A sometimes controversial low income housing tax credits (LIHTC) program has helped provide thousands of affordable housing units for low income Missourians, but still could be improved, State Auditor Tom Schweich said Monday.
"There is no doubt that this program has put tens of thousands of people into quality housing who otherwise wouldn't be in it," Schweich said during an interview in his Capitol office.
"We just think that the program, as structured, is very economically inefficient - because only 42 cents on the dollar actually goes toward construction, and the economic benefit to the state is only 8 cents on the dollar, in terms of increased revenue over time."
In a 21-page audit, Schweich and his staff noted the other 68 cents of every tax credit dollar goes to investors, syndication firms and the federal government, through increased federal taxes.
The audit suggests the federal tax issue might be eliminated by converting to a "certificated" credit model.
"You lose your federal tax deduction when you get your state credit, so it immediately discounts the value by 35 percent if you're in the top tax bracket - which most of these people, of course, are," Schweich explained.
"If you certificate it - which is a federal program - it becomes a capital gain, so you only lose 15 percent instead of 35 percent, and a lot more, over 60 cents, would then go towards construction."
Schweich called that "a simple recommendation (that) would allow more units to be built for the same amount of money."
The audit also suggests that lawmakers make the Low Income Housing Tax Credits refundable instead of a credit against income taxes.
"What if you don't owe any taxes?" the auditor asked. "This means you would just get the money, whether you owe taxes or not.
"And that increases its value to an investor."
The audit said lawmakers could replace the tax credits with a direct appropriation from state revenues in each year's state budget.
Gov. Jay Nixon said the audit "further puts a point on why it should be a wake-up call for the Legislature to get to what I've been calling it to do for the last five years - which is to get economic efficiency programs to save dollars and to get more housing."
The auditor's report showed the state awarded $192 million in state LIHTC credits during the 2012-13 state business year - which can be redeemed during the next 10-15 years.
The audit reported $144 million in redemptions last year.
Schweich noted the Economic Development department overstates the value of the program, since the state program is in addition to a federal one.
"They assume that none of it would be built without the (state) credit," Schweich said. "There is no doubt that there would still be some low-income housing built if this program did not exist.
"At the same time, we know a whole lot more is being built because of this program."
The Low Income Housing Tax Credits program is the state's largest, followed by Historic Preservation credits.
The state Senate debated a proposal Monday afternoon to cap the credits at $110 million a year.
But senators didn't take a final vote on the proposal.
Schweich's audit also suggested requiring the credits to sunset, so that lawmakers could review them periodically.
Olivia Ingle of the News Tribune staff contributed information used in this story.