The Missouri Certified Capital Company Tax Credit and the New Enterprise Tax Credit Programs Are Not an Effective Use of State Tax Credits

The Missouri CAPCO program will not produce enough state revenue to offset costs of credits. The program, established in 1996, authorized tax credits to insurance companies that made investments into venture capital firms (CAPCOs). The CAPCO program will use $140 million in tax credits while only generating $23.6 million in projected revenues and creating an average projected 293 jobs for 15 years. This results in a net reduction in state revenue of $116.4 million over the life of the program. Fourteen of the thirty-seven companies receiving investments went out of business

By:
State Audit Report
Missouri State Auditor’s Office

http://www.nasvf.org/web/allpress.nsf/pages/9227

Of the 37 companies: 29 were in the St. Louis area, 6 in Kansas city, and one each in Springfield and Willow Springs.

CAPCOs will collect $35 million in fees. The CAPCOs have collected or accrued about $21.3 million in management fees since 1997 and fees will total $35 million by 2008. If the CAPCOs reach the mandated 100 percent investment threshold by 2008, each dollar of management fees will have yielded four dollars of qualified investments.

In response to the auditor’s survey, 8 of 11 CAPCOs indicated that it was uncertain that they would be able to reach the 100 percent threashhold for decertification without taking advantage of last year’s legislative changes in the law.

Conclusion:

The Missouri Certified Capital Company Tax Credit program is an inefficient and ineffective tax credit program. Based on the assumptions used when entering the Missouri Certified Capital Company program data into the model, the program will cost the state over $116.4 million and will create an average of 293 jobs for 15 years. The CAPCOs will collect $35 million in fees. The investment activity and job creation through 2003 occurred primarily in the St. Louis metropolitan area. The program would result in a total increase of gross state product of $414 million over the 12-year life of the program. However, that economic activity and the jobs created will not produce enough additional state revenue to offset the costs of the tax credits. The CAPCOs invested nearly $89 million and those investments were valued at $24.3 million as of December 31, 2003. Most of the CAPCOs will not be able to reach the 100 percent investment threshold without taking advantage of the statutory changes made in 2003.

Recommendation:

We recommend the Department of Economic Development and the General Assembly let the Missouri Certified Capital Company Tax Credit program expire without authorizing any additional tax credits.

To read the full report:

http://www.nasvf.org/web/allpress.nsf/93860bfe22f7c2168625694e004f9f1a/8f889585214ccbab86256ec900087020/$FILE/Missouri%20Tax%20Credits%202004%20audit.pdf