UPDATE: Missouri state auditor pushes for limits on tax credits

Monday, April 26, 2010 | 6:54 p.m. CDT; updated 10:12 a.m. CDT, Tuesday, April 27, 2010

JEFFERSON CITY — The state auditor called for more controls on tax credits Monday, leaving the legislature with less than three weeks to take action.

An audit released by Auditor Susan Montee's office cited inaccurate fiscal projections and a lack of government controls as the sources of grave inefficiencies within the state's tax credit program.

But the move was met with criticism from House Speaker Ron Richard, R-Joplin, who responded by calling the audit part of a "dangerous and damaging political game" being played by Montee and Gov. Jay Nixon, both Democrats.

Just last week, Richard said he would reject the governor's call to reform tax credits this year and to reduce future funding by half, to around $314 million. Kristen Blanchard, a press representative for Richard, confirmed that the House speaker stands by his earlier statement.

"This session we just don't have the time," Blanchard said. "Any reform needs to be objective, responsible and thought through."

In response, the governor's office stressed the urgent need for tax credit reform and warned that a lack of action now could lead to exacerbated problems in the future.

"Unless we make long-term structural changes, we're going to be here year after year," Jack Cardetti, a representative for the governor, said. "There is more than enough time to tackle the problem."

The governor is scheduled to have a public conference call with members of the Council on Public Higher Education and Missouri Community College Education presidents and the governing board members for each institution on Tuesday evening. Last week, education leaders met with Nixon to support his push for tax credit reform. He said when education is being cut, tax credits should be on the table, too.

According to the audit, state spending on tax credits exceeded official government estimates by $1.1 billion over the past five years. Montee said the gap resulted from incorrect "fiscal notes," or official cost estimates overseen by the state Oversight Division.

Montee said the inaccurate cost projections were acting as a hindrance to productive legislative action on the part of lawmakers.

"Even if the legislature is getting this information, the data is faulty," Montee said. "The information is just not there."

According to Montee, approximately 3,000 fiscal notes are produced during a typical legislative session. In addition to those fiscal notes that are calculated incorrectly, Montee said, the fiscal impact of a measure is often listed as unknown if it is too difficult to predict. Tax credits that did not have fiscal impacts listed amounted only to more than $3 million out of more than $2 billion in credits issued.

Montee also blamed a lack of government regulation on state overfunding of tax credits. She said only a handful of tax credits had clear limits on funding; for all others, there is no cap on the amount of money the state can commit.

This deficit of government control has resulted in gross overspending, she said. Last year, the state paid $584 million to tax credits, an increase of 57 percent since 2001. In the same time period, the state's general revenues grew at only about one-fourth of that rate, or 15.7 percent.

Montee said those numbers indicated a need for further government regulation of tax credits, specifically by putting cost controls in place for spending on individual tax credits.

A tax credit is a type of government subsidy provided to businesses in the form of a reduction in the taxes they pay.

"If we're going to have (tax credits), which we do, and if they're going to be off on their projections, which they are, then we need to have some things in place that could rein them in without a heated political debate over each individual one," Montee said.

Even so, Montee said the legislature likely will not have enough time to address the problems in full. With only three weeks remaining in this year's legislative session, Montee said lawmakers should view tax credit reform with a wider lens.

"Any action that anyone takes on this is a long-term project," she said. "It can't affect something tomorrow."

Richard said his position was that delaying legislative action was in the best interest of the state.

"Missourians need jobs," Richard said in a statement. "Therefore, the Missouri House will continue to protect responsible economic development programs that create those jobs. And we will have the last word on this matter."

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