Accountability in tax-credit program sought

State legislators look to toughen law as allegations of fraud are investigated.
Tuesday, April 6, 2004 | 12:00 a.m. CDT; updated 2:42 p.m. CDT, Saturday, June 28, 2008

When Trent Stober started a business in Columbia two years ago, he might not have picked a small office building near Business Loop 70 to house his water-quality analysis firm, MEC Water Resources. But the state was offering a powerful incentive.

Missouri’s Rebuilding Communities tax credit program, aimed at bringing more high-tech firms to economically depressed areas, allowed him to write off 40 percent of the cost of hundreds of thousands of dollars’ worth of scientific equipment.

With his office not far from bars and cheap motels, Stober sometimes worries about employees who work late into the evening. And in a business where a single analysis instrument can cost $10,000, burglary is a constant concern as well.

But Stober says the benefits of the more than $116,000 in tax credit he’s received are worth the risk. MEC Water Resources now employs seven workers and has been able to take on projects all over the state.

But now, after revelations that more than $2 million in credits went to businesses that apparently didn’t exist, the Missouri attorney general’s office is investigating the Rebuilding Communities program, as well as some of the businesses that have benefited from it.

Stober said he hasn’t been told that his company is one of those being scrutinized by the attorney general. But he said that from talking with legislators, he thinks the program is still being scrutinized.

“I suspect over time something is going to happen with it,” Stober said. “Obviously there were some abuses. That’s obviously unfortunate. I’m sure the state will do whatever it needs to address that.”

Legislators have responded to the fraud cases by sponsoring legislation calling for more accountability. A bill sponsored by Sen. Michael Gibbons, R-Kirkwood, that would require annual audits of companies receiving the credits has been passed by the Senate and approved by a House committee.

Another, sponsored by Rep. Bob Johnson, R-Lee’s Summit, would eliminate all tax-credit programs in distressed communities. Too many of those credits have gone to St. Louis and not to enough areas in the state, Johnson said.

“I’d really like to see it repealed,” he said. “I’m not sure we’re getting much out of the program.”

A spokesman for the Department of Economic Development, Jim Grebing, said that the fraud cases prompted a review of all recipients of the Rebuilding Communities tax credit and that some cases were turned over to the attorney general.

Use of the credit has increased dramatically in the past three years. Gibbons’ office estimates that $5 million of Rebuilding Communities tax credits will be issued in 2004 — more than three times the amount issued in 2001.

Computer consulting firm Delta Systems Group Inc., on South Providence Road, is the only other Columbia business that has received the Rebuilding Communities tax credit — about $4,600 worth for new computers in 2002, according to its owner, Debin Benish.

The Boone County Regional Economic Development Inc. promotes the credit as one incentive available to local businesses, but not many of REDI prospects qualify, said director Bernie Andrews. REDI has tried to help at least half a dozen businesses get some benefit from the credit, Andrews said, with little success.

“Will it get used more? I don’t know,” he said. “It’s certainly narrow in who it qualifies.”

Areas that qualify as “distressed,” mainly the central region including Business Loop 70 and downtown, don’t make good locations for manufacturers, Andrews said, and other businesses that have applied have been denied because they don’t qualify as eligible businesses.

Stober said he’s eligible to write off the cost of original equipment purchases for two more years.

Aside from the economic benefit the Rebuilding Communities tax credit provides his company, Stober said he also sees how his business helps stimulate the area.

“I’m just really disappointed that these other companies have abused the program,” he said. “I think it’s a good program, and I think it’s a good way to develop those areas that obviously need some help.”

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