Perhaps because these handouts consume so much of our state budget, our government does pay some attention to where the money is going. As such, Missouri ranked high as one of the states that is “leading the way” in the Pew Center’s study.

While tax credit transparency is a laudable goal, it has accomplished little. Many of our state politicians call for tax credit reform, and then support tax credit programs soon thereafter. Consider Missouri Gov. Jay Nixon, who made news last year when he told journalists that it was time for tax credit reform. And yet later that year, he urged legislators to pass expansive tax credit legislation.

Our state may have a somewhat transparent tax credit system, but taxpayer dollars continue to be misused. Just last week, Missouri Journal reported that Brown Shoe received $2.4 million in jobs training tax credits this year — and is laying off 132 workers. Missouri Journal has also reported that Ford Motor Co. received $1.85 million in job training tax incentives, despite plans to lay off more than 1,000 Missouri workers temporarily. This would have been surprising, if it had not happened before: Despite issuing many of its employees pink slips, Liberty Mutual remained eligible for job creation tax credits.

And, regular Show-Me Daily readers certainly are familiar with the state-level reviews of tax credits with a 2010 audit report that found that the state Department of Economic Development had inflated some job creation numbers associated with tax credit awards, and another 2010 state audit report that found that tax credits are more expensive than advertised. The Governor’s Tax Credit Review Commission report had all kinds of strong recommendations for tax credit reform, but those have, perhaps predictably, not been implemented.

I wonder, if Missouri is considered to be “leading the way,” what is going on in states that Pew considers to be “trailing behind”? It seems we have all kinds of accountability problems with our tax credit programs.  Sadly, transparency seems to have given our politicians enough information to provide tough talk about reform, but not the gumption to implement it.

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Look, we all know that tax credits have a bad track record of success. Quality Jobs tax credits are especially infamous in Saint Louis, because of Liberty Mutual. The company sent pink slips to many of its employees, and told those employees that they could apply for lower-paying jobs.  Surprisingly, the Missouri Department of Economic Development said that Liberty Mutual remained eligible for the tax credits.

Of course, Quality Jobs tax credits are supposed to go toward creating high-paying jobs.

But today, I’d like to commend the creative designer who created the Business Journal graphic below. At first, it may seem like an ordinary cereal box. But, instead of the usual commercial claims, this cereal box proclaims that it is “Packed with $20 million in industrial revenue bonds,” and “INSIDE: $3.8 million in tax credits.”

I only wish that the designer had incorporated some fine print. Perhaps: “Job creation numbers have not been verified. Up to $20 million in bonds may be used for the project, which may not be good for the city of Saint Louis’ financial health.”

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Well, let’s not rush to do something drastic just because Kansas is set to award $47 million to a company.

Tax credits are especially bad public policy because they frequently fail. Just this week, a company in Moberly made news because it looks like the company will default on $39 million in city-backed bonds. You may remember the company, Mamtek, because politicians promised the company would create 600 jobs, the state was set to award millions in tax credits to the company, and because Missouri Gov. Jay Nixon traveled to Moberly to announce the job creation.

Unfortunately, after a newspaper was pressured to close because it was asking too many questions about the tax incentive deals, Mamtek appears to have failed. Clearly, the promise of tax credits isn’t a guarantee of investment and job creation.

If Missouri legislators are so eager to copy Kansas’ policy of awarding tax credits, they might want to look at Michigan. More than $33 billion in tax incentives each year are awarded in Michigan, and yet the state has a dismal job rate and incredibly depressed economy. Just last year, Michigan announced the creation of more than $1 billion in tax credits alone.

Certainly, if tax credits resulted in tremendous economic growth and job creation, Michigan would be on the right track. It is not. In fact, the Mackinac Center for Public Policy, a research institute in Michigan, surveyed Michigan tax credits over a 10-year period and found that in more than 90 percent of cases, tax credits failed to deliver on promises.

It has been shown again and again: Tax credits fail frequently, and in many cases, taxpayers are stuck with the tab.

Remember Liberty Mutual? The company is still eligible to receive “Quality Jobs” tax credits from Missouri, despite the fact that it issued pink slips to many of its employees this year. Those employees were told that they could apply for lower-paying jobs at the company.

Furthermore, the argument that tax credits are just a way of returning one company’s tax dollars to it is incorrect. Tax credits are transferable, meaning that they can be sold. What this means is that a company can receive an enormous tax credit, of say $10 million, even if the company’s tax bill is only $100,000. The company can sell the remainder of the credit to someone else, and use the cash.

