Distressed Areas Land Assemblage Tax Credit Act Remains Much the Same

Yesterday, on the last day of the legislature’s special session, the Missouri House of Representatives passed the economic development omnibus (HB1) sought by Governor Matt Blunt. The bill contained a new version of the Distressed Areas Land Assemblage Tax Credit Act (DALATCA), modified slightly in the House and Senate economic development committees and on the floor of the Senate.

The basic formula proposed by Blunt survived: The credit creates a $95 million tax credit program that covers 50% of acquisition costs and 100% of maintenance and interest costs on eligible parcels located in census tracts that meet federal and state income-based definitions of distressed areas. No more than $10 million in credits will be issued annually. The tax credit is available to applicants who have assembled at least 50 acres within a 75-acre redevelopment area established by a municipal redevelopment agreement. The 50 acres need not be contiguous, and no parcel acquired by eminent domain is eligible for the credit. The applicant can only redevelop 75% of the project area alone, and must assign redevelopment rights to other developers or create partnerships to redevelop the remaining 25%.

Obviously, the tax credit structure has changed very little since first proposed by Peter Kinder in February 2007 and drafted by Steve Stone, attorney for developer Paul J. McKee, Jr. The whole idea is still predicated on a scale that is unrealistic for urban areas and small towns. The whole idea remains predicated on rewarding McKee for an acquisition project he has already undertaken in north St. Louis. Consequently, the credit fundamentally is a reimbursement for purchases already made rather than an incentive for future development.

However, the legislature made a few changes to the tax credit, at least one of which may be of consequence:

The credits cannot be used to cover fines or bills levied by municipal government.

To be considered eligible, a parcel must have its municipal taxes, fines and bills paid in full.

The redevelopment agreement must be approved by ordinance of the governing body of a municipality.

The redevelopment agreement must include a timeline for redevelopment.

All redevelopment work conducted by the applicant must be done in compliance with Missouri fair labor and wage laws.

The tax credits are considered redevelopment tax credits under state law, requiring an applicant to furnish financial information as well as project cost and completion date.

These are small but welcome improvements to the bill. However, the only ones that alter the state's expectations of an applicant are those relating to redevelopment timelines. These stipulations encourage actual development planning and construction, two aspects not previously part of the proposal. The two stipulations relating to municipal fines and bills are important on principle, but are of minor consequence to the nature of land assemblage rewarded by DALATCA.

The version of DALATCA headed to Governor Blunt's desk may require McKee to make his project better, but it won’t enable other people to start new ones. DALATCA remains a gilded albatross designed for one project. The governor should veto the omnibus, but that seems unlikely. Still, the scrutiny that the tax credit act invited may lead to future amendment or scrapping of DALATCA and enactment of a tool of wide and true use to distressed areas in Missouri. After all, most legislators probably weren’t thinking about the scale, form and nature of development before this tax credit act came along. They will take some time to learn the lesson that DALATCA is a huge mistake.


Full text of HB1 is available here; DALATCA is section 99.1205.