A critical problem with Iowa tax credits is a lack of transparency.
Governor Culver acted responsibly Friday by ordering a suspension of the state’s film tax-credit program pending further investigation of irregularities in the management of the program.
A critical problem with the film credit and many other economic development tax advantages offered to industry by the state of Iowa is a lack of transparency. State lawmakers and the public for the most part have no idea whether current tax breaks — which are typically granted as corporate entitlements — are actually performing as intended.
The initial investigation has exposed the film credits, as currently in place, as a boondoggle that is draining our state treasury. Further, this is coming at a time when our state leaders are anticipating budget cuts. All spending — including spending through the tax code — needs to be on the table when considering cuts to the budget.
Those taking advantage of apparent lax management of the film-credits program may indeed be ruining it for other filmmakers who have not done so. Nevertheless, there is no justification for continuing this program while all the problems with it are being sorted out, and while education and fundamental human services are threatened with budget cuts.
[The Iowa Fiscal Partnership is a joint budget and tax policy analysis initiative of two Iowa-based nonprofit, nonpartisan organizations, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines.]
Today’s startling report from the Iowa Revenue Estimating Conference removes any doubt about the impact of the recession on top of routine tax-cutting: Iowa has a big revenue problem.
Now, more than ever, Iowa needs to put reality into the rhetoric that everything is on the table in this fiscal crisis, and that points to three immediate responses:
• Use stimulus money to restore funds already cut from the budget;
• Restore funding and avoid further cuts where possible to help the economic recovery and to keep services going at a critical time;
• Recognize that stimulus funds and tax reforms are necessary to bridge the revenue gap created by the recession.
Iowa needs to fight off the temptation to cut budgets further. Budget cuts can damage the Iowa economy, creating more layoffs, at the same time they deny needed public services when more Iowans are hurting.
REC projections today painted a more dire picture than the one that led the governor to slash spending across the board by 1.5 percent for this year and propose 6.5 percent cuts in many services for next budget year, beginning July 1.
The projections mean Iowa has a $130 million larger gap for this year, and a $270 million larger gap for fiscal year 2010. Besides addressing the current budget-year gap, the governor and legislators will have to put a fiscal 2010 budget in place assuming those REC projections.
Many Iowa Fiscal Partnership reports have detailed the revenue roots of Iowa’s current fiscal challenges. Of particular concern are the explosion in corporate tax expenditures, including many giveaways that provide no accountability to Iowa taxpayers that they money is being spent as intended, or that experience has validated that intent.
In the current situation, there can be no more excuses for ignoring the revenue side of Iowa’s budget problems. See IFP’s news release today.
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.