State Economic Developers Failing to Create Jobs

Missouri State Auditor Thomas Schweich. Photo courtesy of Missouri State Auditor's office.

JEFFERSON CITY — A report card for the Missouri Quality Jobs tax incentive shows the program isn’t creating jobs.

State Auditor Thomas Schweich rated the program as “Poor”—the lowest possible rating—based largely on slipshod management and the program’s disappointing results.

Since the incentive program became law in 2005, projects approved by Department of Economic Development, which oversees the program, were anticipated by the department to yield 45,646 jobs for Missourians. But in 2012 the DED revised those figures down by 41%, to 18,960 jobs. By year’s end 2011, only 7,176 jobs had actually been created.

Small businesses, technology firms and larger “high impact businesses” can apply for the program if they create full time jobs lasting at least a year within Missouri that meet either the local county or state’s average wage, whichever is lower.

Qualifying Missouri businesses can keep the withheld state income taxes from employees in new or retained positions for up to five years, instead of passing that money onto the state. Companies may also receive additional tax credits.

Schweich’s audit found many faults with the DED’s approach to information collection and analysis. The report noted that the DED does not ensure that data given to its office from businesses participating in the program is “accurate, reliable and complete.” The audit turned up instances of faulty information about, among other things, a business’s investment data, number of jobs and average wages.

The DED does not require companies to verify the amount of employee withholdings with documentation. Rather, the department estimates the likely withholdings from each company and looks for discrepancies. Schweich’s audit found two projects which had varied significantly from the DED’s estimates for withholdings, but the DED did not investigate either case.

Schweich also calls into question how the DED measures the positive benefits of the incentive program. The DED measures the economic impact of projects based on job and investment projections from tax credit applications. As a result, the economic benefit from a given project is more rosy than realistic. The windfall of investment in Missouri facilities and equipment from the program may have fallen short of projections to the tune of nearly $4 billion.

In addition to overstating the economic benefit of a project, Schweich’s audit found that the cost of the program has been understated. The program cost the state $52.9 from 2008 through 2011, according to the tax credit reports submitted to the Missouri Assembly.  But data showed that number to be $6 million short of the previous estimate, largely due to time lapses in reporting and record keeping.

 


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