collection effect for the state of up to $51 million in the same year, according to legislative staff.

With just three weeks left before the automatic adjournment of the legislature on May 17, there were some words similar to past sessions when the House and Senate have failed to reach agreement on the issue.

Sen. John Lamping, R-St. Louis County, said tax credit reductions would not happen this session.

“The House doesn’t want to do reform,” Lamping said. “We’re on a different page of a different book. Ours is a reform book, theirs is a different book where they want to keep doing economic development through tax credits.”

Lamping said the House wants to create new programs while the Senate wants to reduce the cost to the state. He criticized Zerr’s proposal because of the estimated cost to the state’s general revenue.

Zerr, however, said she remained optimistic about the possibility of dealing with tax credits before the end of the session.

“There’s time if the parties want to work together,” Zerr said. “I think both sides want meaningful reforms.”

She said the biggest sticking point is the caps. While her bill lowers the caps, it does not lower them to the extent of the Senate proposal. Schmitt agreed caps on the historic preservation and low-income housing tax credits were one area that would have to be negotiated on.

“That’s traditionally been where some of the biggest fault lines are,” Schmitt said.

Schmitt said there was still time to come to an agreement in conference committee now that the House has formulated its position. He said moving forward with a bill the Senate has already passed rather than trying to alter the House proposal would give the most room for negotiations to take place in conference.

“It gives everybody plenty of room,” Schmitt said. “Hopefully there’s enough time."

Schmitt said that new tax credit programs would be part of the compromise since there’s support for them in both chambers. He acknowledged that several members of the chamber have particular programs that they consider to be priorities.

Schmitt said his priority is the incentives to make the St. Louis airport an international trade hub. He has pushed similar proposals in the past, which have been referred to as “China hub” since the incentives were originally designed to attract businesses from that country.

“I think for me the airport is important for the long term vitality of St. Louis,” Schmitt said.

During the hearing Wednesday, Sen. Jamilah Nasheed, R-St. Louis City, questioned whether a compromise could be reached before the end of the session. She said there needs to be less dialogue and asked why the leaders in both chambers hadn’t already hammered out a compromise.

“We have too many cooks in the kitchen,” Nasheed said. “Everybody is putting their recipe in and you end up with a bad meal.”

Nasheed said she was a big supporter of certain tax credit programs. She specifically referred to the Distressed Areas Land Assemblage credit, which is used to offset the cost of purchasing large tracts of land in low-income areas for redevelopment.

“I don’t think it should get stuck with the historic and low income credits,” Nasheed said.

Expansion of the land-assemblage tax credit is in the House version. The tax credit was designed for a development project in Nasheed’s district and backed by the St. Louis mayor.

Paul McKee, the developer behind NorthSide Regeneration, has been tied up with a lawsuit against his plan to redevelop nearly 1,500 acres in north St. Louis since 2010. The Missouri Supreme Court ruled earlier this month to overturn a lower court’s ruling blocking the development. McKee testified in favor of Zerr’s bill, which includes provisions to extend and expand that tax credit, on Wednesday.

The substitute before the Senate committee, identical to the bill already passed by the full chamber, does not include the land assemblage tax credit.

Other tax credit programs senators are pushing for include providing incentives for investments in startups, known as the Angel Investment Incentive Act. Senate Democratic Floor Leader Jolie Justus, D-Kansas City, has identified that credit as a top priority for Kansas City.