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Senate tax credit committee chair expresses concern about rural, small businesses at hearing

JEFFERSON CITY, Mo. — As senators continue to probe Missouri’s tax credits, the chairwoman of the interim committee raised multiple concerns of whether enough help was going toward small business or rural areas. 

“Tax credits are largely designed for larger companies. I believe that we’re overlooking our rural areas,” Sen. Cindy O’Laughlin told The Missouri Times following a hearing Tuesday. “I’m not a big tax credit fan. I would like to see them dialed back some, and I would like them to be targeted and temporary.” 

State Sen. Cindy O’Laughlin

O’Laughlin leads the Interim Committee on Tax Credit Efficiency and Reform, which met for the second time on Sept. 10. It’s comprised of two Democrats and six Republicans — many of who are part of the Conservative Caucus

Sen. John Rizzo said there has “been a good back-and-forth between the departments and the committee” thus far as it explores Missouri’s tax credit programs. He said while it’s important to delve into the programs — reign in ones that aren’t successful and bolster others that are — tax credit incentives are needed. 

“There’s a place for efficient tax credits in order to spur certain businesses or affordable housing that otherwise wouldn’t exist — or at least wouldn’t exist in Missouri,” Rizzo, a Democrat, told The Missouri Times. “When you really get into the details of what these programs do, you understand their significance on the state of Missouri.” 

During the nearly two-hour hearing, the committee heard testimony regarding the Missouri Works program, Historic Preservation Tax Credit, Low-Income Housing Tax Credit, Senior Circuit Breaker Tax Credit, and the REMI economic determination model. 

REMI Model

According to the Department of Economic Development (DED), the REMI Missouri Regional Economic Model is used to predict the economic and policy impact of certain business decisions across the state.

State Sen. John Rizzo

Alan Spell, a DED representative, noted the model is used in a number of states with “confidence that we’re seeing reasonable results.” He said the model has “a lot of published information about their equations [and] how they publish things.”

But lawmakers on both sides of the aisle seemed to be particularly leary of the REMI model. 

“I’m not certain why we’re allocating money based on a model none of us have any information about,” O’Laughlin told The Missouri Times. “That would be like if I joined Weight Watchers, and I came in and said I lost 10 pounds this month, but I’m not getting on the scale. We have no way of verifying.”

“I’m not a fan of it,” she said. “I feel there must be a better way.” 

Sen. Denny Hoskins, also a Republican, said one of his big frustrations was its inability to take into effect the impact an incentive program could have on a local community. Some programs “may have a huge effect on local municipalities or counties but minimum impact on our state,” he said. 

Rizzo, too, lambasted the model for not taking into account social programs, such as affordable housing.

Missouri Works Program

The Missouri Works Program — which expanded under a workforce development bill admonished by Senate conservatives during the latest session — envelopes businesses that create a certain number of jobs with entitlement and discretionary components. 

O’Laughlin said that as a business owner, she already assess the risk and benefits of a possible expansion and would do so if it was a decent investment or a long-term project. She also suggested companies wouldn’t solely create jobs just because of a tax credit. 

“I wonder if by offering this we either are just rewarding people for something they were going to do anyway,” O’Laughlin said. “Or would it be encouraging businesses to take bigger risks than they might have which ultimately means those jobs don’t stay very long?” 

But Michael Lanahan, director of business and community solutions for DED, countered: “Tax credits and incentives are certainly part of [the decision to expand or move to Missouri]. They affect the bottom line and can be the go, no-go making them comfortable on whether to pull the trigger.” 

Low-Income Housing Tax Credit

Low-Income Housing Tax Credits (LIHTC) are available at the federal and state level — although Missouri’s program has been suspended for two years. At its core, the program is designed to incentivize private investment in affordable housing, Kip Stetzler, the executive director of the Missouri Housing Development Commission (MHDC), testified.

MHDC is tasked with administering the program on both levels. Stetzler noted the commission has designated 50 percent of the total LIHTC amount to rural areas, 30 percent for the St. Louis region, and 20 percent for the Kansas City region. 

The average number of units per approved development is between 40 and 45 — although the cap is set at 60 units, according to Stetzler. 

Sen. Brian Williams questioned whether developers have derailed affordable housing projects since Missouri’s state LIHTC program has been halted. Stetzler said it was “possible” but could not say for certain since the MHDC would not have reviewed those proposals. 

Senate committee begins deep dive into Missouri’s tax credits