In a surprise move, Gov. Matt Blunt on July 6 vetoed an omnibus economic development bill that would have cost the state at least $200 million a year and perhaps substantially more. The governor’s action could prompt a special legislative session in September to pass a scaled-back version on the bill.
The governor originally proposed HB 327 to expand the amount of tax credits available under the Quality Jobs program the General Assembly enacted in 2005. The legislature, in particular the Senate, loaded up the bill with all manner of additional tax breaks for various special interests, including $100 million over several years for a single St. Louis-area developer.
In addition to the cost, Blunt cited numerous flaws in the bill among his reasons for vetoing it and said many of the proposed tax breaks would have done little to improve the state’s economy. Blunt said he’s willing to call a special session on the issue if legislative leaders agree on a package that costs $50 million to $70 million. House Speaker Rod Jetton, R-Marble Hill, seemed cool to the idea in telling The Associated Press: “I would vote to override that veto.” An override, however, appears unlikely. “I am not interested in overriding the governor,” Senate President Tem Michael Gibbons, R-Kirkwood, said.
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I have mixed emotions about this. It wouldn't really be a surprise to me that the Governor might veto a bill that he originally supported if numerous amendments might have 1) deviated from the bill's original intentions, or 2) loaded too much "pork" onto the plate. We probably need more that that sort of decision making discipline.
On the other hand, I don't begrudge the City of St. Louis trying to find a way to re-invigorate its north side by means of a responsible economic developement incentive package. The problem is that there's no way to tell these days when a "hand up" program gets turned into a "handout" program. And I can understand why a handout to a real estate developer would draw fire.
So to you as a legislator, I recommend that you take this opportunity to re-define the way politics as usual gets played with these packages. I would suggest that all state supported tax credit deals be coupled with a tax recapture penalty in the even that an assisted project turns out to generate a profit windfall. That way, Missour taxpayers could be assured that economic assistance programs don't become a back channel way to line the pockets of influential supporters or businessmen.
Using the North St Louis project as an example, the developer would receive the tax credit subsidy for a particular purpose. The subsidy would be forvided for a particular property or group of properties to be owned by a Special Purpose Entity (SPE). That SPE would also be required to be capitalized with a stpulated amount of private "at risk" investment (maybe 33%? or 50?). The SPE would then undertake the development and account to the state (and the IRS) for the total returns from the project. If those profit returns exceed some reasonable equity return threshold (perhaps a 15% annualized return?), then the profits in excess of that threshold would be shared between the SPE and the state.
For successful developments the state would receive at least a portion of its subsidy payment back, while the developer would be able to generate fair to healthy investment returns. For projects that DO struggle the state might not recover any part of the subsidy, but presumably it still would have jumped started a development that was would have been too risky to move forward with private investment alone. And isn't that the whole purpose?
I look forward to your insight. I'm sure there's some reason my plan wouldn't fly -- maybe because it wouldn't have either a distincly Democratic or Republican bias to it. Folks might not be able to classify it as conservative or liberal, so they'd just get suspicious!
Your reaction as a legislator would be interesting to me.
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