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By Dr. John Urkevich, Executive Director

On August 20, I testified before the Missouri legislature’s Joint Committee on Tax Policy, offering information and suggestions related to tax abatements and their impact on public schools. The testimony was a first in what will be a consistent effort in the coming months to shed light on this important topic.

In 2007, CSD joined a number of educational organizations to commission a study on the use of economic incentives in Missouri and attempt to gauge the impact of these incentives on funding for public education. The study, conducted by Doolin Ward LLC of Kansas City, focused on four types of incentives: Chapter 353, Chapter 100, Enhanced Enterprise Zones (EEZ) and Tax Increment Financing (TIF) during 2007. To become familiar with the types of incentives, click here.

Some key findings include:

In 2007 alone, more than $140 million in tax revenues were lost to public schools as a result of more than $3 billion in assessed valuation being diverted or abated through economic incentives. Most public schools in Missouri are heavily dependent upon property tax revenue to fund educational programs. And while it is easy to argue that many of the developments would not have moved forward without the economic incentives, this is not always the case. Regardless, the use of economic incentives should not benefit one Missouri community at the expense of another Missouri community – or at the expense of public services.

Economic Development Incentives have been used in 73 of 114 plus counties in Missouri. Under the current system, school districts are the primary contributors and cities are generally the ones that control the granting of tax abatements or diversions. This is happening all across the state and the momentum is building to grant more and more tax relief to developers.

CSD believes that as a result of the use of economic development incentives, a significant shift in tax burden may be occurring that puts less responsibility on commercial property at the expense of residential taxpayers and small businesses. The chart below illustrates this point.

Between 1985 and 2007 in St. Louis County, residential assessed valuation increased by 10 percent of the total while commercial assessed valuation decreased by 5 percent and total personal property decreased by 5 percent. The blue slope line (residential) on the chart (see above) shows an increase over time while the red slope line (commercial) shows a decrease. This may be one of the largest “silent” tax increases on homeowners and small businesses in the State of Missouri ever.

While I have provided just a quick glimpse into this study, more information will follow soon. Tax incentives are a tool of choice for many economic development organizations. I agree that economic stagnation is not in the best interest of public education; however, proper balance must be the goal.

We’ll blog more on this topic and include suggestions for improvement.