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Bill would require accountability from tax-credit recipients

January 13, 2004
By: Christie Smythe
State Capital Bureau


Missourians would learn more about businesses that are getting special tax breaks under a plan to be proposed in Missouri's Senate.

Tax subsidies to the tune of tens of million of dollars are issued to businesses every year that participate in one of about 50 state programs -- with the expectation that those businesses provide public benefits, like bringing new development to impoverished areas or preserving historic buildings.

Yet so little information is gathered about the recipients of the credits, a joint Missouri House and Senate committee found, the state can't determine whether they are making good on their commitments -- or how many claims for business tax deductions of thousands or millions of dollars are just plain fraud.

Wednesday, Sen. Michael Gibbons, chairman of the Joint Committee on Tax Policy, will introduce legislation that would require more accountability from recipients.

The bill follows recommendations by the committee, which included requirements that yearly audits be submitted by businesses to justify why they're receiving credits. Recipients might also be subject to government inspection.

Failure to meet the reporting requirements should result in a reduction of the credit, and the tax credits should be taken away if the claim is found to be bogus, the committee recommended.

Attention was drawn to the issue of tax credit fraud following a November investigation by the St. Louis Post-Dispatch, which found that $2 million in tax credits had been provided to a dozen businesses fraudulently claiming to participate in the Rebuilding Communities program. The program offers incentives for providing public benefits in distressed communities like increasing high-tech business, transportation and home ownership among other things.

Although Gov. Bob Holden recommended cutting the Rebuilding Communities program -- which is now under investigation by the state Attorney General -- committee members said they don't have enough information about the programs to decide what needs to go on the chopping block.

"I think there's really a minimal amount of fraud, nothing has pointed to massive amounts of fraud," said committee member, Sen. Joan Bray before Monday's hearing. A Democrat from St. Louis County sponsored legislation establishing the program 1999. She said the incident reported in the Post-Dispatch was isolated.

Gibbons said fraud may be much more widespread, however.

"When you're dealing with tax credit programs that overall are putting out hundreds of millions of dollars' worth of tax credits, it's certainly conceivable that there are problems out there," he said.

Holden had also advised the committee to address programs that might be inefficient or not well-administered. The substantial growth in the number of programs in the last eight or 10 years, without accompanying step-up in oversight, is partly to blame for inefficiency, Bray said.

"I wish we'd been wise enough to make sure we were doing this from day one and then we would minimize abuse," she said.

According to the report, representatives has testified to the committee, and cited an inadequate number of workers as a reason for not collecting thorough information on tax credit recipients.

Historic Preservation credits and tax credits for manufacturing facilities creating new jobs and capital investments are two widely-used programs throughout the state and throughout the Columbia area, said David Meyer, marketing director of Columbia/Boone County Regional Economic Development. Businesses in Boone County were issued at total of about $2 million in various tax credits over the last year, according to information provided by the state Department of Economic Development.

About 40 percent of the amount was issued to participants in the Neighborhood Assistance program, such as the Central Missouri Food Bank, the Boy Scouts of America Great Rivers Council and Central Missouri Counties Human Development, an agency that administers government-funded social programs.

None were issued for the Rebuilding Communities program called into question following the Post-Dispatch report.

Committee members said there has been substantial concern about cutting the programs.

"I answered letters from people who are scared to death we're going to end the Historic Preservation tax credit," said committee member, Rep. Shannon Cooper, Clinton.

Protecting the programs that provide substantial public benefit, and the interests of the market for selling tax credits were two of the concerns said they hoped would be addressed in the legislation.

At the hearing, Gibbons said the bill introduced would deal in "generalities" in terms of an overhaul of the programs' oversight. It would probably get more program-specific as it moves through the legislative process.