Housing construction
Elias Tsapelas

As state policymakers scrambled last week to pass a balanced budget, they appeared to miss what was right in front of them. Instead of potentially cutting funds from state priorities such as education, Missouri should stop wasting hundreds of millions of dollars each year on failing tax credit programs.

In 2018, Missouri lost out on nearly $600 million dollars in state revenues due to its numerous tax credit programs. The worst offender was the Low-Income Housing Tax Credit (LIHTC). As I’ve written before, LIHTC has been a historically bad investment for Missouri taxpayers. Not only does less than half of LIHTC spending go toward building affordable housing, Missouri’s program doesn’t even increase the supply of available housing for low-income residents.

Missouri stopped matching federal LIHTCs after 2017, yet developers are still building affordable housing in Missouri. In the two following years, data from the Missouri Housing Development Commission show the number of affordable housing projects has remained largely unchanged. In other words, housing developers have found ways to build the same amount of housing units with half (Missouri previously matched federal LIHTCs on a one to one basis) the government investment. Despite the many claims that Missouri’s portion of the program was necessary to spur investment, our state’s experience is now the perfect example of how one-size-fits-all economic development policy fails to deliver.

Lessons from Missouri’s LIHTC program should also guide our policymaker’s tough budgetary decisions going forward. Scaling back or ending many of Missouri’s tax credit programs won’t necessarily be easy, and it won’t completely fix the state’s ongoing revenue problems, but it’s the right decision for state taxpayers. Many Missourians are currently finding ways to get by with less, and it’s only reasonable to expect their government to do the same. By leaving LIHTC dormant and reforming Missouri’s tax credit programs today, policymakers can improve our state’s financial outlook for years to come.

 

About the Author

Elias - Web
Elias Tsapelas
Senior Analyst

Elias Tsapelas earned his Master of Arts in Economics from the University of Missouri in 2016. His research interests include economic development, health policy, and budget-related issues.