Archive for the ‘Budget and Tax’ category

Beyond Battelle: Let’s broaden the dialogue of Iowa economic health

January 14, 2015

As Iowa legislators this week start work on a course to a more robust and diversified economy, discussion already has focused on a new privately funded report, Iowa’s Re-Envisioned Economic Development Roadmap.[1]

Produced by Battelle Technology Partnership Practice and commissioned by the Iowa Partnership for Economic Progress,[2] the $400,000 report makes some important points and deserves a careful look.

It focuses heavily on the importance of business to promote economic activity, but its core message acknowledges the significant role of public investments in providing the foundations for Iowa’s economy. This includes the education system needed to develop the skills, talents and capacity of the current and future workforce, including those who will become the future entrepreneurs and leaders for the 21st century.

While the report acknowledges the centrality of an educated and skilled workforce and a high quality of life to making Iowa an environment for business to flourish, it places very little focus upon how government can deliver on that role. It falls to government to educate that future workforce — at the early childhood, primary and secondary, and higher education levels.

The report does not adequately address the challenges Iowa faces in creating that higher skill level among its emerging workforce — in particular, the need to address lagging and stagnant educational achievement. To do so takes resources, and the report’s emphasis is to leave in place a business subsidy structure that has increasingly reduced the state’s ability to meet those needs.

The report itself was overseen largely by business leaders and economic development agency staff. However, these are not the only stakeholders in Iowa’s economic future; many others need to engage in the dialogue about Iowa government’s role in economic development.

The Battelle Report raises one perspective on economic development. Lawmakers, the media and the public need to insist that other perspectives and expertise also are fully considered and vetted.

More Iowans need an invitation to the table.

08-Bruner-5464Charles Bruner is executive director of the Child & Family Policy Center, www.cfpciowa.org, part of the Iowa Fiscal Partnership, www.iowafiscal.org.

Note: This piece also ran as an “Iowa View” in The Des Moines Register, Jan. 14, 2015.

[1] Technology Partnership Practice, Battelle Memorial Institute, December 2014, “Iowa’s Re-Envisioned Economic Development Roadmap.” http://www.iowaeconomicdevelopment.com/battelle
[2] Iowa Economic Development Authority, News release, Dec. 18, 2014, “Governor, IPEP Release Findings of 2014 Battelle Report, a New Economic Development Roadmap for Iowa,” http://www.iowaeconomicdevelopment.com/newsdetails/6051

A brief, shining moment

January 8, 2015

It was a brief, shining moment for Iowa, and it came five years ago today.

A special Tax Credit Review Panel appointed by then-Governor Chet Culver, after an in-depth examination of all Iowa tax-credit programs, offered a 10-page review with some tough recommendations.

As the Iowa Fiscal Partnership* stated the day of the report’s release, Jan. 8, 2010, the panel “took an important step to make Iowa business subsidies more accountable and transparent.”

Major recommendations of the Tax Credit Review Panel were to:

•   Provide a five-year sunset on all tax credits;
•   Eliminate the refundability of the Research Activities Credit for large companies;
•   Eliminate the film tax credit;
•   Eliminate of the transferability of other credits;
•   Place all business credits under a $185 million cap;
•   Reduce the rate for the School Tuition Organization (STO) Tax Credit and lower the cap; and
•   Impose an income test for the Tuition and Textbook Tax Credit.

Action in the Legislature, unfortunately, fell well short of those bold proposals, as we noted in a report that spring. In their biggest moves, lawmakers set up a periodic review of tax credits but required no action to affirm the value of any credits, and they put light restrictions on some credits. Some of those limits already have been raised; the proposal to restrict the STO subsidy for private school tuition not only was ignored but the credit has been expanded.

In short, five years later, Iowa is as lax as ever in its treatment of these subsidies. Under the sunset clause recommended back then, we would in 2015 be preparing for a round of debate and action to keep, expand, limit or eliminate certain tax credits. Instead, we have no expectation of any debate, let alone any action. If the credits are working, we don’t know because beneficiaries are not forced to show it.

