YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

April 8, 2003

Report No. 2003-32

New Jobs Training tax credit's positive impact on the state economy could increase with changes to project funding, oversight and enforcement

This audit is the third in a series of reports analyzing the cost-benefit of the state's 34 tax credit programs.  Audit analysis of tax credit programs, administered by the Department of Economic Development, are mandated by state law.  This report analyzed the New Jobs Training Program, started in 1992, which authorized community colleges to train employees of qualified employers who create new jobs.  For example, one project involved a community college training employees of a new assembly plant.  State law allows the community colleges to issue bonds to fund the training services, and authorizes the bonds to be paid from state income tax withholdings of the new jobs.  Overall, auditors found the program improved the state's economy, creating new jobs and increasing state revenues.  Improvements in the areas highlighted below could increase the program's successes and efficiency.

Program created interest costs and state debt

The current method of issuing bonds to cover program training expenses has caused the state to pay interest and bond issuance costs.  As of June 2002, the state had used 22.5 percent of the $72.4 million in tax credits redeemed from the program's inception to pay off bond interest.  Establishing a revolving fund could eliminate the program's interest costs and state debt.  Current state budget constraints render creating such a fund unrealistic for now.  However, a revolving fund established at the program's start would have eliminated $29.1 million in interest obligations and bond issuance costs thereby increasing the program's overall efficiency.

Colleges are not required to track administrative expenses

Colleges receive up to 15 percent of the training funds to cover project administrative expenses over the life of the bonds.  These fees have totaled about $10.6 million of the $85 million in bonds issued to date.  State regulations do not require colleges to track and compare program administrative fees with administrative expenses.  As a result, most college do not track such expenditures, making it difficult to analyze if the colleges' efforts justify the administrative fees. 

Colleges do not ensure jobs are created, maintained 

Not all community colleges have ensured the program's companies created and maintained the promised jobs.  Discussion with community college representatives indicated little, if anything, is done to verify the number of jobs created.  For example, in one project reviewed, the project agreement required the company to create 166 new jobs by December 2001 and maintain the jobs through December 2004.  As of June 2002, the company created only 121 jobs.

State could more aggressively cite companies not meeting job goals

State law includes a "clawback" provision for companies to ensures the jobs promised are actually created.  If the promised jobs are not  maintained for a 5-year timeframe as required by the approved project application, the company can be held liable for a portion of the tax credits redeemed on a particular project.  The amount a company is held liable is at the discretion of the Department of Economic Development.  But department officials have only enforced this "clawback" provision in one case since the program's start in 1992.  In some cases, such a provision was not included in the project agreement, making it impossible to enforce, but the provision is included in all current agreements.  In other situations, inadequate project oversight has not allowed the department to enforce the provisions when it would otherwise be possible. 

Complete Audit Report