Senator Lager Begins His Quest to Cap Tax Credits
by Collin Reischman
Jefferson City, MO — While the Missouri legislature may be eager to reform some of the 63 state tax credit programs, it won’t be an easy process. Two of the largest credits, Low Income Housing and Historic Preservation, are set to be lowered, capped, or otherwise reduced.
The Senate Committee for Jobs, Economic Development and Local Government heard augments and testimony on Wednesday, Jan 30, on two pieces of legislation aimed at reducing the Low Income and Historic Preservation programs.
Senate Bill 5, filed by Senator Brad Lager, would place a $50 million dollar cap on the low income tax credit and the historic preservation credit. Historic preservation currently cost about $150 million annually. Lager’s bill would use the revenue from the LI and HP tax credit programs to slowly phase-out the state corporate income tax.
“Our world is changing immensely,” Lager testified before the committee. “We saw that in Kansas last year. The competitive environment is different than it was a decade ago.”
Lager, referencing the state of Kansas’s move last year to significantly reduce or eliminate their individual and corporate state income tax, said the government shouldn’t create winners and losers, and that freeing up revenue to lower corporate income taxes would bring new revenue, and ultimately new services, to the state.
Testimony on Lager’s bill was unanimously opposed. The Builders Association of Kansas City, The Missouri Association of Realtors and The National Alliance on Mental Illness were among those opposed to the legislation.
Mike Williams the Director of Business Operations for Midwest United States for Altura Housing, said that drastically scaling back or capping the credits for low-income housing would have an adverse effect on rural Missouri.
“There would be no way for rural Missouri to build low-income housing,” Williams said. “And there are three ways out of poverty: affordable housing, affordable transportation and affordable child care. There will be very little development for rural Missouri without these credits.”
Williams said he had conducted business in Arkansas and Kansas, where low-income housing credits are not a priority, and said it was “much harder” to build affordable housing for low-income families in those states.
“Outside of large metro areas, you don’t see any construction for those kinds of homes,” Williams said. “And that’s a result of not having these kinds of programs.”
Senator John Lamping, whose legislation was also heard in the committee hearing and is similar to Lager’s in it’s effort to reduce tax credits, didn’t agree with Williams assessment of the impact of lowering the credit.
“There are states without this credit, or with no credit like this,” Lamping said to Williams. “The idea that this kind of development wouldn’t take place without this credit, I just don’t see that as being accurate. Don’t other states like Arkansas or Kansas have low-income housing?”
Lamping clarified that he was not in support of abolishing the LI credit, but rather capping it and using the revenue for another purpose. In his own bill, which calls for caps on LI and HP credits that are not as low as Lager’s, revenue saved from capping these programs would be placed back into general revenue for the state.
“The perfect bill, for me, is a bill dealing strictly with Low-Income Housing and Historic Preservation Tax Credits, and that bill, the perfect bill, would allow us to cap these programs in some way and send that money back into the GR [general revenue] of our state to be put into other services like mental health or education.”
Lamping said the market would eventually self-correct to accommodate historic preservation or low-income housing projects, and that as long as neither program was completely eliminated, there would not be negative effects.
“As long as there is some form of historic preservation credit, then there is still a chance for some developers to take advantage of that, and I’ll take it,” Lamping said. “The fact that other states don’t have these credits, or don’t have them nearly to the same degree as Missouri, speaks volumes to the fact that this kind of development does happen on it’s own.”
Lamping said property values might fall initially in a city without renovation on its historic buildings, but that eventually the value of the property would fall to a place that it would attract a developer, and that the market would ultimately “clear.”
“Some cities might not like that property value goes down for a while,” Lamping said. “But that’s the market, and ultimately the development will take place.”
Both bills to reduce tax credits are preliminary, as the Ways and Means Committee will more substantially handle tax policy. Lamping told those on the committee on Wednesday that his bill had been pre-filed before a committee on Ways and Means for tax policy had been announced.