Help economy, fix revenue problem

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.

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.