Report predicts possibly large jump in state tax credit claims

DES MOINES – A new report by the Iowa Department of Revenue shows dramatic growth in the amount of state tax credits awarded since 2001 and projects they could continue to rise in the coming years.

In 2001, the amount of awarded credits was just over $100 million. By fiscal year 2007, the total had grown to nearly $400 million.

The report issues a prediction that the state's tax credit liabilities could total more than $566 million by fiscal year 2011, and said tax credits are becoming an increasingly important factor in estimating state revenues.

The report cites many economic development credits as the main driver. Those credits are used in job creation, worker training, urban redevelopment and other types of credits meant to foster economic growth.

One of those programs is a tax credit that has been in the headlines lately – the state's film, television and video promotion program. The program came under fire after revelations that the tax credits were awarded for the purchase of luxury vehicles.

An accounting firm's review of the program released Monday found several irregularities and poor or non-existent record-keeping. The problems have brought the resignations of the state's two former top economic development officials and the firing of the head of the state's film office. A criminal probe into the matter is ongoing.

Sen. Bob Dvorsky, a Coralville Democrat who serves as chairman of the Senate Appropriations Committee, believes lawmakers should take a look at tax credit programs' effectiveness in difficult budget times.

“You need to dig down deeper and look at the specific tax credits that are around and see if they are producing jobs,” Dvorsky said.

He said publicity surrounding the film tax credit program has focused attention on dollars granted for tax credits that could have been used for something else.

Dvorsky believes there will be discussion about placing a cap on some of those credits.

The recession and a depressed market for biofuels has helped hold down the total tax credits awarded in 2008 and 2009, the report said.

But estimates for the Earned Income Tax Credit, which is extended to low-income tax filers, have been revised up. More households are expected to qualify for the credit because of changing economic factors and a temporary federal expansion of the credit.

State Rep. Christopher Rants, a Republican from Sioux City who is running for governor, said it never hurts to review state tax credit programs.

“My concern is that the Democrats use it as a way to try to raise taxes in this state on the folks that are creating the jobs,” Rants said.

Rants thinks some tax credit programs are better than others. He cites the state's research and development tax credit and enterprise zone urban redevelopment program as programs that are worthwhile, but predicts the film tax credit will not survive.