Here’s how former Missouri Sen. Matt Bartle, R-Lee’s Summit, once described the state’s love affair with tax credits as an economic development tool:
“We have become drunk on tax credits,” Mr. Bartle said. “Absolutely drunk. The tax credits are eventually going to squeeze the middle class taxpayer so extraordinarily.”
That was in 2007.
That year, various tax credit programs siphoned $470 million out of Missouri’s treasury. That’s $470 million that didn’t go to schools, or roads or public safety. Last year, the state’s potpourri of tax credit programs broke a record and reduced the funding available for other programs by $629 million.
Talk about drunk. The blood-alcohol content is skyrocketing.
In six years, tax credit spending has increased by $159 million. General revenue education spending for K-12 schools in the same time period has only risen $107 million; as a percentage of the budget, it’s actually gone down.
Missouri’s gone from tipsy to wasted in less than a decade’s time.
Part of the problem is an old one in Missouri: Despite a strong push from Gov. Jay Nixon, a Democrat, and many conservative Republicans in the Senate, lawmakers have been unable to overcome the power exerted by key developers (and contributors) who profit from the tax credit programs.
Another problem was outlined by Post-Dispatch reporter Jeremy Kohler in his report Sunday on the $7.8 million in brownfield redevelopment tax credits used to help pay for the demolition and eventual reconstruction of Northwest Plaza shopping center in St. Ann’s.
Mr. Kohler described a situation, completely legal under state law, in which one business — in this case Environmental Operations Inc. — tells the state what work is needed to accomplish an environmental cleanup. Then the same company controls the bidding process for such work. Then it awards much of the work to itself, all with the state seal of approval.
The owner of Environmental Operations, a company involved in numerous big-dollar development deals in St. Louis city and county, is Stacy Hastie. Mr. Hastie helped write the brownfield redevelopment tax credit law that now benefits his company.
Mr. Hastie defends his work on the Northwest Plaza project. He denies that he overestimated the amount of asbestos abatement necessary so he could inflate the amount of tax credits that ultimately will be available. He said that once the full work is done, the paperwork will line up.
“There will be more eligible expenses than tax credits available when the project is finished,” he told us.
To some degree, the state is protected. In most tax credit programs, the credit isn’t paid until the work is completed and paperwork filed.
But in one regard, the taxpayers have no protection.
In the case of Northwest Plaza, for instance, Mr. Hastie’s company sought and received a bid for asbestos remediation from CENPRO Services of Madison. The company offered the lowest bid among those it sought.
Mr. Hastie never showed the bid to the state. Instead, he awarded the bid to his own company.
Now, he says, he regrets not passing the information on to the state.
“Hindsight being 20-20,” Mr. Hastie said Monday, “I wish I would have shown that bid to the state.”
He defends the reasons why he determined the CENPRO bid didn’t meet proper specifications, but he said he understands how the situation might look to outside eyes.
In an interview, Mr. Hastie conceded that requiring some sort of outside party to certify projects would be a reasonable reform to the brownfield tax credit program.
We’d go even further.
No government funding for million-dollar redevelopment work should ever be awarded without an open, competitive bidding process that protects taxpayers.
The over-arching issue in the case of tax credits, be they for brownfield programs or historic redevelopment or low-income housing, is that well-connected developers have taken advantage of a noble cause and turned the system into one that allows taxpayers to be pick-pocketed.
Compare, for instance, the low-income housing program and brownfields.
Both are good programs on their face. One offers incentives to provide housing for seniors and other low-income people. Without government help, that housing might not get built. The brownfield credit offers incentives to develop older, sometimes abandoned properties. Both programs require projects to be analyzed for a return on investment before credits are awarded.
Mr. Hastie helped write the brownfield law and is the primary beneficiary of it.
Developer Jeffrey Smith of Columbia helped write the low-income tax credit law and is the primary beneficiary of it.
Both men are active players in the no-rules atmosphere of campaign finance in Missouri politics, using their money to influence public policy. Both men also sell the tax credits they collect to finance their work on the market for less than their face value, allowing big corporations to reduce their state tax bills.
The financial incentive for corruption is built right into the system.
Yes, some good is done. The question is, at what cost?
Part of the price Missourians are paying for the legislature’s failure to reform the tax credit system is loss in the trust of government.
Mr. Bartle knew in 2007 what any fair examination of the facts regarding the Northwest Plaza redevelopment shows us today: Missouri’s tax credit incentives are in serious need of a 12-step program.
As in any 12-step program, Step One is to admit you have a problem.
Reprinted with permission from the St. Louis Post-Dispatch.