A recent report from the Missouri State Auditor’s Office reveals that the actual amount spent by Missouri on tax credit programs far exceeds the amount that policymakers, relying on official fiscal notes, expected to spend. By comparing the original fiscal notes of 15 of Missouri’s largest tax credit programs to their actual costs, the State Auditor discovered that during the fiscal year 2005 through 2009 period, over $1.1 billion was spent on these credits beyond what had been projected.
This was made possible, of course, by the fact that many of Missouri’s tax credits are essentially open-ended entitlement programs. This is in sharp contrast to most other types of spending in the state, which are prohibited from exceeding the amount specified during the appropriations process.
The table on page 8 of the State Auditor’s study provides the gory details on how this over-spending occurred. For example, while the fiscal note attached to the Historic Preservation credit led policymakers to believe that the state would devote roughly $71 million in state resources to this cause over the 2005-2009 period, the actual cost came in closer to $637 million — nearly 800% more than expected.
To take another example, the state’s Brownfield Remediation/Demolition credit came it at over 2500% over budget (no, that’s not a typo) — costing a full $93 million, rather than the measly $3.5 million that was projected in the state fiscal note.
To be clear, these discrepancies are not so much a criticism of the accuracy of Missouri’s fiscal notes as they are an indictment of the budgetary mechanisms in place for dealing with such estimation errors. Creating a new program from scratch will always bring with it enormous uncertainties; the responsibility of those who govern is to ensure that they have the tools in place for dealing with these uncertainties.
As the State Auditor’s Office notes in its report, greater use of annual caps on tax credits, cumulative caps on credits, sunset provisions, and improvements in existing procedures for analyzing the benefits of tax credits could all greatly enhance the state’s ability to finally bring this unpredictable (and massive) spending back under control.
In addition to the report’s recommendations and its evaluation of the actual vs. projected size of tax credits, its discussion of a few tax credits that are already subjected to the appropriations process provides reason for hope among those who would like to see tax expenditures and direct expenditures put on a more even footing (pp. 10).
Furthermore, another table in the report interestingly reveals that the vast majority of tax credits are not in fact administered by the Department of Revenue (pp. 6). This information certainly bolsters the case of those in Missouri who would argue that many of these programs are little more than undercover spending disguised as “tax cuts.”