Housing USA, St. Louis

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6 min read

Credits on hiatus

Missouri  has been a robust state for tax credit construction, and the state-level Low Income Housing Tax Credit (LIHTC) has been its largest such tax credit program. Missouri also has a government that, like the nation, is divided by urban and rural sensibilities, and flip-flops between parties during gubernatorial and presidential elections. This may explain why the state’s LIHTC program itself has become a political football, and with the recent election of a GOP governor, is now on hiatus. As a result, there is uncertainty about the future viability of the state’s many tax credit projects.

As reported in TCA last month, the halt was made this past December by Republican governor Eric Greitens, who appoints the members for the Missouri Housing Development Commission, which oversees the LIHTC program.

A Rhodes Scholar and former Navy Seal, Greitens was elected to his first term in 2016, not long after switching  his party affiliation from Democrat. His most visible action in office so far has been getting tangled in an out-of- wedlock, 50-shades-of-grey-style affair with a mistress.

His initial political agenda, though, was to reduce regulation and clean up government. So it’s not surprising that he would’ve targeted Missouri’s LIHTC and other tax credit programs.

These programs are in fact costing Missouri taxpayers, according to 2017 state audit, $5.4 billion over the last decade, with an additional $3 billion liability expected in the next 15 years. Missouri has one of 15 state LIHTC programs, and it matches the LIHTCs that come in from the federal government. State-level LIHTC redemptions were $144 million in FY 2013, and were set to reach an estimated $200 million this year. Missouri also allows developers to tap into multiple tax credit sources for one project, meaning LIHTC is often used alongside the State Historic Tax Credits, which may also be targeted by Greitens.

But the Missouri LIHTC program has become known for its inefficiency. In 2014, it was audited by Missouri State Auditor Tom Schweich. He found—in what has become an echo of the Federal LIHTC program—that the state program got poor returns. For every tax dollar spent on the credits, only $0.42 went to actual construction, and only $0.08 was generated in economic impact. The remainder, stated the audit, “goes to the federal government in the form of increased federal income taxes; to syndication firms; and to investors.”

This criticism was echoed by Jeff Huggett, the VP and project partner of development & acquisitions at the Minnesota-based company Dominium. His company has built in St. Louis, and he said that Missouri’s program has minimal effectiveness compared to other state programs. The reasons he cited were the same ones cited by the audit: the credits do not function as a certificate, are not a direct appropriation and are spread over a ten-year period.

“[Missouri is] not getting nearly the bang for the buck on the low-income credit as some other states,” said Huggett.

Patrick Ishmael, the director of government accountability at the Show-Me Institute, a conservative think tank based in Kansas City, MO, agreed that the LIHTC program was wasteful, and went a step further. He said the program was part of a broader culture within Missouri of using tax credits or special tax breaks to attract economic development where it wouldn’t otherwise exist. The revivals of downtown Kansas City and St. Louis, for example, were based around projects that required one subsidy after another, making the revivals a façade.

“If it takes a subsidy to get [projects] here, that’s not the best fit for the state,” said Ishmael, claiming that eradication of the LIHTC program would be one way to lower taxes statewide and rid the economy of distortions.

Of course, some things would be lost were Missouri’s LIHTC program to end. One is the great historic preservation momentum that has occurred statewide, including throughout St. Louis. Ishmael himself noted how this has happened along Washington Avenue, one of the main east-to-west spines stretching through downtown. The avenue’s many revived historic structures contribute to the area’s broader urbanism and walkability, and a lot of them, said Ishmael, resulted from various developers “double-dipping” into LIHTC and historic preservation credits on the same project.

Dominium, too, has used this multi-tiered financing structure to restore buildings around the city core. These include mixed-income, residential apartments inside the Arcade Building, the Leather Trades Lofts, and the Metropolitan Artist Lofts. Huggett agreed that these historic projects wouldn’t have been feasible without the tax credits, stating, for example, that they covered around 20 percent of the costs for the Arcade Building project.

“Without that money, we would’ve never proceeded, period,” said Huggett. “The rents in St. Louis aren’t adequate to cover those costs.”

Also lost if the governor continues halting Missouri’s LIHTC program are potential future low-income housing projects. This is why Greitens has drawn criticism from pro-housing activists, who say his actions could hurt seniors, homeless, veterans and low-income families.

“There would be a significant reduction in the projects that get done,” said Chris Krehmeyer, CEO of the local community development organization Beyond Housing, to St. Louis Public Radio. “I think it will harm the quality of the projects. That means there’s fewer units of affordable housing available and fewer places for people to live.”

Then again, it’s hard to justify a program where less than half the money actually goes to such projects, especially when there are more successful program models in other states.

“I don’t think the governor is saying, ‘gee, screw poor people. We don’t need to help them at all’,” added Huggett. “I think he’s just saying, ‘gosh, we could do this a lot more cost-effectively’.”

To that point, Missouri’s LIHTC program appears set for structural reform. Greitens’ committee on taxation issued a report in June of 2017 suggesting that these LIHTCs be converted into a low-interest loan program, and that the state purchase outstanding LIHTCs in exchange for state issued bonds. But these ideas haven’t become law, so the program remains in limbo, making “it very difficult for people to plan,” concluded Huggett. (The governor’s office ignored multiple interview requests). The Missouri Housing Development Commission will, however, continue using Federal LIHTCs, helping—at least partially, anyway—to fund historic and low-income projects throughout the state.

Story Contacts:
Patrick Ishmael
Director of Government Accountability
Show-Me Institute
Patrick.Ishmael@showmeinstitute.org

Jeff Huggett
Vice President and Project Partner
Development & Acquisitions, Dominium
jhuggett@dominiuminc.com