Senate File 2380 offers only very limited impacts on the runaway growth in tax credits and their damage to the state's budget process. Initially promoted as potentially saving more than $115 million annually through tax-credit reforms, fiscal analysis by the Legislative Services Agency has confirmed analysis by the nonpartisan Iowa Fiscal Partnership. Fiscal notes by LSA make it clear that any containment of current tax credits, beyond continued suspension of the film tax credit, would be quite small under this legislation as passed by the Senate. Subsequent actions by the House, agreed to today by the Senate, strip away two more provisions that further reduce the impact of this legislation on reining in the growth of Iowa's unaccountable, unsustainable spending on tax credits.

The IFP backgrounder from March 17, "Tax Credit Reform Glass Half-Full? Maybe Some Moisture," has been revised with Friday's action in the House and today's action in the Senate. The three-page report is available here. As the report indicates, the legislation will have no impact in either of the next two state fiscal years on the costs to the state for the five largest of Iowa's currently active tax credits – the Research Activities Credit (RAC), the Iowa industrial New Jobs Tax Credit, the High Quality Jobs Program, the Enterprise Zone Program, and the Historical Preservation Tax Credit. The Department of Revenue’s March 2010 Contingent Liabilities Report estimates that Iowa’s liability for use of these credits in fiscal year 2011 will be $227 million and grow to $240 million in FY2012. These tax credits are not even subject to a 10 percent cut in their value — unlike the overall state budget, and as proposed initially in SF2380 for a number of smaller tax credits.

The new legislation provides for a legislative review panel on tax credits, but provides little guidance to that panel or to the public as the House removed a requirement that lawmakers review credits based on established, sound principles for tax policy. Strong momentum appeared to gather steam in 2009 for serious reforms of Iowa's proliferation of tax expenditures, including tax credits, following the scandal in the film credit program and the strong recommendations of the Governor's Tax Credit Review Panel, backed by Governor Culver in his Condition of the State address and his budget proposal. That momentum has not produced legislation that can be expected to deliver any serious reform.

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