Missouri

Tax incentive evaluation ratings

Tax Incentive Evaluation Ratings: Missouri

Rating: Making progress

Key points:

  • Missouri is making progress because the state has adopted a plan for regular evaluation of tax incentives.
  • The state has made improvements to incentives as a result of evaluations from the state auditor.
  • Missouri could advance further by ensuring that policymakers receive consistent information on the results of all major tax incentives.

Missouri evaluation law

Year enacted: 1999.a

Who evaluates: Office of the State Auditor.

Length of review cycle: Four years.

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While many states are beginning to put in place systems to evaluate tax incentives, Missouri has had two such processes for years. The office of the state auditor regularly evaluates tax credits and other economic development programs, while the staff of the Legislature’s Oversight Division studies credits that are approaching their expiration dates.b The analysis produced by these processes has helped the state improve the effectiveness of tax incentives. However, policymakers might benefit from receiving more consistent information on the results of the state’s incentives.

The most thorough evaluations come from the auditor, an independently elected statewide official. The auditor’s studies often include detailed analyses of whether state agencies are administering incentives efficiently. Some of the audits also include discussions of the economic impact of incentives, although other states, such as Indiana, produce more rigorous analyses.

The auditor’s evaluations have led to changes designed to make incentives work better. For example, a 2014 study of an incentive that encourages redevelopment of environmentally contaminated sites identified several weaknesses in the way the Department of Economic Development (DED) was administering it. Under the program, DED has discretion to offer credits for up to 100 percent of the costs of environmental remediation as part of redeveloping the sites. The audit noted that offering to pay for 100 percent of qualifying costs provided little motivation for developers to keep their costs in check. The audit also found fault with DED’s procedures for verifying the validity of project costs.c

In response, DED began offering credits worth 100 percent of costs only when developers had used a competitive bidding process to contract for remediation work. The agency also began ensuring that project costs were verified by an engineer, architect, or certified public accountant.d

The Oversight Division’s reviews do not include detailed analyses of the effectiveness of incentives. Instead, they consist primarily of background information on credits, including the history of the program, how it operates, and usage statistics. Then, the division offers a recommendation on whether the program should continue.e

A strength of this process is a strong connection to policymaking. Legislators on the Committee on Legislative Research hold hearings to consider the staff reviews and then recommend whether the expiring credits should be continued, modified, or allowed to expire.f In contrast, lawmakers lack a formalized process for considering the auditor’s evaluations—making it less likely the Legislature will act on the findings.

The Oversight Division and auditor evaluations also do not fit together neatly. The division studies credits that are expiring, but not all credits have sunset dates.g By law, the auditor is responsible for evaluating all tax credits and all DED programs at least once every four years, but instead the auditor has focused on studying many of the state’s largest incentives.h Closer coordination between the two processes could help ensure that policymakers receive consistent information on the results of all major tax incentives.

Endnotes

  1. Missouri Rev. Stat. § 620.1300, http://www.moga.mo.gov/mostatutes/stathtml/62000013001.html; Missouri Rev. Stat. § 23.250 to 298, http://www.moga.mo.gov/mostatutes/stathtml/02300002501.html.
  2. Ibid.
  3. Missouri State Auditor, “Economic Development: Brownfield Remediation Tax Credit Program” (April 2014), 8, 11–12, https://app.auditor.mo.gov/Repository/Press/2014023457179.pdf.
  4. Missouri State Auditor, “Follow-Up Report on Audit Findings: Brownfield Remediation Tax Credit Program” (October 2014), 3–4, https://app.auditor.mo.gov/Repository/Press/2014099907678.pdf.
  5. For an example, see Oversight Division, Missouri Committee on Legislative Research, “Sunset Review: Manufacturing Jobs Act” (2015), http://www.moga.mo.gov/oversight/Sunset_Reviews/Sunset%20Review Manufacturing%20Jobs%20Act.pdf.
  6. Missouri Rev. Stat. § 23.265, http://www.moga.mo.gov/mostatutes/stathtml/02300002651.html; Missouri Rev. Stat. § 23.271, http://www.moga.mo.gov/mostatutes/stathtml/02300002711.html.
  7. Missouri State Auditor, “Tax Credit Cost Controls” (April 2010), 11, https://app.auditor.mo.gov/repository/press/2010-47.pdf.
  8. Missouri Rev. Stat. § 620.1300; Missouri State Auditor, audit reports, accessed Feb. 1, 2017, https://app.auditor.mo.gov/AuditReports/AudRpt2.aspx?id=40.
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Improving Tax Incentives for Jobs and Growth

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Tax incentives—including credits, exemptions, and deductions—are one of the primary tools that states use to try to create jobs, attract new businesses, and strengthen their economies. Incentives are also major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.