It is not too late for Iowa lawmakers to address these issues and include some water in the tax credit reform glass. We said that in 2010, and we can say it again in 2015.

The seven members of the Tax Credit Review Panel, by the way, were Richard Oshlo, then interim director of the Department of Management; Fred Hubbell, interim director of the Department of Economic Development; Rob Berntsen, chair of the Iowa Utilities Board; Bret Mills, executive director of the Iowa Finance Authority; Cyndi Pederson, director of the Iowa Department of Cultural Affairs; Mark Schuling, director of the Iowa Department of Revenue; and Jeff Ward, executive director of the Iowa Agricultural Development Authority.

Their work was good and important, and with hundreds of millions of dollars at stake, we should not forget it.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

*The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City, and the Child & Family Policy Center in Des Moines.

See ya later, Gator: Civics lesson from bowl game

December 31, 2014

ipp-kinnick6Of course we’re all excited that the Iowa Hawkeyes will be playing Jan. 2 against Tennessee in the — uh, what’s the name of that bowl again?

It has something to do with tax preparation. (No royalties are being paid for publication of this message, so no need to repeat it.) So for now, let’s just call it the Pay Your Taxes Bowl.

Or, to recognize what we do by preparing and paying our taxes, we could make it the Feed the Hungry Bowl, the Educate the Children Bowl, the Fix the Highways Bowl, or the Clean the Air and Water Bowl.

In years past, most bowl games promoted a tradition, or an image, related to their locale. This game in Jacksonville, Florida, used to be called the Gator Bowl, and that was the name of the stadium. Now it’s played in a rebuilt stadium named for a bank.

The Gator Bowl has a storied past, including a good game in 1983 between the Iowa Hawkeyes and the Florida Gators, who won 14-6.

Even the Beatles played there once — though it was for a concert, not a gridiron battle with the Beach Boys — and that seems more interesting than the heavy-handed advertising that dominates these games now. Maybe the Fab Four Bowl? Strawberry Fields Bowl? Hold Your Hand Bowl?

There was a time when the Orange Bowl wasn’t connected to the name of a delivery service or a credit card company. There was a Citrus Bowl in Florida and a Peach Bowl in Georgia. I remember going to the Alamo Bowl once, happy to see the name bound to the enduring history of San Antonio, with no connection to rental cars.

Almost all bowls now feature a corporate sponsor’s name, so it may be in the nature of things that when many Iowa fans remember “The Catch” by Warren Holloway to beat LSU as the clock expired, they involuntarily associate it with the name of a credit card.

Still, we should acknowledge the irony that with the corporatization of all that is good, like football bowl games, at least one bowl game is associated with paying taxes instead of avoiding them.

Just understand: Some of us will still think of it as the Gator Bowl.

Go Hawks!

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

Editor’s Note: This piece was published as an Iowa View in the Dec. 28, 2014, Des Moines Register

Leveling the playing field

December 11, 2014

Small business owners get it: They follow the rules, but preferential treatment for giant companies puts them at a disadvantage.

Case in point: Lora Fraracci, who had an excellent guest opinion in today’s Cedar Rapids Gazette about practices big companies use to avoid paying U.S. taxes. The problem is not exclusively an issue with the lax U.S. tax code. It is a big problem at the state level as well.

Ms. Fraracci runs a residential and commercial cleaning business. As she noted:

“As a small-business owner in Des Moines, I play by the rules and pay my taxes to support our American economy. I create jobs that will continue to support our local economy. When the playing field is so uneven it makes it hard to realize this dream.”

The issue has been receiving some national attention, but many may not realize the prevalence of this problem and its extension to state taxes. While Ms. Fraracci and other small businesses, or Iowa focused businesses, follow the rules, large companies they may serve can find a way to either (1) avoid the rules, or (2) block stronger rules.

The Iowa Fiscal Partnership has written about these issues for some time, and the reports are on our website.

The biggest Iowa breaks come in two ways: tax loopholes and tax credits.

Tax loopholes have been estimated to cost the state between $60 million and $100 million a year. Loosely written law is an invitation to big companies’ lawyers and accountants to find ways to lower their firms’ taxes. Multistate firms can shift profits to tax-haven states and avoid taxes they otherwise would be paying in Iowa. That creates the uneven playing field Ms. Fraracci sees.

