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Capitol Perspectives: Tax Credits and Term Limits

Phill Brooks
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Missouri State Capitol 1, Getty Images, Dennis MacDonald
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A major division in Missouri government that has created a near gridlock on a key issue for the state might be having its last hurrah. And you can give the credit to legislative term limits.

The issue is tax credits given to special interests, developers, businesses and various social activities.

Collectively, tax credits now cost the state more than $500 million per year — as high or higher than the state’s current budget shortfall.

There are tax credits for developers to build low-income housing and renovate historic buildings. Those are two of the biggest. There also are tax credits for adopting children and for lower income elderly homeowners and renters. Some of the state’s key economic development programs involve tax credits to business for creating new jobs.

A tax credit is almost like money that can be spent to pay state taxes. It is a credit that can be applied against a state tax bill in some period of time after it has been issued, usually five years.

Part of the problem is that because many tax credits do not have to be redeemed immediately, there is not a degree of certainty as to the financial impact to state revenues in any given year. If a major developer tax credit were eliminated today, it would take five years before the revenue savings for the state budget would be fully realized.

For the past few years, there has been building opposition in Missouri’s legislature to the rapidly growing cost of tax credits. A coalition in Missouri’s Senate has argued for putting lower caps on tax credits, requiring periodic legislative reauthorization of tax credits and more direct legislative control over the annual amount of tax credits that could be issued.

A couple of years ago, Gov. Jay Nixon added tax credit control to his legislative agenda.

But those calls for tighter controls of tax credits and reductions have met stiff opposition in Missouri’s House. During the last special session, the House overwhelmingly rejected, 17-131, an amendment to require periodic re-approval by the legislature for historic buildings and low income housing tax credits.

House leaders argued that requiring periodic legislative reauthorization would give any one member of the Senate the power to kill a tax credit program by filibuster. And, they argued the tax credits have been a powerful tool for revitalizing by local communities.

But opposition to tax credits has become so strong in the Senate that the chamber was willing to let the main economic development issue for the special session die if the House would not agree to scale back tax credits.

That opposition, however, might be seeing its final days because of term limits. The core of the group that has fought to scale back tax credits is serving its last year in the Senate.

Gone next year will be Senate President Pro Tem Rob Mayer, Jason Crowell, Luann Ridgeway and Chuck Purgason. Brad Lager becomes term-limited two years later.

Purgason, the Senate’s Ways and Means Committee chairman, concedes that time is running out for his coalition. “A lot of stalwarts on tax credits will be gone,” he said in a recent interview.

House Speaker Steve Tilley expressed the same sense about the potential for a fundamental shift in the Senate on tax credits when we discussed this issue earlier this year.

Tilley noted that among the new leaders who could emerge in the Senate is his predecessor as House speaker, Ron Richard. As speaker, Richard led the fight against Gov. Jay Nixon’s efforts a few years ago to scale back tax credits.

He became one of the strongest champions for tax credits as an economic development tool. He was powerful in his warnings that a period of economic downturn was not the time to back off on tax credits.

It has been one of the major predictions of term limit-critics that the Senate would become similar to the House because of a more frequent turnover of senators being replaced by House members.

Next year, tax credits might be the first clear policy shift to be seen from term limits.

On the other hand, there are newer Senate members who are just as fiscally conservative as the departing old guard. But I do not sense that they are going to be as dominate a coalition or as forceful on this issue.

And do not forget, Richard had the political skills to gather the votes to get elected to most powerful position in Missouri’s House. That’s a point Tilley made — do not under-estimate Ron Richard.

As always, let me know (at column@mdn.org) if you have any comments. If you would like your comments, or a portion of them, included in a future column, let me know and be sure to include your full name in your email. Past columns are available at www.mdn.org/mpacol or here.

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