Governor Culver’s top managers are recommending changes in state tax credits, including an end to the tax credit for movie and TV productions. The agency directors suggest it’s time for legislators to impose a $185 million limit or “cap” on the amount of money the state will allot for a variety of business-related tax credits.
Such a move would provide more “predictability and stability” in the state budget, according to the agency directors’ written report. In addition, the agency directors recommend more “transparency” so taxpayers can see how the tax credits are being used.
Selling tax credits through a broker allows the recipient — like a movie-maker — to get cash upfront rather than wait to file a tax return. But the governor’s agency directors say that sort of practice means the individual or corporation that benefits most from the tax credit is not the intended recipient, and they get less than the person or corporation that bought the credit. The agency directors recommend that practice end.
Victor Elias of the Child and Family Policy Center says the recommendations are long overdue, as state tax credits are expected to amount to about half a billion dollars this year.
“That is revenue that is not available to the general fund to provide for education, to provide for healthcare, and support services for our most vulnerable children and families,” Elias says.
Business groups are lining up in opposition to the recommendations. Ed Wallace, president of the Iowa Taxpayers Association, says he worries about the proposal that each state tax credit be reviewed — and subject to possible elimination — every five years.
“Companies and business entities need predictability,” Wallace says. “…You’re obviously saying that we only have a window of time for these entities to be in place and that can prove problematic.”
Dave Roederer is executive director of the Iowa Chamber Alliance which represents the state’s 17 largest chambers of commerce. He says the recommendations send the wrong signal.
“When you are wanting to have more revenue come into the state, the way you do it is through the private sector. You have to grow the economy,” Roederer says. “So why would we be sending a signal to business and industry throughout the country as well as in Iowa that we don’t think we’re going to provide the incentives that we’ve provided you in the past.”
Fred Hubbell, a Des Moines businessman who has been interim director of the Iowa Department of Economic Development, was one of the seven managers Governor Culver asked to review the state’s three dozen tax credits. Hubble says it’s time that the state require more transparency and accountability from tax credit recipients.
“Is this going to significantly impair the ability of the state to grow its economy going forward? I don’t believe that,” Hubbell says. “I think this is going to help create more balanced growth and still have plenty of good, adequate incentives for the business community.”
The panel’s recommendations are not final. The changes proposed must be endorsed by the Iowa Legislature and signed into law by the governor, and supporters of the tax credits plan a lobbying effort to prevent many of the recommendations from becoming law.
The report released this morning shows the amount of state tax credits awarded for a variety of reasons increased “substantially” from July 1st, 2000 through June 30th, 2007, but has since declined. In the last state budgeting-year, the amount of tax credits awarded decreased by over 24 percent, “likely due to the economic slowndown,” according to the report.
See the entire report here: Tax Credit Study Review Report
(This story was updated at 3 p.m.)