YELLOW SHEET Office of the State Auditor of Missouri |
April 29, 2002
Report No. 2002-33
State does not track tax
credits outstanding causing inaccurate revenue projections; economic impact studies
on credits still difficult to perform due to poor data
State officials do not track
the total dollar amount of tax credits issued but not yet redeemed. Not knowing
this amount can lead to inaccurate state revenue projections.� In addition, the data collected on many of
the 35 tax credits administered by the Department of Economic Development is
not complete enough to analyze a tax credit program�s economic impact.
State law mandates the State
Auditor�s office analyze the economic impact of each tax credit program.� This report is the second such analysis and
focuses on six programs.� Auditors again
found an impact study difficult, if not impossible in some cases, due to
inadequate data.� In addition, auditors
question continuing the Qualified Research Expense tax credit and call for
closer monitoring of residential projects using the Historic Preservation tax
credit.�
State budget more accurate
if departments cooperated
Economic development officials
track the number of tax credits issued, while the departments of Insurance and
Revenue track the total tax credits redeemed.�
But no one matches the issued credits to the redeemed credits to
calculate what is outstanding and could still be redeemed.� This figure is vital to accurately project
state revenues and quantify the state�s potential future liability.� The revenue shortfall caused by the unexpected
$60 million cost increase of the 2001 Pharmaceutical Tax Credit clearly showed
the importance of tracking this figure. (See page 3)
Overestimating credit
redemption skews state budget
Economic development officials
have overestimated the amount of credits redeemed by $14 million in 2001 and
$50 million in 2000.� Inaccurate
redemption estimates results in faulty revenue projections.� Tight budgetary times magnify the need for
the most accurate estimates.� Tracking
tax credits outstanding could improve these estimates.� (See page 5)
Cost-benefit studies
question continuing one program
Measuring true economic and
fiscal impact of these programs will continue to be difficult until
project-level data is captured.�
Auditors used the Regional Economic Models, Inc., Policy Insight Model
to analyze total economic impact for four of the six selected programs.� The following briefly summarizes our impact
study results (years referred to below are fiscal):�
Historic
Preservation ($48.2 million redeemed through 2001):� Analysis showed the residential-only
projects do not produce as much state economic benefit as the commercial
projects.� It could not be determined if
the economic benefits of residential projects justified �the costs.�
As a result, residential-only projects should be more closely monitored,
particularly the 39 percent of the residential projects located in middle- to
upper-income areas.
Results of
the commercial project analysis showed significant economic impact on jobs and
demands.� But the incomplete jobs and
housing unit data made it impossible to tell the types of jobs created or the
businesses that benefited.� (See page 7)
Qualified
Research Expense ($30.4 million redeemed through 2001):� Analysis showed� there may be insufficient economic benefit to warrant continuing
the program.� If businesses primarily
used this credit to reduce production costs, the state would see no positive
impact for several years, if at all.�
Projections show only a negligible improvement to state revenues. In
addition, the jobs and demand created do not justify the credit.� (See page 15)
Brownfield
Remediation ($6.1 million redeemed through 2001):� Results show the program had a positive economic impact.� (See page 20)
Brownfield
Jobs/Investment �($17,000 redeemed
through 2001):� The total economic
benefit could not be measured due to insufficient data.� In addition, economic development staff
estimated $85,000 in credits could be redeemed in 2002.� This estimate triples the total redeemed so
far and users only redeemed $5,000 in credits in 2001.� (See page 25)
Seed
Capital ($3.6 million redeemed through2001):�
These credits are no longer available since the program reached its $9
million statutory cap.� Nevertheless,
the analysis showed the credit having an immediate positive impact, with the
exception of wage rates.� (See page 29)
Youth
Opportunities and Violence Prevention ($8.3 million redeemed through
2001):� An economic impact analysis
could not be completed because program data did not include quantifiable items
such as jobs or economic investment.�
Our review focused on the administration of the program.� Auditors found more than half the credits
authorized went unused and credits issued for some projects exceeded those
authorized.� (See page 35)
Department needs more
authority to gather adequate project data
Economic development officials
have created a new system to improve data collection at the project level.� But department staff also said state law
does not require companies receiving credits to provide most information needed
for a cost-benefit analysis.� Although
department officials ask for voluntary reporting on projects, they cannot force
compliance.� (See page 40)