New peek at secret checks

The Iowa Department of Revenue has released its 2006 Tax Credit Claims Report.

According to the report, during tax year 2006, Research Activity Credit (RAC) claims were $30.5 million — with 70 percent of that in so-called “refunds.” Important to note: These “refunds” don’t “refund” anything. Rather, they are what the state pays companies that can’t use all of their tax credits because they don’t owe enough tax.

And, by the way, these payments are state secrets — secret checks to companies that don’t pay corporate income tax in Iowa. We only get to know the overall amount of them, but not who gets what. It would be different if these checks came from direct appropriations, through the regular budget process.

This is an example of spending through the tax code that is costing the state of Iowa many millions of dollars each year. By 2012, the RAC is expected to cost the state over $100 million – part of the growing problem of ballooning tax expenditures that have weakened Iowa’s revenue structure.

The new report from Revenue also notes that the supplemental RAC – separate awards provided by the Department of Economic Development – cost the state $13.4 million in 2006, with most of that ($13.1 million) in “refunds.” Governor Culver has proposed doing away with that spending to save the state $13 million in the FY2010 budget.

See the full Department of Revenue report.

Tighten loose belts on largest waists

It might surprise Iowans to learn that state general fund spending has declined as a share of the economy. That is the reality — even if it’s not the common rhetoric heard from the State Capitol.

But one area of state spending is spinning out of control: spending through the tax code on business development projects. Business tax credits have grown from $144 million in fiscal 2006 to $243 million last year. The Department of Revenue projects this figure to spike to $406 million next fiscal year.

These credits might not be reviewed by the Legislature as it builds its budget. This kind of spending is done through the tax code, not the regular appropriations process. Once enacted, these credits are not subject to annual reauthorization and can grow well beyond what anyone expected, and for activities not intended when they were passed.

Business tax credits in Iowa are on autopilot. We cannot afford this, and the current budget crisis offers a good time to address it.

See the new paper, “Iowa Budget Belt-Tightening: Fosusing on the Largest Waists,” from the Iowa Fiscal Partnership at http://tinyurl.com/d8rkm2.

Federal stimulus impacts on Iowa

Here is a look at some of the impacts of the American Recovery & Reinvestment Act in Iowa:

FMAP (Medicaid percentage increase) FY2009-11 — $550.0 million

State Fiscal Stabilization (Flexible block grant) — $ 86.0 million

Education/ Child Care:

State Fiscal Stabilization fund (education) FY2009-10$386.4 million

Title 1 (supplemental support) — $65.3 million

IDEA (special education state grants)—$120.9 million

Child Care & Development Block Grant FY2009-10 — $18.1 million

Child Support FY2009-10 — $27.2 million

Unemployment Insurance (UI):

UI Benefit Increase ($25/week) — 212,422 recipients

UI Emergency Extension to 12/09 — 27,600 new beneficiaries

Employment Services FY09:

Youth Services — $5.2 million

Dislocated Workers — $6.3 million

Adult Activities — $1.6 million

Making Work Pay Credit — 1,110,000 taxpayers

Food Stamps FY2009-13:

Benefit Increase — $161 million and 279,000 recipients

Administration — $2.7 million

Child Tax Credit (tax year 2009 — lowers threshold to make credit available to families at $3,000 earnings):

Number helped lowering $8,500 threshold — 133,000

Number helped lowering $12,550 threshold — 156,000

Emergency Shelter Grant Pgm FY091 Add’l Funds — $16.8 million and 4,500 households

It’s the revenues, Iowans

Iowa’s declining revenues are at the root of the state’s budget problems, leaving Iowa open to the impact of the recession. In fact, the Iowa Fiscal Partnership released a report today detailing the role of revenue changes in our state’s budget crisis.

Iowa’s general spending grew at the same rate as the economy in the 1990s, but after the 2001 recession, spending never caught up to the levels of the growing economy — even though it has increased slightly over the past three years.

State spending in 2008 was 5.45 percent of the economy, 16 percent lower than it was in the 1990s.

Beth Pearson, an Iowa Policy Project research associate who co-authored the report, said tax reductions between 1996 and 2004 have contributed to Iowa’s budget crisis. These breaks cost the state an estimated $650 million in forgone revenue in 2004 alone.

Iowa policy makers need to keep a long-term focus, and to consider all spending, including spending through the tax code.

For more information on the report, visit our website at: www.IowaPolicyProject.org, or find the report here. For timely updates, follow our IaPolicyProject Twitter account.