Thursday, June 22, 2017

State auditor issues report on impact of tax credits

(From State Auditor Nicole Galloway)

Missouri State Auditor Nicole Galloway has released an examination of the state's tax credit programs. The audit, which was conducted as part of the State Auditor's Budget Integrity Series, shows a $3 billion tax credit liability that extends at least into the next 15 years due to credits that have been authorized by the legislature, but not yet redeemed. In addition, tax credit programs have cost the state $5.4 billion over the past decade.

Tax credits are authorized by the General Assembly to give businesses or individuals a break on taxes owed to the state. Tax credits are not considered state expenditures and may be redeemed years after issuance. The impact on the budget can be volatile and even if the number or amount of tax credits were reduced immediately, the state's financial obligation would continue well into the future.

"Tax credit programs serve a purpose, but each one must be regularly analyzed for efficiency, effectiveness and to ensure they meet desired purposes," Auditor Galloway said. "Budgets are about priorities and the impact tax credits have on the budget has to be considered."

Tax credits have been redeemed at a growing rate in Missouri, with a 20% increase in redemptions of all tax credit programs in the state over the past 10 years. The examination noted the current process makes it difficult for policymakers to get access to information about the cost of the tax credits because of incomplete or inaccurate information provided by the Department of Economic Development and other state agencies. The audit noted a $50 million understatement of outstanding tax credits reported in fiscal year 2016. Additionally, legislators do not have a clear picture of the amount of tax credits allowed under the law because funding limits are unclear for some programs and non-existent for others.

"Policymakers need accurate and realistic data on tax credits in order to weigh the social and economic benefits against the impact on the state's finances," Auditor Galloway said. "The General Assembly must demand more from the agencies that are charged with administering these programs. My report provides clear recommendations to improve this process and the administration of tax credit programs."

The report makes recommendations to address costs and improve data integrity, including reducing the amount of time tax credits can be carried forward, along with more clearly defining annual or cumulative cost limits. Auditor Galloway is also pushing for new processes to ensure accurate benefit-cost analyses, since the Department of Economic Development reports a majority of tax credit redemptions have negative benefit-cost ratios.

The audit primarily reviewed seven high-cost tax credit programs in Missouri, which account for more than 75% of all tax credit redemptions in the state over the past 4 fiscal years, including the Low Income Housing Tax Credit, Senior Citizen Property Tax Credit, Historic Preservation Tax Credit, Missouri Quality Jobs, New Market Tax Credit, Infrastructure Development Tax Credit, and Missouri Works.

A complete copy of the report is available online here.

1 comment:

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