By Jason Clayworth, The Des Moines Register
Hundreds of millions of dollars are spent each year on tax
incentives and grants for Iowa’s businesses or residents, some of which
are depriving the state of revenue, tax reform advocates say.
And
legislative leaders - who acknowledge they are facing the greatest
financial squeeze since the 1980s farm crisis - say it's time to
evaluate and possibly chop some of the incentives when the 2009 session
of the Iowa Legislature convenes at 10 a.m. Monday.
Up for grabs are more than 200 sales, income or property tax
exemptions as well as dozens of tax credit programs that range from tax
breaks for the purchase of argon gas to programs that refund millions
of dollars every year to companies doing research in Iowa.
The
exemptions - many decades old - were put into place for Iowa to remain
or become competitive for high-paying jobs and skilled workers.
But
many of the incentives have been on autopilot, dragging on for years
without an examination of what benefits they provide to Iowans.
"Over
the years, the number of entities that are exempted from taxation in
Iowa grows like a Christmas tree with more ornaments each year," said
Amy Logsdon, political director for the Iowa Citizen Action Network, a
consumer protection advocacy group with more than 13,000 members. "What
happens when we take that revenue out of our state wealth is that
essential programs have to be cut and real people suffer. Nobody loves
taxes but they're kind of a fee we pay to live in a just society."
The autopilot days are over, some lawmakers say.
"Here's
why people come to the Legislature and pursue tax cuts: because it's a
heck of a lot easier than coming up every year and asking for an
appropriation," said Senate Majority Leader Michael Gronstal, a
Democrat from Council Bluffs. "They become permanent. We obviously need
to look at those and see which ones are still doing the jobs they were
intended to do, and which ones are not."
Republican leaders agree, advocating for a process in which department leaders justify spending for various programs.
One of the biggest programs in their sights is a $500 million, 10-year initiative known as the Grow Iowa Values Fund.
Gronstal
also said the program may need to be retooled. The fund was one of the
key programs pushed by former Gov. Tom Vilsack, who said the money was
crucial to the economic viability of the state.
At Vilsack's
request, lawmakers in 2005 agreed to allocate $50 million a year to the
fund, which offers financial assistance to companies that offer
high-quality jobs through new development or expansion.
Vilsack,
who has been selected by President-elect Barack Obama as the next U.S.
secretary of agriculture, did not respond to requests for comment.
"My
position has always been that government should not get in the business
of picking winners or losers," said Senate Minority Leader Paul
McKinley, R-Chariton. "The marketplace is a much better indicator or
much better arbiter of how the economy should proceed than a bureaucrat
on Grand Avenue."
Others strongly disagree. The state's
investment in the values fund has helped leverage more than $8 billion
in projects that have created more than 19,000 jobs, according to the
Iowa Department of Economic Development.
"How does the state
expect to be competitive in attracting business without those kinds of
programs?" asked Dean Jacobson, who in 2000 started BoDeans Baking Co.
in Le Mars with his wife, Bo.
With the help of $250,000 in
grants and loans from the state during the past five years, BoDeans has
grown from 23 to 150 employees. The sugar cone manufacturing company
now has a payroll of roughly $3 million and is considering a $6 million
expansion.
The company would have located in Chicago if state incentives hadn't been available, Jacobson said.
Millions
of dollars in local and state tax revenue that every year exceeds the
state's initial investments in property taxes alone would have been
lost.
"There's a reason for every exemption," said John Gilliland of the Iowa Association of Business and Industry.
Gilliland
says some of his group's 1,300 business members fear the state's budget
will eliminate incentives they depend upon to locate or grow in Iowa.
The group is not opposed to review but will urge lawmakers not to make
knee-jerk reactions.
"Cutting the budget is one thing, but
cutting a tax credit, on its face, would seem easier as far as the
state pulling in more revenue," he said. "That is a real concern for
our members and for Iowans, so we continue to remain competitive on
those fronts while we're working through this economic time."