What did the auditors find? A lot. For starters, HPTC tax credits have cost the state nearly $600 million over the last five years alone and more than a billion dollars over the last 10. Missouri leads the country in “qualified rehabilitation expenses” (QRE) for historic preservation, which relates to the expenses against which the HPTC could be applied. Broadly speaking, the higher the QRE that rehabbers claim under the HPTC, the more money the state will be spending on it.

So, how big is Missouri’s QRE lead? Check out this chart from page 8 of the audit.

For perspective, Massachusetts, Virginia, Pennsylvania, and New York are all original U.S. colonies. Are we to believe that Missouri should have been subsidizing preservation spending at almost twice the rate as the next closest state… and not only that, subsidizing it at that level for more than a decade?

I can appreciate that we love our old buildings in Missouri, but if anything and everything can get the stamp of being “historic,” then we degrade the things that are, in fact, historic and waste limited taxpayer resources in the process. Could some projects be worthy of taxpayer support? Possibly, but those cases would be an exception, not a billion dollar rule.

To name a fraction of the examples that underscore this reality, Norwood Hills Country Club should not have received taxpayer money. A whole host of private mansions that the HPTC subsidized should not have received taxpayer money. Check out this story, from the audit:

In 2011, the DED issued about $296,000 in credits to an applicant who renovated a 3-story, 5,400 square foot home in an affluent neighborhood in a metropolitan area. The applicant purchased the home in 1993 for nearly $300,000 and reported about $1.2 million in qualified rehabilitation expenditures. The home has a fair market value of approximately $434,000.

So the owner buys a $300,000 house, drops $1.2 million into it, gets nearly $300,000 (almost what he paid for the house originally!) in credits from the state, and the value of the house rises… about $130,000? On what planet does subsidizing a private residence in a wealthy neighborhood make any sense for taxpayers? Why did Missourians have to effectively reimburse this person the purchase price of their home? Who’s looking out for the taxpayers here? And who in their right mind and looking at the numbers thinks this is a good “investment” for the state?

The HPTC is a mess of a program. The least the legislature could do is set a date for this madness to end.

The post State Audit Recommends Sunset Of Historic Preservation Tax Credit appeared first on Show-Me Institute.

A successful private club in north Saint Louis, it hosted the PGA
Championship in 1948. In 2005, the club sought and received designation
as an historic landmark, and as an historic landmark, it was eligible
for HPTCs from the state.

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The post Playing Games with Taxpayer Money: Norwood Hills Country Club appeared first on Show-Me Institute.

Should a private country club, even one with a rich golf history, be subsidized by taxpayers?  Show-Me Institute Policy Researcher Michael Rathbone takes a look at Norwood Hills Country Club in Saint Louis County.

The post Playing Games with Taxpayer Money: Norwood Hills Country Club appeared first on Show-Me Institute.

The two-and-a-half-year process of applying (to both state and federal agencies) was arduous and intensely bureaucratic . . . But in February of this year [2005], Norwood Hills was finally notified that it did indeed qualify to be included on the registry. And with the honor came a huge financial benefit: specifically, the ability to earn tax credits for 45 cents of every dollar spent on the renovation project.

How did the club get 45 cents on the dollar? The state HPTC offers 25 cents on the dollar for qualifying renovation expenses, but the federal version of the HPTC offers an additional 20 cents on the dollar for those expenses. At the Show-Me Institute, we talk a lot about state incentives because we are, after all, a state-focused think tank. However, taxpayers should understand that there oftentimes is more than just state money involved in renovation and building projects like this — so much government money, in fact, that nearly half of the cost of a multi-million dollar renovation to a private golf club could be underwritten with tax credits. Have taxpayers gotten their money’s worth? I report, you decide.

One other noteworthy tidbit from the article is that the original idea of making Norwood Hills a Historic Place came from a real estate developer — who apparently did not think Norwood Hills was that historic of a place (emphasis mine):

Another huge boost to the renovation project came after a Norwood Hills member who is a real estate developer suggested that the club, which hosted the 1948 PGA and has a long and rich connection with St. Louis-area social history, look into the possibility of applying for placement on the National Registry of Historic Places. Successfully securing that status, the developer member advised, would then qualify Norwood Hills, which operates as a for-profit corporation, for renovation tax credits.

