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TAX CREDITS! THAT'S THE ANSWER!

April 28, 2005

The Iowa House last night passed a new incarnation of the "Grow Iowa Values" fund. The bill (H.F. 868) features - sit down - new targeted tax credits! And it modifies some we already have! As Iowa only has 19 or so targeted tax credits now, these are no doubt badly needed. The new credits include:

-Economic Development Region Revolving Fund Tax Credit. This credit will equal 20% of the contribution made to an "economic development region revolving fund." It appears these will fund "economic development initiatives that are either unique to the region or innovative in design and implementation."

- We get a "Historic Preservation and Cultural and Entertainment District Tax Credit." This replaces and expands the existing Property Rehabilitation credit.

- The bill tweaks the existing "Investment Tax Credit" for "eligible businesses" meeting a ridiculously long list of criteria for projects that have won the approval of local politicians communities. The list of criteria is in the extended entry section for your convenience; click "read more" at the bottom of this post. Note that this specifically excludes retail and service businesses. Those "new economy" jobs aren't real jobs, anyway.

- The bill adds a New Jobs Credit From Withholding. This credit, which only applies to "eligible busineses," is similar to the existing new jobs credit for jobs under community college agreements, but it applies at a rate 1/2 percent of gross wages paid, without the caps of the existing programs. It applies on top of the existing credit.

-We also get an all new "Wage Benefits Tax Credit." This is available businesses (not just "eligible businesses") who add jobs with wages exceeding 130 percent of the average county wage, and who have their application for the credit certified by the Department of Economic Development. This also applies only to "non-retail, non-service" businesses. Take that, new economy!

-The existing Research and Development Credit is tweaked to allow up to $1 million in tax credits for "development and deployment of innovative renewable energy generation components manufactured or assembled in this state."

WINNERS AND LOSERS

If you are an industrial policy fan, believing that the state legislature and Iowa's Department of Economic Development can spur economic growth through judicious evaluation of businesses and distribution of carefully-targeted tax breaks, this bill is for you.

If you think that the last thing Iowa needs is more byzantine tax credits and more involvement of politicians and bureaucrats in determining the future of the economy, well, maybe next year.

If you charge by the hour to help businesses take advantage of tax credits, like we do, this truly is economic development. Party on.

UPDATE: State 29 is all over this like a cheap suit; he also has a link to the 92-8 roll call. The eight "nays":

Baudler (R, Adair Co.); De Boef (R, Keokuk Co.); Eichorn (R, Hamilton Co.); Fallon (D, Polk Co.); Jochum (D, Dubuque Co.); Sands (R, Louisa Co.); Scoultz (D, Black Hawk Co.); Van Engelenhoven (R, Marion Co.)

15.329 ELIGIBLE BUSINESS.
1. To be eligible to receive incentives under this part, a
business shall meet all of the following requirements:
a. If the qualifying investment is ten million dollars or
more, the community has approved by ordinance or resolution
the start=up, location, or expansion of the business for the
purpose of receiving the benefits of this part.
b. The business has not closed or substantially reduced
its operation in one area of the state and relocated
substantially the same operation in the community. This
subsection does not prohibit a business from expanding its
operation in the community if existing operations of a similar
nature in the state are not closed or substantially reduced.
c. The business is not a retail or service business.
2. In addition to the requirements of subsection 1, a
business shall do at least four of the following in order to
be eligible for incentives under the program:
a. Offer a pension or profit sharing plan to full=time
employees.
b. Produce or manufacture high value=added goods or
services or be engaged in one of the following industries:
(1) Value=added agricultural products.
(2) Insurance and financial services.
(3) Plastics.
(4) Metals.
(5) Printing paper or packaging products.
(6) Drugs and pharmaceuticals.
(7) Software development.
(8) Instruments and measuring devices and medical
instruments.
(9) Recycling and waste management.
(10) Telecommunications.
(11) Trucking and warehousing.
Retail and service businesses shall not be eligible for
benefits under this part.
c. Provide and pay at least eighty percent of the cost of
a standard medical and dental insurance plan for all full=time
employees working at the facility in which the new investment
occurred.
d. Make child care services available to its employees.
e. Invest annually no less than one percent of pretax
profits, from the facility located to Iowa or expanded under
the program, in research and development in Iowa.
f. Invest annually no less than one percent of pretax
profits, from the facility located to Iowa or expanded under
the program, in worker training and skills enhancement.
g. Have an active productivity and safety improvement
program involving management and worker participation and
cooperation with benchmarks for gauging compliance.
h. Occupy an existing facility, at least one of the
buildings of which shall be vacant and shall contain at least
twenty thousand square feet.
3. Any business located in a quality jobs enterprise zone
is ineligible to receive the economic development incentives
under the program.
4. If the department finds that a business has a record of
violations of the law, including but not limited to
environmental and worker safety statutes, rules, and
regulations, over a period of time that tends to show a
consistent pattern, the business shall not qualify for
economic development assistance under this part, unless the
department finds that the violations did not seriously affect
public health or safety, or the environment, or if it did,
that there were mitigating circumstances. In making the
findings and determinations regarding violations, mitigating
circumstances, and whether the business is disqualified for
economic development assistance under this part, the
department shall be exempt from chapter 17A.
5. The department shall also consider a variety of
factors, including but not limited to the following in
determining the eligibility of a business to participate in
the program:
a. The quality of the jobs to be created. In rating the
quality of the jobs, the department shall place greater
emphasis on those jobs that have a higher wage scale, have a
lower turnover rate, are full=time or career=type positions,
provide comprehensive health benefits, or have other related
factors which could be considered to be higher in quality,
than to other jobs. Businesses that have wage scales
substantially below that of existing Iowa businesses in that
area should be rated as providing the lowest quality of jobs
and should therefore be given the lowest ranking for providing
such assistance.
b. The impact of the proposed project on other businesses
in competition with the business being considered for
assistance. The department shall make a good faith effort to
identify existing Iowa businesses within an industry in
competition with the business being considered for assistance.
The department shall make a good faith effort to determine the
probability that the proposed financial assistance will
displace employees of the existing businesses. In determining
the impact on businesses in competition with the business
being considered for assistance, jobs created as a result of
other jobs being displaced elsewhere in the state shall not be
considered direct jobs created.
c. The impact to the state of the proposed project. In
measuring the economic impact, the department shall place
greater emphasis on projects which have greater consistency
with the state strategic plan than other projects. Greater
consistency may include any or all of the following:
(1) A business with a greater percentage of sales out=of=
state or of import substitution.
(2) A business with a higher proportion of in=state
suppliers.
(3) A project which would provide greater diversification
of the state economy.
(4) A business with fewer in=state competitors.
(5) A potential for future job growth.

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