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ANALYSIS: Nixon seeks to cap tax credits he touted

Sunday, April 25, 2010 | 3:29 p.m. CDT; updated 3:49 p.m. CDT, Sunday, April 25, 2010

JEFFERSON CITY — Gov. Jay Nixon flew around Missouri last year touting a new law expanding tax credits for businesses. He said it was essential for Missouri's economy.

Last week, Nixon summoned 70 educators from across the state to the Capitol to call for legislation curtailing tax credits. He again said it was essential for Missouri's economy.

"What gives?" asked Lt. Gov. Peter Kinder, a tax-credit backer and likely gubernatorial challenger who peeked in on Nixon's news conference.

Developers, business lobbyists and some legislators were left wondering the same thing.

What gives is that Missouri's financial woes have worsened to the point that Nixon now views some tax credit programs as a drain on precious state revenues, instead of the seed-money that creates jobs and additional tax revenues.

"Every dollar we spend on tax credits is a dollar that isn't available for K-12 schools to invest in teaching, reading, math and science ... for our community colleges to invest in training nurses, mechanics and lab techs ... for our universities to invest in educating the next generation of teachers, doctors and engineers," Nixon said last week.

"The value of tax credits must be weighed against the cost to our classrooms," Nixon added. "And in the zero-sum game we live in in the state budget, those numbers add up quickly."

Individuals and businesses redeemed about $585 million in state income tax credits last year — an 86 percent increase since 2000. That's four times the growth rate of Missouri's general revenues, which rose by 21 percent during that time.

Nixon has proposed to cap the amount of annual tax credits that can be authorized at around $314 million and merge Missouri's dozens of tax credit programs into six general categories. He also wants to give the Department of Economic Development flexibility over distributing those tax credits.

Republican House leaders, who stood alongside Nixon last year in expanding tax credits, have responded with a firm "no" to his latest proposal. They continue to tout the economic benefits of tax credits and insist that sharply limiting them could wreck havoc on the economy.

The Missouri Chamber of Commerce and Industry, another ally in past tax credit expansions, said Nixon's call to limit tax credits for the sake of education "caught some of the state's leading economic developers by surprise."

Yet it was not entirely out of character.

As a gubernatorial candidate, Nixon both championed and criticized tax credits.

Nixon's 2008 campaign platform called for an expansion of Quality Jobs tax credits for businesses that add positions with average wages and health benefits. It proposed to create tax credits for investors in entrepreneurial start ups and to expand existing income tax credits that offset the property taxes of lower-income seniors.

But Nixon's platform also described Missouri's tax credit system as "broken" and proposed that companies be required to repay tax credits with interest if they fail to live up to their promises.

During his first State of the State address in January 2009, Nixon repeated his call to expand the Quality Jobs tax credit. But he also pledged to appoint a Taxpayer Protection Commission, with one of its tasks being a "thorough review of every tax credit program."

Nixon emphasized: "Tax credits are for creating jobs and strengthening communities, not for padding the pockets of the wealthiest among us."

The Quality Jobs expansion was the centerpiece of the legislation that Nixon enacted and promoted around the state last June. That same bill also expanded the amount of money available for other business tax credits while capping the amount of annual tax credits for the renovation of historic buildings.

Nixon never appointed a Taxpayer Protection Commission. But spokesman Jack Cardetti said the Department of Economic Development did its own review of tax credits, resulting in the recent recommendation to reorganize and limit tax credits to around $314 million annually.

During this year's State of the State address, Nixon made no call for tax credit reform. Instead, he touted the success of last year's expansion of business tax incentives and proposed to give Missouri-based businesses a greater share of the state's existing tax credits. He also proposed a new state financial incentive for biotechnology businesses, which would not involve tax credits.

Neither of those proposals has gained much traction in the legislature, where there is gridlock between those wanting to curtail tax credits and those who continue to defend them.

The governor's apparent evolution on tax credits does not mean he now views them as bad — simply as too numerous, Cardetti said.

"They just have been unchecked, uncontrolled in many ways," Nixon said, "and consequently we find ourselves today in a situation where ... they are sapping in a rising number the assets of the state."


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