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Auditor Logo Susan Montee

Report No. 2010-47
April 2010

Complete Audit Report


Findings in the audit of Tax Credit Cost Controls


Tax Credit Cost Controls
Tax credit redemptions in the state of Missouri have increased from about $372 million in fiscal year 2001 to over $584 million in fiscal year 2009, an increase of 57 percent in 8 years, while net General Revenue (GR) Fund - State collections over the same time period increased from about $6.44 billion to $7.45 billion, an increase of 15.7 percent. Tax credit redemptions as a percentage of net GR Fund collections increased from 5.8 percent in 2001 to 7.8 percent in 2009.

Fiscal notes associated with legislation establishing or modifying tax credit programs do not accurately project the financial impact on the state's GR Fund collections. For 15 tax credit programs reviewed, the actual redemptions exceeded the projected long term fiscal impact by a net amount of over $1.1 billion for the 5 years ended June 30, 2009. In total, 96 fiscal note sections were associated with the 15 programs we reviewed, and 16 sections indicated the amount of impact was unknown. Since fiscal notes have not accurately projected the financial impact of tax credit programs, the General Assembly should consider increasing the use of alternative cost containment measures to better control the costs of tax credit programs.

The General Assembly has placed annual and/or cumulative limits on the amount of tax credits that may be authorized for some tax credit programs. Also, the Sunset Act, passed in 2003, provides for new programs to sunset after a period of not more than 6 years unless reauthorized by the General Assembly or the program is exempted from the Sunset Act. Eight of 18 new tax credit programs created since 2003 do not have a sunset provision. The act requires the Committee on Legislative Research to review applicable programs before the sunset dates and present a report to the General Assembly regarding the sunset, continuation, or reorganization of each affected program.

During fiscal year 2009, 53 tax credit program had redemptions totaling $584 million. The following table lists the number of tax credit programs, and the 2009 redemptions, that lacked the cost controls noted above:

Cost Control

Number of Programs Lacking Control

Amount of Redemptions
(in millions)

          Annual Limit

30

                $ 495

          Cumulative Limit

46

565

          Sunset Provision

46

569

The audit also noted state agencies need to improve procedures to gather and verify information used to prepare cost benefit analyses submitted to the budget director and legislative budget committees. In each of the five most recent tax credit program audit reports issued by our office, the audits noted concerns with the cost benefit analyses state agencies submitted. In each case state agencies overstated the economic impact of the program. The overstatements were generally caused by the use of inflated amounts for activities undertaken as the result of the tax credit or inflated assumptions regarding investments made and jobs created.

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Missouri State Auditor's Office
moaudit@auditor.mo.gov