Iowa development officials want higher cap on business tax credits

Demand for credits likely to exceed supply by end of current fiscal year

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With $1 billion in potential business investment prospects in the “pipeline,” Iowa’s economic development chief told lawmakers Tuesday she expects the demand for state tax credits will exceed the $120 million cap before the current fiscal year ends June 30.

“We’re running very close to a problem,” said Debi Durham, director of the state Economic Development Authority, in making a pitch to a House-Senate budget committee to raise the yearly cap back to $185 million for the total state tax credits her agency can use to land developments that bring high-paying jobs and attract supply-chain investment spin-offs.

EDA officials used tax credits to land the state’s two largest capital investments ever -- a $1.4 billion fertilizer project that Iowa Fertilizer Co., a subsidiary of Egyptian-run Orascom Construction, plans to locate in Lee County, and a $1.7 billion investment by CF Industries in a Port Neal plant near Sioux City. And, Durham said Iowa stands a chance to close deals on another $1 billion worth of business investments this quarter – which would be on top of the nearly $5.46 billion that has come to Iowa since Gov. Terry Branstad took office in 2011.

So far, Durham said, EDA officials have awarded nearly $82.2 million tax credits this fiscal year and has received more than $50 million in tax credit requests from anticipated projects currently in negotiations. Last fiscal year, the agency exceeded the cap by $6 million and had to apply them to fiscal 2013, but Durham said a better approach would be to raise the cap to recognize the current market realities as Iowa recovers from the recessionary downturn.

The EDA chief told member of the House-Senate economic development budget subcommittee that state negotiators need to rely on tax credits in circumstances where Iowa’s corporate income tax is not competitive with other states. She noted that Iowa tax incentives totaled four cents per budgeted dollar – 36th in the nation, exceeding Missouri, Minnesota and South Dakota, but far short of Texas at 51 cents per budgeted dollar and Nebraska at 39 cents. Iowa ranks 41st in the nation in total incentives and 42nd for per-capita spending on incentives at $73.

Committee co-chair Rep. Dave Deyoe, R-Nevada, said he believed majority House Republicans would be supportive of raising the $120 million cap but he was uncertain whether GOP budget targets would fully fund the department’s fiscal 2014 request for raising state incentives from $15 million to $19 million and providing nearly $16.3 million for the authority’s operations.

Sen. Bill Dotzler, D-Waterloo, the other committee co-leader, said he favored appropriating more state money for business incentives, but he told Durham he has heard criticisms from Iowans who questioned whether Iowa was “over-buying” and “got suckered” into offering more incentives that were needed to land the Iowa Fertilizer project that also was looking at an Illinois site. State business recruiters offered more than $100 million in tax credits to supplement $130 million in local incentives to land the Lee County project with its 165 permanent jobs and more than 2,000 construction-related jobs.

Durham vehemently defended the authority’s handling of Orascom project against “third-party quarterbacking” by some state lawmakers and other critics who she said needed to look at the totality of the situation.

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