“[The member] felt we could qualify not so much because of the club’s history or architecture, but because of the distinction of our members in the St. Louis community through the years,” Wright says.

If Norwood Hills as a place was not itself historic, what exactly was the Historic Preservation Tax Credit preserving? “History” is no doubt in the eyes of the beholder, but for taxpayers on the outside looking in at Norwood Hills, what they gained in this process is of considerable interest, sweat or no sweat.

The post “Norwood Hills CC: No Sweat and Plenty of Gain” appeared first on Show-Me Institute.

Due to faulty electrical outlets in the home’s bathrooms, Laura said that they are forced to dry their hair in the kitchen, and with the extra money needed to pay for college, they will be forced to continue this practice. Laura also said that the family may have to forego putting new tires on their son’s car. It is not difficult to imagine the unnecessary worry this young man’s parents will feel when their son drives to and from Columbia on old and worn out tires, especially if it is raining or snowing.

While the University of Missouri raises tuition on families such as the one described above due to state cuts in higher education funding, historic tax credit authorizations in Missouri are on an upswing. In fact, the $91 million in Historic Preservation tax credits authorized in the first six months of fiscal year 2012 have almost surpassed state estimates for Historic Preservation authorizations for the entire year.

The question should be asked whether handing out tax credits of questionable value (like the $1 million tax credit issued to Norwood Hills Country Club)  is worth more to the citizens of the state than preventing a tuition increase that will affect families across the state.

Considering that the state of Missouri faces a large budget shortfall, it would behoove the state to make sure that, at the very least, tax credits go to worthwhile projects. A possible avenue for oversight of the tax credit system would be to subject tax credits to the appropriations process. Missouri Sen. Jason Crowell (R-Dist. 27) has submitted a bill (SB 436) that does just that, and there are items in the bill that deserve commendation. Subjecting tax credits to appropriations would enable the state to keep closer tabs on these programs and help ensure that questionable issuances are examined. Considering the price that all Missourians pay for these tax credits, is subjecting tax credits to some sort of appropriations process too much to ask?

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Norwood Overview from Norwood Hills CC on Vimeo.

Norwood Hills Country Club first opened in 1922. A successful private club in north Saint Louis, it hosted the PGA Championship in 1948. In 2005, the club sought and received designation as an historic landmark in the federal government’s National Register of Historic Places. As a designated historic landmark, it was eligible for Historic Preservation tax credits from Missouri, and the state issued credits to Norwood the next year, in 2006.

Whether credits for a country club are an appropriate use of taxpayer money is a question worth considering. The Missouri Department of Economic Development administers the Historic Preservation tax credit program, so tax credits in that program are imbued with a presumption that a fundamental objective of the credit is economic growth. Indeed, entire studies have been devoted to trying to measure the HPTC’s impact in terms of jobs and growth. But does granting historic preservation credits to a private country club that markets a $1,000 entry-level membership package really promote economic growth? Is that what Missourians thought they were paying for by offering these credits?

The HPTC is often defended as a way of correcting market failures and increasing positive externalities — that is, giving an intangible boost to the standard of living of those who can see and enjoy the property. Is it likely that there was a market failure at Norwood Hills that the state had to step in and correct? And is it reasonable to believe that Missourians will really be able to enjoy the externalities promoted as a result of sending their tax dollars to a private club?

To be clear, determining whether a building is “historic” is oftentimes in the eye of the beholder. But taxpayers have ample reason to question whether the state should be granting tax credits to country clubs, not only on grounds of whether an economic development objective is really being advanced, but also whether society is really getting a “positive externality” when it subsidizes an operational private club and golf course. And certainly, sometimes buildings are properly considered “historic” by virtue of their age alone, but if the “age” of a building is enough to get an HPTC, what should be the cut-off year? 1800? 1900? 1950? 1980? The later that date gets, the more important it is that the reverse of the question is asked: how many buildings would not be considered historic under the tax credit system?

Moreover, the proximity in time between historic designation and tax credit issuance is troubling. Did Missouri issue a tax credit to preserve an historic landmark, or was an historic landmark created to access Missouri tax credits?

Lastly and more generally, what has the state foregone – what “unseen” projects and tax cuts have gone by the wayside – because the state has been putting money into projects like Norwood Hills?

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