Opinion ID: 2539248
Heading Depth: 1
Heading Rank: 6

Heading: Taxpayers' Standing in Missouri

Text: To bring a lawsuit, a person must have standing, that is, a stake in the outcome of the lawsuit. Missouri long has recognized that taxpayers have standing, as taxpayers, to challenge expenditures of public funds that a taxpayer plaintiff alleges are unlawful. Unlike the United States Constitution, the Missouri Constitution prescribes in detail the powers and limitations of the state government and its many subdivisions. Taxpayers regularly come to the courts of this state seeking to enforce specific constitutional provisions, alleging that the state or a political subdivision is violating the constitution. Taxpayer standing is central to holding state and local governments accountable to limits on spending and other activities as specified in the state constitution. The state of Missouri gave Northside Regeneration, L.L.C., $28 million in transferable tax credits, which, when sold, would give Northside Regeneration about $25 million in real money to spend on its redevelopment project in the city of St. Louis. The principal opinion says the tax-payers have not shown that this is not public money, and, therefore, they do not have standing to bring a lawsuit claiming that this grant violates the Missouri Constitution. But the principal opinion casts doubt on whether taxpayers could challenge an action in which the state grants tax credits to a private company or organizationeven when the state would be prohibited from spending public money directly for that purposebecause the money did not come directly from the state treasury and, therefore, the state's donation of money to this projectwhich the state itself calls an investmentis not subject to judicial review. These taxpayers, Manzara and Marquard, claim that the money granted to Northside Regeneration violates article III, section 38(a) of the constitution, which provides that The general assembly shall have no power to grant public money or property, or lend or authorize the lending of public credit, to any private person, association or corporation. . . . [1] Because the meaning of article I, section 38(a) may not be immediately obvious, I offer an example from a provision of the state constitution that is clear to illustrate my point: Article I, section 7 of the Missouri Constitution would prohibit spending state money to build a church. [2] But what if the state were to set up a program to which churches could apply for transferable tax credits to aid in building new churches? Having well-built new churches, after all, would be a great benefit to the communities in which they are located and, presumably, would contribute to uplifting the morals of the state. But under the principal opinion's analysis, a taxpayer may lack standing and, therefore, could not challenge the legality of the state's action because a tax credit is not public money. Really? Not all tax credits are created equal. The transferable tax credits involved in this case share two characteristics: 1. They are granted to an applicant that applies for the credits and demonstrates to a state agency that the applicant's proposed use of the money is for the purpose set forth in the particular tax credit program established in the statute. 2. The tax credits can be sold, yielding real money for the project for which the tax credits are granted. The hypothetical church, described above, has no tax liability of its own, nor typically would a developer such as Northside Regeneration at the time it receives the tax credits. No problem; the church or the developer can take the credits to a bank or financial institution that will sell them to taxpayers who owe taxes to the state, and the taxpayer buyers can use the credits to pay their taxes. Typically, the institution will charge a commission, and the taxpayer who buys the credits will pay less than face valuethis discount is the incentive for the tax-credit buyer to purchase credits rather than using actual cash to pay the taxpayer buyer's taxes. The amount paid in commissions and discounts typically is about 10 percent of the face value of the tax credits, [3] which means that the nearly $28 million in credits would yield about $25 million in cash to Northside Regeneration. What is a transferable tax credit? [4] It is a state-issued coupon that can be redeemedthat is, used instead of money to pay taxes that the holder of the tax credit owes the state of Missouri. If the recipient of the tax credit owes no taxes, the recipient can sell the credit to someone who does owe taxes. Put simply, a $100 tax credit can be used to pay $100 in taxes owed to the state. It is a cash alternative. [5] In fiscal 2009, there were 53 separate tax credit programs whose redemptionsthat is, the amount of tax credits used to pay state taxestotaled $584 million. [6] These transferable tax credits are not like the tax credits that taxpayers may claim as entitlements on their income tax returns. For example, if a taxpayer donates to a food pantry, a maternity home or a domestic violence shelter, he or she can claim a credit on the tax returnthe credit is not transferable, it is limited in amount and the taxpayer claiming the credit does not have to submit an application to a tax credit program. [7] These credits are simply incentives inserted into the tax code to encourage or reward various kinds of donations and activities. The tax credit programs such as the program that Manzara and Marquard challenge herethe Distressed Area Land Assemblage Tax Credits in section 99.1205generally are referred to as investments on which the state expects to realize a return. [8] The state grants the creditswhich are assets of the state of Missouriand hopes for a return, the project sponsor receives the credits and converts them to cash to support the project, the financial institutions sell the credits and receive commissions, and the buyers of the credits receive credits worth more than they paid so they receive returns on their investment in buying the tax credits. Everybody wins, except for the taxpayers to whom the principal opinion denies standing and, perhaps, others such as the next generation of workers whose education is funded insufficiently because today's grownups decided to spend the public's moneyby tax creditson other priorities. In reading this Distressed Area Land Assemblage Tax Credits statute, one reasonably may infer that it was enacted to benefit one project in one city. This may have little relevance to the validity of the tax credit program in this case, but it is interesting to see the good uses that the well-connected with their lobbyists can find for state government, which raises again the question: Should the state government's financial favors bestowed through tax credits be beyond the reach of judicial review under the Missouri Constitution? The Missouri Constitution, as noted, has many specific prohibitions and limitations on the spending of public money. These restrictions safeguard the scarce public resources that are needed to support essential public services, for instance, education, public health and public safety. The principal opinion distorts Missouri precedents that recognize standing to sue in cases involving transferable tax credits, most notably Curchin, which held that providing a transferable tax creditthat is, a tax credit that can be soldis the expenditure of public funds. 722 S.W.2d at 930. Instead of following Missouri case law that relates directly to the tax credits in this case, the principal opinion seems to get distracted by the federal constitutional standing analysis in a case involving Arizona's law that grants individual taxpayers up to $500 in non-transferable tax credits for donations to organizations that provide scholarships for students to attend private schools, including religious schools. Arizona Christian School Tuition Organization v. Winn, ___ U.S. ___, 131 S.Ct. 1436, 179 L.Ed.2d 523 (2011). [9] By indicating that taxpayers may not have standing to present a constitutional challenge to the spending of state resources through tax creditsregardless of whether the tax credit is transferablethe principal opinion provides the legislature with a roadmap to try to ensure that courts never will be able to review whether any grant of public money as a tax credit violates a specific prohibition in the Missouri Constitution. The principal opinion brings to mind a familiar 19th century observation that the American republic will endure until politicians realize they can bribe the people with their own money. [10] This observation usually is applied to social insurance and other entitlements from state and federal governments and these forms of welfare generate no shortage of commentary predicting the end of the republic. The genius of those who enact transferable tax credit programs is that tax credits allow governments to bestow financial largess on well-connected recipients with little or no public scrutiny andwith this Court's indulgenceno judicial scrutiny. Are these transferable tax credits public money? If it looks like money and acts like money, it is money. And, because it comes from the state of Missouri, it is public money. And because it is public money, the taxpayers here, Manzara and Marquard, have standing to bring this lawsuit. The denial of standing to taxpayers who challenge tax credit spending rests on a flawed economic and legal analysisan analysis sure to be noted by future historians tracing the origins of the congenial corruption that led to widespread distrust of government and ultimately to its demise. It may not be the end of our republic, but perhaps we may be able to see the end from here.