Watching your quarters — transparent state finances

Companies receive secret checks. That’s business as usual in Iowa, where corporate giveaways are out of control.

Getting a handle on where corporate subsidies go can be slippery business.

When you put your money in, do you see where it goes?

It’s an important question for taxpayers, and it’s one the Iowa General Assembly may address further this spring.

The so-called “Research Activities Credit,” or RAC, has become an annual drain on the state Treasury of $30-40 million and is projected to reach past $60 million in a few years. But the biggest cost is not simply tax revenues lost to a credit against taxes owed. The biggest cost of the RAC is in its poorly named “refund” program. If a company can claim a credit larger than its taxes owed, it gets what’s called a “refund” — for taxes it never had to pay.

These “refunds” averaged about 92 percent of claims from 2000-05, and in 2005 averaged $3 million per recipient. That is money that never has to go through the regular budget process, scrutinized by legislative committees and weighed against the state’s priorities. If it were a grant, or a regular budget item, you would see where that money goes. But since it’s rewarded through the tax system, you don’t. The companies receive secret checks.

That’s business as usual in Iowa, where corporate giveaways are literally out of control.

Maybe this will start to change. A new law passed last year could be a critical first step toward transparency of subsidies to private corporations. Recipients of RAC claims above $500,000 will be named, with amounts received, in an upcoming report from the Department of Revenue.

You’ll be able to see where at least some of the money is going, and count your quarters — a half-million dollars at a time!

Posted by Mike Owen, Assistant Director

Still good advice — accountability and balance

All tax credits, not just the film credit, demand scrutiny heretofore ignored.

It’s good to see more and more acceptance of the idea of accountability and balance to meet Iowa’s needs.

Everything must be on the table in budget decision-making, as Governor Culver insisted in his Condition of the State message earlier this year, and we have seen signs that this sensible, balanced approach could be taking hold in the Statehouse.

For many years, the budget hawks at the Iowa Fiscal Partnership have been making the pitch. One such report, in 2006, “Looking Behind the Curtain,” challenged Iowans to consider how to review the giant — and often secret — business subsidies that were draining the state of revenues needed to meet Iowans’ needs.

As noted then by the Des Moines Register, in a December 22, 2006, editorial:

Public dollars are the public’s business and should come with public accountability. Lawmakers should ensure that. They can get ideas about how to start by picking up a copy of the Iowa Fiscal Partnership report. [Click here for the executive summary of the report.

Late in the 2009 legislative session, lawmakers passed a measure to permit limited

Mike Owen
Mike Owen

public scrutiny of Iowa’s generous research subsidies that have allowed some of Iowa’s largest corporate operators not only to avoid income tax, but to receive state checks in the millions while school districts are facing cuts.

The scandal around the state’s film-credit program has contributed to the recognition by the Governor, legislative leaders and many in the media that all tax credits, not just the film credit, demand scrutiny heretofore ignored.

This has extended as well to business advocates. In fact, an economist for the business-oriented Tax Foundation succinctly made the point in a Register story on Sunday, that “the bottom line” is that these subsidies cost money.

“The big problem is that politicians and taxpayers tend to see them as a tax cut, but the correct way to look at them is that they are really government spending through the tax code.”

If a rose is a rose by any other name, a tax credit is spending whatever you call it. Like any spending, there should be a good reason for it, and with tax credits, it is not a given that they can be defended. It is long past time for review and reform.

The Governor has set up hearings for Tuesday in Cedar Rapids and Wednesday in Urbandale for advocates and experts to weigh in on the value — or lack of same — of many such subsidies. Click here for the agenda, time and location of each meeting.

Posted by Mike Owen, Assistant Director

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.