Tax Credit Review Commission

Briefing

Economic Development CommitteePete Levi, ChairJim Anderson, Co-Chair

Briefing includes:

•Goals of business development incentives•Current Missouri strategies for using tax

credits in business development•Common policy questions related to

business development incentives•Missouri’s toolkit

• Matrix of features• Form 14’s

•“The perfect business development tool”

Goals of Business Development Incentives and Finance Programs•Stimulate economic activity in the state•Create economic activity that wouldn’t

otherwise occur in the state•Incentivize the two economic activities

that create direct, measurable returns:▫Jobs▫Private investment

Current Missouri Strategies

•Tools used as incentives for action▫Tools that provide direct benefit to the company

•Tools that offset costs to close a funding gap▫Tools that finance a “foundation” for business activity (infrastructure, etc)

•Tools consistent with the Missouri Constitution

Policy Questions for Consideration

•Should there be a required minimum return on investment established to use as a guide for the use of any discretionary credits?

•Should that return on investment be accomplished within a certain time frame?

• Is there a distinct ROI measurement for credits that finance public infrastructure in support of business development versus a direct incentive to the business?

Policy Questions for Consideration

•Does ROI alleviate the questions of cost per job or percentage of public investment in a project?

•Is there an argument for an entitlement credit versus a discretionary credit when dealing with business recruitment and business expansion?▫What is the proper balance between the

two? Discretion = flexibility / Entitlement = certainty

Policy Questions for Consideration• Should incentives be provided only for jobs that

pay higher than the county average wage and/or offer health insurance or should a lesser incentive be available for jobs with less pay/benefits?

• Should state business development incentives be focused predominantly on “primary” or “base” jobs? ▫ Primary or base employment refers to jobs which produce goods

and services in excess of what can be consumed by the local market. They, by definition, bring new money into the economy.

Policy Questions for Consideration

•Should state business development incentives be awarded only when there is local financial participation in the project?▫If yes, what is the benchmark for local

participation and how should it be measured?•Although Missouri’s current performance-

based incentive tools do not allow for “up front funding,” do changes to today’s economic development climate—where “cash is king”—call for changes to business development programs?

Policy Questions for Consideration

• Missouri currently has 10 business development related programs. • Is simplicity (a fewer number of more flexible

programs) a strategy worth exploring?• The Governor’s Economic Development

Strategic Planning Initiative will identify 5-6 overall economic development goals and recommend strategies to achieve targeted economic growth. • What might this committee suggest regarding

business development tax credits based on the possible outcomes of that initiative?

Missouri’s tool kit – strengths and weaknesses

Strengths•Variety•Mix of entitlement and discretionary•Performance-based•Competitive benefit amountsWeaknesses•Complex and difficult to understand•No up-front financing available

Refer to Economic Development Committee Tax Credit Matrix Document

Refer to “Form 14’s”

Is there additional information about any program that DED can provide?

The Perfect Business Development Tool….

• Flexible to meet targeted, high-growth industries and sectors

• Flexible to incent or close a financing gap• Flexible in eligible activities, applicants and uses• Is simple to understand, promote and execute• Contains both entitlement and discretionary components• Incents higher paying, primary jobs, with benefits• Rewards local participation• Allows for up-front funding in certain cases• Ties the available benefit to jobs and investment • Requires a positive ROI within a prescribed period• Works in rural and urban MO, small and large businesses

Questions?Thank you.sallie.hemenway@ded.mo.govchris.pieper@ded.mo.gov