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Susan Montee, CPA
Missouri State Auditor


Report No. 2007-06

February 2007

State Estimated to lose $37.1 million on New Generation Cooperative Incentive Tax Credit Program

This audit reviewed the cost-benefit to the state of the New Generation Cooperative Incentive (NG) tax credit program and found the credit would not create enough economic activity to offset the tax credits used. The program is designed to induce producer member investment in new generation cooperatives and processing entities that will process Missouri agricultural commodities and agricultural products into value-added goods, benefit Missouri's agricultural producers, and create jobs. As of June 30, 2006, state officials had issued $22.1 million in tax credits for this program, and $18.1 million had been redeemed. State law requires state auditors to perform a cost-benefit analysis of all state tax credit programs, and this report is a part of such ongoing work.









Loss of $37.1 million from the NG program

The software used to model the program estimates the economic activity occurring from the business investment generated solely by the tax credit will result in about a $2 million net revenue gain. However, when total projected tax credit redemptions of $39.1 million are considered, the gain becomes a projected total loss to the state of $37.1 million. The model evaluated the impact of the investment resulting from the tax credit and not the total investment for any facility constructed because other state, federal, local and private funding sources are available for the remaining investment portion of the projects. We were unable to measure the social benefits this tax credit may have on the rural communities that received the majority of the tax credit's benefits.  (See page 10)









Limited permanent jobs created

The analysis predicts the tax credit program will have limited impact on jobs and the gross state product. For example, the program's resulting employment growth peaks at 96 net new jobs created in 2006. However, by program end in 2010, just 57 jobs remain and all but 12 of those jobs are lost by 2020. Rural areas benefit from most of the predicted new jobs.  (See page 10)






Tax credit law needs clarification

State law does not define when a facility would have to be placed in operation to remain eligible for tax credits and is unclear if facilities of new generation cooperatives must operate in the state. State law also is not clear regarding limitations on the tax credit issuances. Section 348.432.3, RSMo, limits each producer member in a new generation cooperative or processing facility to a maximum tax credit of $15,000; however, the law does not clarify if producer member name or taxpayer identification number controls what constitutes a separate producer member. We identified four instances where MASBDA issued $30,000 in tax credits to one taxpayer identification number.  (See page 13)









Control and reporting weaknesses

NG program internal controls and reporting need improvement because (1) MASBDA has not received sufficient documentation that producer members made investments prior to tax credits being issued, (2) MASBDA has not established policies and procedures for compliance and on site monitoring of new generation cooperative or processing facilities, (3) MASBDA has not established criteria for when new generation cooperatives or processing facilities may be eligible for additional tax credits issuance, (4) MASBDA failed to adhere to its internal conflict of interest policy and issued tax credits to ineligible applicants, and (5) the annual tax credit's cost-benefit reported to the General Assembly as part of the state's budgeting process overestimates the benefit to the state.  (See page 15)










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