Iowa could fix this by adopting something called “combined reporting,” which the business lobby has fought tooth and nail when proposed in the past by Governors Tom Vilsack and Chet Culver. Many states — including almost all our neighbors (Illinois, Wisconsin, Minnesota, Kansas and Nebraska) — already do this. See our 2007 report, which remains relevant because Iowa has refused to act.

Tax credits are particularly costly, rarely reviewed with any sense that they will be reformed. This is illustrated best with the Research Activities Credit, which provides a refundable credit to big companies to do something they are likely to anyway: research to keep their businesses relevant and competitive.

In 2013, that credit cost $53 million, with $36 million of that going to companies that paid no state income tax in Iowa. The default position must be that this is wasted money, because it is never reviewed in the regular budget process the way other spending is examined every year — on schools, law enforcement, worker protection and environmental quality. In Iowa, spending on tax credits is spending on autopilot.

Read here about Iowa’s accountability gap on tax-credit spending.

Looking ahead, as a new legislative session approaches and we hear repeatedly that things are tight, keep these points in mind to better understand the real fiscal picture facing Iowa. The more small-business owners understand this, the more likely pressure can build for real reform.

Owen-2013-57  Posted by Mike Owen, Executive Director, Iowa Policy Project

Job 1 for Day 1 — putting Iowa families first

November 6, 2014

As election dust settles, priorities remain clear for Iowa families

Now that the votes are counted, the real work begins. Job 1? It could be any of a number of areas where solid research and analysis have shown better public policy could make a difference for a more prosperous, healthier Iowa. Take a step back from the TV ads and “gotcha” politics and these issues come clearly in focus.

In Iowa, research shows solid approaches to economic prosperity for working families include:

In Iowa, research shows a fiscally responsible approach to both find revenues and do better with what we have includes:

  • Stopping tax giveaways to companies that pay no income tax — which occurs at a cost of between $32 million and $45 million a year through one research subsidy program alone, even though there is nothing to show this spending boosts the Iowa economy or produces activity that would not occur anyway. http://www.iowafiscal.org/big-money-big-companies-whose-benefit/
  • Reining in unnecessary “tax expenditures” — tax breaks, tax credits and other spending done through the tax code — could bring in tens or hundreds of millions of dollars for public services. A five-year sunset on all tax credits would force lawmakers to review and formally pass renewals of this kind of spending, now on autopilot. The last attempt at real reform fell woefully short. http://www.iowafiscal.org/tax-credit-reform-glass-half-full-maybe-some-moisture/
  • Plugging tax loopholes — a $60 to $100 million problem — would pay for a 2 or 3 percent annual increase in state per-pupil funding of K-12 schools. Twenty-three states, including 4 of 6 Iowa neighbors, don’t permit multistate corporations to shift profits out of state to avoid Iowa income tax and contribute their fair share to local education and other state services. http://iowapolicypoints.org/2013/05/22/will-outrage-translate-into-policy/
  • Reforming TIF — tax-increment financing, which is overused and often abused by cities around the state, has caught lawmakers’ attention in the past and should again. Like many tools that provide subsidies to private companies and developers, it should be redesigned to assure subsidies only go to projects with a public benefit and only where the project could not otherwise occur. Further, it should be designed to assure that only the taxpayers who benefit are the ones footing the bill, which is a problem with current TIF practice. http://www.iowafiscal.org/category/research/taxes/tax-increment-financing-tif/

In Iowa, research shows a healthy environment and smart energy choices for Iowa’s future includes:

  • Putting teeth into pollution law — which means reforms in Iowa’s Nutrient Reduction Strategy to eliminate pollution in waterways. http://www.iowapolicyproject.org/2014Research/140717-nutrient.html
  • Allowing local government to regulate frac sand mining — When it comes to cigarettes, guns and large hog facilities the Iowa Legislature took away the right of local government to listen to citizen desires. The General Assembly and the Governor should let democracy thrive and not take away local control of sand mining.
  • Encouraging more use of solar electricity in Iowa — Jobs are created while we confront climate change if we build better solar policy in Iowa. http://www.iowapolicyproject.org/110325-solar-release.html
  • Promoting local food and good food choices with school gardens — and a pilot project to offer stipends to Iowa school districts could encourage both learning and better nutrition. http://www.iowapolicyproject.org/2014Research/140514-school_gardens.html

None of these issues are new and it’s not an exhaustive list. But these were big issues for our state before the election and remain so, no matter who is in charge.