Transferable tax credits mean that the taxes that you and I pay subsidize tax credit projects like the “quality jobs” being created at Liberty Mutual.

Look, I understand legislators’ concern: A company is leaving Missouri for Kansas. But should we panic? Kansas has offered AMC $47 million. AMC says it will bring about 400 employees to the state. That comes out to a subsidy of more than $100,000 for each job brought to Kansas.

Maybe those jobs aren’t worth all of us chipping in more than $100,000 for each one, especially given how frequently tax credits fail to deliver on promises. Instead, we should focus on what does work. Let’s lower tax rates for everyone, instead of just the favored few. Lowering the state income tax or Saint Louis’ and Kansas City’s earning taxes would be a great place to start. Let’s get rid of unnecessary regulations and licenses that do no good, like limitations on taxi cabs, removing barriers to becoming a veterinarian, or by allowing dental therapists to provide dental care to rural and low-income Missourians.

It’s easy to call attention to a single company that moved across state lines because it could get a better deal. But let’s not forget all of the individuals and companies that stay in Missouri because of what this state does have to offer.

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(As you will see in the video of our testimony, which will be posted soon on Show-Me Daily, the committee members seemed aggravated by our presence and offended by the questions that Christine and I raised.)

Our testimony yesterday came down to a single concern: Why award $480 million in tax credits (and more) if tax credit programs in Missouri have a poor track record?

There are some indications that this particular proposal may be at greater risk of failure than other tax credit programs. It was proposed without any sort of study of the costs and benefits associated with this project. A closer read of the legislation also reveals many hidden costs above and beyond $480 million. There isn’t any protection for taxpayers if the hoped-for increase in air traffic does not materialize. Furthermore, part of the proposed legislative language takes care to account for other subsidies awarded in 2006, meaning that, at minimum, the area is already subsidized.

None of the facts Christine and I presented were disputed — the only argument was whether this proposal would cost taxpayers money. But tax credits are an actual cost to taxpaying Missourians, as we have explained before.

So, what safeguards do legislators say are in place for taxpayers? The line repeated during yesterday’s hearing was that the the tax credits won’t be awarded without an extensive review process, and that the award of taxpayer money will be spread out over a period of 15 years.

However, given human ingenuity, it certainly is possible that creative entities might find a way to receive more from the Aerotropolis subsidies than legislators think possible.

Just last week, the St. Louis Post-Dispatch reported that less than six months after Liberty Mutual was scheduled to receive $1.6 million in state tax credits, 45 employees were told that their positions had been eliminated. Those employees were invited to apply for new lower-paying positions.

From the Post-Dispatch:

Under the terms of the Missouri Quality Jobs program, Liberty Mutual will still qualify for the tax credits if, within 24 months of its agreement with the state, the insurer has added 100 “net new jobs” to its payroll at a salary equal to or exceeding the prevailing average wage in St. Louis County — $48,291.

The Liberty Mutual case illustrates that even the best-intentioned legislation can have unintended consequences.

Frankly, I appreciate that the Aerotropolis bill includes an attempt to slow the expenditure of tax credits, and proposes a review process. But hoping for an outcome does not guarantee it. It is almost impossible to account for every last detail. Giving away millions in taxpayer money each year certainly creates an incentive for recipients to meet state-imposed benchmarks with the least amount of effort.

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Here’s the issue: Shortly after the announcement that Liberty Mutual would receive tax credits for creating new jobs, the company gave pink slips to 45 employees. The company told the affected employees that they could apply to lower-paying and lower-level positions.

Despite the layoffs, Liberty Mutual is on track to receive $1.6 million in tax credits through the Missouri Quality Jobs Program, because it can show — at least on paper — that 100 “new” jobs exist at its Safeco service center in Fenton.

Is this the kind of economic development that we want in Missouri?

It is important to note that Quality Jobs is the worst-performing tax credit program in Missouri, yet lawmakers continue to expand it. According an April 2010 report from the state auditor, lawmakers underestimated the cost of the Quality Jobs program by more than $100 million over four years. This didn’t stop them from raising the annual cap from $12 million to $80 million in 2009. That’s an increase of 567 percent!

The Tax Credit Review Commission and the Missouri state auditor have looked at tax credit programs in the Missouri, and they both have called on lawmakers to limit them. However, lawmakers have not taken this advice. Policymakers like to talk tough on tax credits, but their actions and words don’t match up. This is bad news for taxpayers, who have to foot the bill.

Missouri has serious budget problems. If lawmakers were serious about fixing Missouri’s fiscal health, they would implement measures that limit tax credits, like stricter caps and sunset requirements.

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