Report No. 2007-12

March 2007

The following report is our audit of the Missouri Development Finance Board (MDFB).

The MDFB's mission is to assist businesses and public entities in obtaining financing through the issuance of conduit revenue bonds, direct loans, and issuance of tax credits.  The MDFB currently has 25 active Business Use Incentives for Large-Scale Development (BUILD) projects with authorized tax credits of about $101 million.  The MDFB needs to improve monitoring for BUILD projects by verifying employment and average annual wage information reported by participating companies with state wage information.  For example, the audit identified one company that had submitted erroneous employment and wage information.  Based on this information, the company would have received about $389,000 more in tax credits than the company was due.  It is uncertain the extent to which the MDFB would have identified the erroneous information and reduced the tax credit amounts.   In addition, the current BUILD program structure is overly complex and increases the amount of state tax credits issued.

Effective fiscal year 2007, the MDFB, in conjunction with the Department of Economic Development (DED) and the Missouri Housing Development Commission (MHDC), established the Downtown Revitalization and Economic Assistance for Missouri (DREAM) Initiative.  The state made awards under the DREAM Initiative without ensuring that the best applicants were selected.  The 89 eligible applications were subjectively reviewed by the evaluation team to identify cities meeting certain criteria.  DED selected 24, MHDC 20, and MDFB 22 cities resulting in 10 cities (Cape Girardeau, Hannibal, Kennett, Neosho, Sedalia, St. Joseph, Washington, West Plains, Maryville and Chillicothe) receiving a yes vote from all three agencies and 9 cities receiving a yes vote from two of the three agencies.  The DED selected eight of the ten cities that had received a unanimous yes vote from all three agencies and replaced the cities of Maryville and Chillicothe with Excelsior Springs and Hermann which had received yes votes from two of the three agencies.  No documentation or analysis was available to support the decision to replace two cities having unanimous support from all three agencies on the evaluation team.

State law authorizes the MDFB to assess fees to generate the operating funds necessary to carry out the board's purposes.  Effective January 2006, the MDFB raised the board fee imposed upon Tax Credits for Contribution projects.  The estimated additional fee revenue will total about $4.5 million over the next three fiscal years if all authorized contributions are remitted.  The increase in the fee will negatively impact projects financed through the Tax Credit for Contributions program because less monies will be available to fund projects.  Additionally, since fiscal year 2000, the MDFB has collected over $1.9 million  in BUILD fees,  an average  of  $381,000 annually, while  the MDFB estimates annual program costs of about $100,000, substantially less than the average fees collected each year.  At June 30, 2006, the MDFB reported unrestricted cash and investments of about $24.7 million and the fiscal year 2006 board operating expenses are about $1.8 million.  As cash and investments were over 13 times the annual operating expenses, it appears the MDFB had adequate funds available to continue operations without increasing any existing fees.

During fiscal years 2006 and 2005, the MDFB recorded bad debt expense of $3,498,074 and $9,448,681, respectively.  These expenses were primarily related to three loans totaling $17.8 million.  For one of these loans, the MDFB began recognizing bad debt expense the year after the loan was made.  The audit recommended the MDFB reevaluate its loan approval process.

The MDFB paid over $101,000 for chartered air service to fly board members, board counsel, and staff to board meetings during the three years ended June 30, 2006.  Most meetings are held in Jefferson City, with occasional meetings held in other major cities.  State law requires members to be reimbursed for reasonable and necessary expenses incurred in the performance of their official duties.  During the three fiscal years ended June 30, 2006, there were 18 board meetings for which chartered air travel was provided.  The estimated cost of chartered air service exceeded the cost of mileage reimbursement by over $5,000 per meeting.  As a result, the MDFB could have saved about $90,000 over the three year period by eliminating chartered air service for board members and staff to attend board meetings.

Complete Audit Report