A special commission reviewing the state’s tax credits suggests caps to keep the credits from further straining a shrinking state budget.

Budget cuts don’t mesh well with tax give-a-ways, placing the state’s growing tax credit programs directly in the sights of budget hawks in the legislature. The 25-member Missouri Tax Credit Review Commission appointed by Governor Nixon has completed its review of the state’s 61 tax credit programs.

No official recommendation has been drafted yet, but the commission calls for lowering caps on the credits, not the scrapping of them.

“By lowering the cost of these tax credit programs, we’ll free up some or reduce the pressure anyway in appropriations for these other areas,” says St. Charles County Director of Administration Chuck Gross, a former state senator, who co-chairs the commission.

The commission recommends, among other things, capping the Historic Preservation Tax Credit at $75 million a year, about $25 million under what was redeemed during the last fiscal year. The credit has become the poster child for tax credit reform. It has grown far beyond projections. In Fiscal Year 2008, the state authorized $170 million in Historic Preservation Tax Credits. In FY 2009, the state authorized $211 million as developers rushed to apply for credits prior to the implementation of a $140 million cap approved by the legislature for FY 2010.

The sluggish economy and a weakened housing market might take care of increases in the credit. Just under $100 million was authorized in FY 2010. The State Economic Development Department projects that only around $60 million might be authorized in the current fiscal year.

Every tax credit has a constituency that will fight cuts. Yet, Gross says the time might be right for reform.

“Everybody knows the economy is horrible. The legislature and the governor are going to make decisions that right now I can’t even imagine in terms of cuts to the budget,” says Gross. “So, maybe they’ll get serious and say, ‘Now we need to really implement some of the reforms that this commission recommended and others as well.’”

Lawmakers face the possibility of making up a $700 million shortfall in the state budget for the next fiscal year.

The commission held meetings throughout the state before settling in for two days of meetings in Jefferson City. It will forward its recommendations to Governor Nixon. The governor will decide whether to make any policy recommendations based on the commission’s finding. Lawmakers also likely will site the commission’s work during the upcoming legislative session.

An audit issued earlier this year by State Auditor Susan Montee disclosed that tax credit redemptions in the state increased from about $372 million in FY2001 to more than $584 million in FY2009, an increase of 75% in 8 years. The growth of tax credit programs as legislators approve deep cuts to state programs and services has led some lawmakers to call for tax credit reform. The Senate which has blocked numerous economic development measures due to concern about what they might do to state revenue. The governor announced creation of the Tax Credit Review Commission. Nixon named 25 business, community and legislative leaders to serve on the commission.

AUDIO: Brent Martin reports [1:25 MP3]