MISSOURI TAX CREDITS Brian Schmidt April 16, 2012

Tax Credits: What are they? Dollar for dollar reduction in taxes owed in Missouri Tax credit process Authorized Issued Redeemed Features of tax credits determine their value to the taxpayer and the extent of their use Refundable Transferable Carry-back Carry-forward Clawback or Recapture Streamed over a designated time period

Examples of Tax Credit Programs Feature/ProgramLow Income HousingQuality Jobs Neighborhood Assistance Program Distressed Area Land Assemblage PurposeAffordable HousingBusiness Development Community DevelopmentRedevelopment Carry-back3 yearsNo Carry-forward5 yearsNo5 years6 years RefundableNoYesNo Transferable Yes- within ownership structureYesNoYes Annual Cap 100% of federal credit for 9% credits, $6M for 4% credits$80,000,000$16,000,000$20,000,000 Program CapNo $95,000,000 EntitlementNoYesNoYes DiscretionaryYesNoYesNo StreamingYes, 10 yearsYes, 3-5 yearsNo SunsetNo 8/28/2013

Creation of Tax Credits 1973 Senior Citizen Property Tax Credit 1990 Low Income Housing Tax Credit 1997 Historic Preservation Tax Credit Expansion of Low Income Housing Tax Credit Created 8 tax credit programs 1998 Created 5 tax credit programs 1999 Created 6 tax credit programs

Tax Credits and the Budget Off the budget books Revenue never comes into the state treasury Except refundable tax credits House Budget and Senate Appropriations committees required to review and approve tax credit estimates Form 14

Past Impact of Tax Credits on Budget Fiscal Year Amount Redeemed (in Millions) Amount Redeemed as a % of General Revenue 1999$ % 2000$ % 2001$ % 2002$ % 2003$ % 2004$ % 2005$ % 2006$ % 2007$ % 2008$ % 2009$ % 2010$ % 2011$ %

Future Impact of Tax Credits on Budget Over the next 15 years, Missouri has outstanding tax credit obligations of approximately $2.5 Billion Credits issued but not redeemed $652,165,016 Streaming tax credits $1,415,114,554 Credits authorized but not issued $476,572,618 Most of these credits are front-loaded Impact the budget in the next 5 years

Joint Committee on Tax Policy Review 3 year review of states 61 tax credit programs 2007 Environmental Training and Educational Social and Domestic 2008 Redevelopment Housing Agricultural 2009 Business Recruitment Financial and Insurance Community Development

Senior Citizen Property Tax Credit Program designed to offset the regressive nature of the property tax Renters with incomes between $14,300 and $27,500 ($16,300 and $29,500 for married couples) are eligible receive a refundable tax credit of up to $750 Homeowners with incomes between $14,300 and $30,000 ($18,300 and $34,000 for married couples) are eligible to receive a refundable tax credit of up to $1,100 Program costs $ Million per year

Historic Preservation Tax Credit Incentive to rehabilitate historic buildings- usually these are located in the downtowns of cities Piggy-backs off of a federal program Tax credit is equal to 25% of Qualified Rehabilitation Expenditures Past few years of tax credit authorizations under program have ranged from $ Million

Low Income Housing Tax Credit Provides an incentive for developers to build or rehabilitate rental housing for low income individuals and families Developers are awarded tax credits over a 10-year period (streamed) in exchange for reducing rents for a year period 9% Credits 4% Credits Piggy-backs off of a federal program MHDC can authorize up to 100% of federal credit for each project Program has been authorizing $ Million in tax credits the past few years

HB 191 (2009) First legislation of tax credit reform Capped Historic Preservation Tax Credit $140 million Exemption for small projects ($275,000 or less in tax credits) Capped Low Income Housing 4% Credits $60 million in authorizations Capped MDFB Infrastructure Tax Credit $25 million hard cap

Tax Credit Review Commission 27 member commission appointed by Governor Nixon to study Missouris 61 tax credit programs Members consisted of business, community, education, and legislative leaders from across the state Co-Chairs Senator Chuck Gross Steven Stogel The commission was created in summer of 2010 and was tasked with developing recommendations for tax credit reform by Thanksgiving 2010

TCRC Committees Low Income Housing Historic Preservation Social Contribution/Community Development Senior Citizen Property Tax Credit (Circuit Breaker) Agriculture and Environment Economic Development Distressed Communities Banking and Insurance Tax Law Global Issues

TCRC Major Recommendations Establish caps on programs, where feasible Sunset dates for all tax credits, staggered over 2, 4, and 6 years Do not subject tax credits to appropriations Cap Historic Preservation at $75 Million with an exemption for certain Low Income Housing Projects Cap Low Income Housing at $80 Million ($16 Million each year for 5 years) Eliminate eligibility of renters to receive Senior Citizen Property Tax Credit Eliminate some tax credits Implement a tax law change that is intended to improve efficiency of certain tax credits Consolidate Business Development Programs into One Flexible Program- Missouri Works (last year called Compete Missouri)

2011 Legislation SB 280 HB 116 SB 100 July 20 Agreement SB 7 & SB 8 (Special Session)

2011 Legislation- Key Components Sunsets Mandatory review Extension of existing programs Program Reductions/Establishment of Caps Low Income Housing Historic Preservation Circuit Breaker Brownfield Remediation Program Elimination Self-Employed Health Insurance Neighborhood Preservation Brownfield Jobs/Investment Consolidation of Business Recruitment Programs (Compete Missouri)

2011 Legislation- Key Components Tax amnesty and other revenue enhancements Missouri Science and Innovation Reinvestment Act (MOSIRA) Aerotropolis tax credits $60 million (total) for freight forwarders $300 million (total) for facilities Amateur sports attraction tax credits $3 million Donation-based tax credit Data Centers Developmental disability care provider tax credit Distressed area land assemblage Various other provisions

Scoring Model Tax credits tracked differently Uses past authorization, issuance, and redemption data for programs Accounts for differences of programs Model predicts impact new tax credits and tax credit reforms will have on budget in future Expected value analysis