IEDA chief seeks to revamp incentives as Iowa’s tax climate shifts, job growth lags

Iowa’s economic development chief is laying out how she believes the state should overhaul and scale back business development incentives after Iowa legislators cut corporate, income and other taxes in recent years.

With Iowa’s more competitive tax climate for business, Debi Durham said, she hopes a smaller, more targeted set of tax credits, capped at $110 million annually, can help raise the standard of living for Iowans while bringing more transparency and certainty to state budgeting.

“The Legislature’s going to know exactly how much we’re handing out in any given year,” Durham said.

The executive director of the Iowa Economic Development Authority since 2011 and Iowa Finance Authority since 2019, Durham said she wants to replace the longtime High-Quality Jobs Program, which currently receives $68 million annually, with Business Incentives for Growth — and recommends spending $18 million less doing so.

Created in 2005, the High Quality Jobs Program provides a mix of tax credits for investment and research activities, refunds of sales and use tax, forgivable loans and direct financial assistance if companies meet certain hiring, wage, retention and other standards.

The program, whose funding has been scaled back from $130 million over time, also has allowed the use of 20-year property tax abatements, like those used to help Meta, owner of Facebook, expand its data warehouse campus of 11 buildings in Altoona. In 2024, the value of those controversial tax abatements in the growing city reached $1.1 billion.

But as the Register reported earlier this month, Meta’s data centers and its property won’t be subject to property taxes until 2034 and in the meantime, changes in Iowa’s property tax system at the Legislature could reduce the payout the city is counting on.

Durham said last week that IEDA no longer allows municipalities to use 20-year abatements as part of the incentive program. And she said state leaders need to evaluate whether data warehouses, which are expanding rapidly across the country while their demand for energy and water grows, need to continue to be incentivized in Iowa, like the ethanol and wind industries before them.

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“The question is, should any industry, once they’ve established themselves in the marketplace, continue to receive incentives?” she said. “That is a legislative question.”

Durham said the IEDA also is proposing replacing an existing uncapped tax credit program for research activities currently administered by the Iowa Department of Revenue with one that would be run by IEDA and have a $40 million annual cap.

The current research activities tax credit can provide individual and corporate income tax refunds for qualifying research expenditures, including wages and supplies. The proposal says businesses’ research in Iowa must be “experimental” and aimed at discovering technological information or developing a new product.

Both the Business Incentives for Growth and the new research and development tax credits would apply to tax liability first and then be refundable.

John Fuller, a spokesperson for the revenue department, said the agency “supports proposals that increase efficiencies in state government, including changes in how state tax credit programs are administered. This aligns with the Governor’s continued efforts to improve how government agencies work together for the people of Iowa.”

Tax credits are no angel

The IEDA also wants to sunset the state’s Angel Investment Tax Credit program, established in 2002 to jumpstart venture capital investment in Iowa startups, and create a new Seed Investor Program in combination with an existing Innovation Fund so the state can offer up to $10 million annually in tax credits.

The hope, Durham said, would be to better help rural Iowa businesses with a lower investment threshold qualify for the credits.

A report by the Department of Revenue in December found no hard evidence the existing Angel Investor tax credits, which amount to 25% of a qualifying business’s capital investment, benefit the state. The report said it was “not possible to definitively establish that the tax credit leads to investment that, in the absence of the tax credit, would not occur.”

Another 2022 state report said while studies have found that angel tax credits, offered in numerous states across the country, are associated with increased investment activity, their availability “does not necessarily result in robust growth of new firms in terms of employment growth and other measures of success.”

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The IEDA’s proposal, which has not been filed at the Legislature or assigned a bill number, also would replace an existing tax credit program for chemical production with one for aviation fuel, and increase allowable credits by $5 million to $10 million annually. It would sunset or repeal tax credits for targeted jobs, assistive devices and employer child care.

And the agency wants to establish a two-year pilot program for in-state film production. That program would provide a rebate after expenses to projects that qualify — up to a total of $10 million annually, Durham said.

The Legislature has been reluctant to consider any proposed film incentives since a 2009 scandal, closely covered by the Des Moines Register, that involved a poorly administered tax credit for film production. A state audit in fall 2010 uncovered $26 million in tax credits that were improperly issued — about 80% of what had been doled out.

Widespread abuse of the credit led to the firings of a half-dozen people at the Iowa Department of Economic Development — the IEDA’s predecessor — millions in settlements and the convictions of seven people on fraud or theft charges. The scandal also hounded then-Gov. Chet Culver as he made a failed bid for re-election against former Gov. Terry Branstad.

But a bill that would provide the new moviemaking tax credits, House File 2662, passed the House last year.

Rep. Ray Sorenson, who chairs the House economic growth and tech committee and an ex officio member of the IEDA Board, said the committee is looking forward to digging into the specifics of the proposals, as the session progresses.

“We of course share the IEDA’s goal of bringing economic development to every corner of the state and work to help them get their proposals through committee and to the floor,” he said.

Proposal comes as Iowa’s economy sputters. Would it help?

When asked what the net difference would be in all the proposed incentives changes from the 2024 fiscal year, Staci Hupp Ballard, a spokesperson for the IEDA, said the Legislative Services Agency will do an analysis of the changes and “we believe the fiscal note will show a significant savings.”

Ballard said the new tax credits were proposed after the agency took into “account the types of projects we’re seeing, feedback from industry and stakeholders, and what other states are offering.”

It’s impossible how to know how the changes, if enacted, would benefit the state, as Iowa has faced increasingly stark revenue and economic forecasts.

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The Register reported last week that as of January, Iowa’s overall employment growth since 2019 was 0.6%, while it was 4.6% for the U.S. as a whole. Companies filed 99 notifications of plant closings or mass layoffs last year, the largest total for any year since 2016, and nearly 30 more than the 71 recorded in 2023.

In 2022-23, Iowa experienced a drop in real personal income of 2%, the worst in the nation, according to U.S. Bureau of Economic Analysis statistics released last month.

Peter Orazem, a professor emeritus of economics at Iowa State University, said that doesn’t paint a rosy picture of Iowa’s economic outlook.

“Greater dependence on agriculture drags down income growth with weakness in that sector,” Orazem said. He noted that Iowa is lagging in finance and manufacturing, as well as in its agricultural sector.

In December, Iowa’s three-member Revenue Estimating Conference predicted Iowa will take in $9.15 billion in fiscal year 2025 — enough money to cover the $8.91 billion budget that began in July. But in fiscal year 2026, the panel said, the state will take in $8.73 billion, less money than budgeted.

Lee Rood’s Reader’s Watchdog column helps Iowans get answers and accountability from public officials, the justice system, businesses and nonprofits. Reach her at lrood@registermedia.com, at 515-284-8549, on Twitter at @leerood or on Facebook at Facebook.com/readerswatchdog.