Together, we can build on the solid research cited above and lay the foundation for better public policy to support those priorities.

Owen-2013-57   Posted by Mike Owen, Executive Director of the Iowa Policy Project

Issues in Waiting: Tax-Increment Financing Reform

October 2, 2014

Basic RGBThis is an excerpt from an interview with IPP’s Peter Fisher on “The Devine Intervention,” KVFD-AM 1400, Fort Dodge. Host Michael Devine discussed tax-increment financing, or TIF, with Fisher, whose reports on this issue have prompted many to call for reform. TIF is one of Iowa’s “Issues in Waiting” — issues discussed year after year, but not resolved. The quotes below are actual quotes from the interview; the questions are paraphrased.

What was the idea behind tax-increment financing, or TIF?

It was originally a tool to help cities redevelop blighted or declining areas and what it did was allowed a city to capture more of the tax revenue from redevelopment when the city undertook some project to try to turn around a declining neighborhood. If they were successful, businesses would come in, the tax base would go up.

And what TIF did was allow the city to use not just the city taxes on all that growth, but the county and school taxes as well for some period of time to pay the city back for their expenses for this project, for redevelopment. And in the long run the county and school districts were better off. The cities got their money back, they got more tax base. That was the idea.

How did the implementation of TIF look?

It worked that way for quite a while. And then about 20 years ago we opened the door to just about anything cities wanted to do by saying well it doesn’t have to be a blighted area, it doesn’t have to be a redevelopment. It just has to be “economic development.” And just about anything cities do it turns out they can call “economic development” and finance with TIF.

Is there a consequence if TIF is abused?

Not really — as long as they are doing something within the law. The county and the school district don’t have any say on whether the city is going to divert their taxes to the city’s TIF fund. And there’s no state regulation either, other than the court system.

To hear the full interview, click here.

For more resources from Peter Fisher and the Iowa Fiscal Partnership about TIF, click here.

Stop politicizing water quality

August 26, 2014

Water quality in Iowa is so bad that any new initiative to improve our waters is probably a good thing. That said, Iowa farm groups’ new initiative to take action on agricultural pollution of our waters comes with a troubling rollout.

Making the announcement with Governor Branstad not only politicizes water quality, something that should be above politics, but masks the governor’s own decision this year to delay action.

The Governor’s veto of $11 million for water quality — funding passed by a divided legislature — makes an important statement about water quality. In addition, the governor also vetoed $9 million in funding for the REAP program, which is used by counties and cities to acquire and protect natural areas and to preserve Iowa’s environment.

Twenty percent of REAP goes to farmers to improve soil and water practices. If you are promoting a voluntary system to reduce nutrient runoff, shouldn’t you make sure farmers have resources to put sensible measures into practice?

The new group established to improve water quality needs to be taken seriously by the environmental community and by all Iowans. But this rollout does not engender trust.

The Iowa Policy Project recently released a report on water quality in Iowa. [See A Threat Unmet: Why Iowa’s Nutrient Reduction Strategy Falls Short Against Water Pollution] We showed that the addition of six new policies to the state’s new Nutrient Reduction Strategy would make it possible for the strategy to succeed.

One of those policies is the kind of effort the new farm group plans to push — bringing attention to the problem. A second policy is more funding, and farm group muscle could improve the chances in the Legislature. However, even if the Legislature acts, as in the 2014 session, legislation still has to get by a governor’s veto.

Maybe the best starting place to build broad support would be to invite an environmental group to the table, rather than a politician in the middle of a heated campaign. We know plenty who could help.

IPP-osterberg-75 Posted by David Osterberg, co-founder of the Iowa Policy Project


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