Value of Iowa tax credits debated at Cedar Rapids hearing today

The value of state tax credits as economic development tools is up for debate at a public hearing in Cedar Rapids, with proponents and critics offering different tests for determining whether they should be continued.

Dubuque Mayor Roy Buol called state tax credits a “critical tool” in the community's development, especially its ability to land an IBM service center that is projected to employ 1,300 people with an annual payroll of nearly $60 million.

He was more than a dozen people scheduled to speak to a panel appointed by Gov. Chet Culver to make recommendations addressing oversight, accountability, transparency, public reporting, cost-benefit and which of the state's 30-some tax credit programs should be continued, curtailed and or eliminated.

Culver appointed the panel in the wake of the film tax credit scandal that led to the resignation of the state's two top economic development officials and dismissal of the director of the state's film office. He suspended the film tax credit in September following revelations that some of the credits were used in the purchase of luxury vehicles and other potential abuses.

According to the report, $32 million in film tax credits have been issued, but “positive fiscal impact to the state treasury is not expected.”

Buol called Dubuque the poster child for the state historic tax credit. He said $47 million in historic tax credit have leveraged $188 million in investment.

Not all tax credits perform as well, however, according to Peter Fisher of Solon, representing the Iowa Policy Project. Business tax credits are out of control, growing from $144 million to $400 million over four years and, if left on autopilot, will grow to nearly 10 percent of the state general fund budget.

The shortfall in state revenue that caused Culver to order a 10 percent budget cut can, in one sense, be accounted for in substantial measure by the growth in tax credits over four years, he said.

The state needs to do a better job of telling good tax credits from bad tax credits, he said. Goof credits help an industry of entrepreneur get over the hump and stand on its own.

Good credits help develop an industry that would not have grown without state aid.

Bad tax credits offer more help than is needed, paying for something that would have happened without state assistance or offering an open-ended commitment to an industry that will never stand on its own, Fisher said.

Mike Blouin, a Dubuque development leader and former state Department of Economic Development director, offered a traditional test for determining whether a credit is worth keeping: is it accomplishing its goal, at what cost and with what trade-offs.

Likewise, Steve Evans of the Iowa Taxpayers Association said the panel should look at whether a tax credit meshes with other policy initiatives, creates and retains jobs, is directly or indirectly beneficial to Iowa jobs and investment, and whether the credit is needed for Iowa to be competitive with other states.

Fisher offered a test that relied on determining whether growth is sustainable. State funding education, training, transportation, water, sewer, public health and safety creates an environment businesses need to operate successfully.

Rather than being the lowest tax, biggest subsidy state, he recommended Iowa seek to take the high roads and “be the education state, the well-managed public service state.”

The panel, chaired by Department of Management Director Richard Oshlo, will have another hearing in Urbandale Wednesday.

Contact the writer: (319) 398-8375 or at james.lynch@thegazette.com