Iowa legislators, governor back tax credit review

AP News
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Posted: Dec 17, 2009 2:40 PM

The furor over tax credits used to lure the movie industry to Iowa has made it certain the Legislature will overhaul those incentive packages when it convenes in January, according to lawmakers and Gov. Chet Culver.

Senate Majority Leader Michael Gronstal, D-Council Bluffs, said it's not clear that lawmakers will scale back on the amount they spend on tax credits but said it's clear that changes are needed.

"I don't think there's a decision made to cut back on tax credits, but I think it's abundantly clear that Iowans want and demand and need accountability in our tax credits and we've got close to zero," Gronstal said.

Over the past few years, lawmakers have turned to tax incentives to lure a string of businesses to the state. Suggestions that tax credits aimed at the movie industry were passed out with little supervision and for questionable expenditures have put the concept back on the table for the Legislature when it convenes Jan. 11.

"What will come out of this for sure is more transparency, more accountability," Culver said.

While virtually all say they want to take a fresh look at the use of tax incentives, it's far from clear that will come without controversy. Ending tax incentives would increase revenue to the state, a tempting target for lawmakers facing a looming budget shortfall.

"We also need to not be using the review of tax credits as the opportunity to raise revenue or raise taxes," said House Majority Leader Kevin McCarthy, D-Des Moines.

Any new money the state generates by modifying tax credits should be returned to taxpayers, McCarthy said.

"If we find some that aren't serving the state well, my hope is that we could use that in some form of tax reform or tax relief," he said.

Most of the tax credits the state has created have significant political support. A tax credit for restoring historic districts was key to a renovation of a large portion of downtown Dubuque, and House Speaker Pat Murphy, D-Dubuque, said his constituents feel the impact.

"Those are probably people who wouldn't be working if we didn't do this," Murphy said.

Gronstal said lawmakers likely will take a more moderate approach to the issue, building more accountability into the incentives while leaving most in place.

"Everything else the state spends money on you can find, you can go to the salary book and find out what every state employee gets paid and what expenses they get, everything is out there in state government in terms of our expenditures, right down to the nickel," said Gronstal. "You can't find out what's happening with tax credits. You can't find out if they've created any jobs. We think most of them have, but the system needs a heck of a lot more accountability."

Culver and legislative leaders spoke at a seminar with reporters and editors from Associated Press members previewing the upcoming session of the Legislature on Wednesday. That session showed that even on some issue where both Republicans and Democrats agree, there are likely to be arguments.

Both Democrats and Republicans argued for an early retirement incentive program to trim state spending, but Senate Minority Leader Paul McKinley, R-Chariton, argued that has a spotty history.

"That's a huge part of the savings," said McKinley. "In the past when we've done early retirement, it's cost a lot of money and we've had people leave jobs with expertise that was missing and we've had to rehire them as consultants. We have to look at this with a jaundiced eye."

Culver is projecting a saving of $60 million through early retirement, but McKinley warned that may be overly optimistic.