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Beyond Battelle: Let’s broaden the dialogue of Iowa economic health

As Iowa legislators this week start work on a course to a more robust and diversified economy, discussion already has focused on a new privately funded report, Iowa’s Re-Envisioned Economic Development Roadmap.[1]

Produced by Battelle Technology Partnership Practice and commissioned by the Iowa Partnership for Economic Progress,[2] the $400,000 report makes some important points and deserves a careful look.

It focuses heavily on the importance of business to promote economic activity, but its core message acknowledges the significant role of public investments in providing the foundations for Iowa’s economy. This includes the education system needed to develop the skills, talents and capacity of the current and future workforce, including those who will become the future entrepreneurs and leaders for the 21st century.

While the report acknowledges the centrality of an educated and skilled workforce and a high quality of life to making Iowa an environment for business to flourish, it places very little focus upon how government can deliver on that role. It falls to government to educate that future workforce — at the early childhood, primary and secondary, and higher education levels.

The report does not adequately address the challenges Iowa faces in creating that higher skill level among its emerging workforce — in particular, the need to address lagging and stagnant educational achievement. To do so takes resources, and the report’s emphasis is to leave in place a business subsidy structure that has increasingly reduced the state’s ability to meet those needs.

The report itself was overseen largely by business leaders and economic development agency staff. However, these are not the only stakeholders in Iowa’s economic future; many others need to engage in the dialogue about Iowa government’s role in economic development.

The Battelle Report raises one perspective on economic development. Lawmakers, the media and the public need to insist that other perspectives and expertise also are fully considered and vetted.

More Iowans need an invitation to the table.

08-Bruner-5464Charles Bruner is executive director of the Child & Family Policy Center, www.cfpciowa.org, part of the Iowa Fiscal Partnership, www.iowafiscal.org.

Note: This piece also ran as an “Iowa View” in The Des Moines Register, Jan. 14, 2015.

[1] Technology Partnership Practice, Battelle Memorial Institute, December 2014, “Iowa’s Re-Envisioned Economic Development Roadmap.” http://www.iowaeconomicdevelopment.com/battelle
[2] Iowa Economic Development Authority, News release, Dec. 18, 2014, “Governor, IPEP Release Findings of 2014 Battelle Report, a New Economic Development Roadmap for Iowa,” http://www.iowaeconomicdevelopment.com/newsdetails/6051

Food insecurity: 1 in 9 Iowa households

Better in Iowa than U.S. average — but worse for Iowans over the decade

140904-IFP-foodinsec-boxIowa households fared better than the national average on food insecurity in 2011-13, but worse than Iowans did a decade earlier, according to the U.S. Department of Agriculture.

In its annual report on food insecurity, USDA reported the prevalence of food insecurity in Iowa at 11.9 percent in those years, compared to a national average of 14.6 percent.

In addition, 4.4 percent of Iowans experienced “very low food security” — households that cited several food-insecure characteristics and disruption in eating patterns because of a lack of money or other resources.

The nonpartisan Iowa Fiscal Partnership (IFP) noted that in both cases, Iowans were doing much better on the food security scales in 2001-03 than in the latest period examined.

“While Iowans’ very low food security was lower than the national average of 5.7 percent, it was almost 50 percent higher than it had been only a decade before,” said Mike Owen, executive director of the Iowa Policy Project, part of IFP. Owen noted that level had risen from a 3.0 percent average for 2001-03 to 4.4 percent in 2011-13.

Charles Bruner, executive director of the Child & Family Policy Center, also part of IFP, pointed to the overall food insecurity change, from 9.5 percent in 2001-03, to 12.1 percent in 2008-10, to 11.9 percent in the latest period examined.

“Statistically, food insecurity in Iowa has been fairly level for recent years, but these are Iowans — including kids and seniors, not statistics — and the comparison over the decade is disturbing,” Bruner said. “This makes it more important to assure that the Supplemental Nutrition Assistance Program (SNAP) is maintained, that eligibility standards are not weakened, and that access is assured to all who need the help.”

For both food insecurity and very low food security, USDA reported the small Iowa improvements from 2008-10 to 2011-13 to be statistically insignificant. According to the USDA, taking into account margins of error for the state and U.S. estimates, eight states had statistically significant higher levels of food insecurity than the national average of 14.6 percent in 2011-13.

Iowa was among 14 states with a statistically significant lower level of food insecurity than the national average. In addition, the Iowa level of very low food security was statistically lower than the national average, as was the case in 12 other states.

 The Iowa Fiscal Partnership is a joint public policy analysis initiative of two Iowa-based, nonpartisan, nonprofit organizations — the Iowa Policy Project (IPP) in Iowa City and the Child & Family Policy Center (CFPC) in Des Moines. For IFP reports, go to http://www.iowafiscal.org. For information about how to make tax-deductible contributions to IPP or CFPC, visit their websites: http://www.iowapolicyproject.org and http://www.cfpciowa.org, respectively.

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* Alisha Coleman-Jensen, Christian Gregory and Anita Singh, “Household Food Security in the United States in 2013,” U.S. Department of Agriculture.

 

IFP News: Income Down, Poverty Up Since ’07

Iowans in slow recovery from Great Recession

PDF of this release

IOWA CITY, Iowa — More Iowans remained in poverty three years after the recession, new data from the Census Bureau showed Thursday.

The American Community Survey (ACS) indicated 12.7 percent of Iowans — about 377,500 people — were in poverty in 2012, up from 11 percent in 2007, the year the last recession started.

“These are the signs we have been seeing across the board in our research,” said David Osterberg, founding director of the Iowa Policy Project, part of the Iowa Fiscal Partnership. “Whether you’re looking at jobs, or income, or poverty, or food insecurity, we simply have not caught up with where we were before the Great Recession.”

Other key points for Iowa from the release of 2012 ACS data:

•       Iowa’s poverty rate of 12.7 percent compared with 11 percent in 2007 and 9.7 percent in 2001. The change from 2011 — a drop of 0.1 of a percentage point — was not statistically significant.

•       Child poverty was 15.6 percent in 2012 (about 110,200 children), up from 13.1 percent in 2007 and 12 percent in 2001.

•       Median income was $50,957 in 2012, changing little from 2001 in inflation-adjusted dollars, but it dropped from $52,371 in 2007.

“Public policy needs to give people the tools to lift themselves out of poverty, and at the same time boost the economy,” said Charles Bruner, executive director of the Child & Family Policy Center, also part of the Iowa Fiscal Partnership. “We have those kinds of tools in place — such as SNAP, or Food Stamps — but many of those same tools are under assault in Congress.”

In the U.S. House, lawmakers Thursday debated legislation that would cut SNAP benefits to an estimated 3.8 million beneficiaries.

“Look at these numbers today,” Osterberg said. “How can we see over 100,000 kids in Iowa in poverty and not realize this is a problem that needs to be addressed?”

Reports from the Iowa Fiscal Partnership are at www.iowafiscal.org.

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Note: A simple comparison of the Current Population Survey and the American Community Survey is available at http://www.census.gov/hhes/www/poverty/about/datasources/factsheet.html.

 

IFP News: Iowa Paid $33 Million in Research Checks in 2012

Posted February 15th, 2013 to Budget, Corporate Taxes, Tax Credits, Taxes

Rockwell Collins, Deere & Dupont Again Lead RAC Beneficiaries

Download this news release — 2-page PDF and Department of Revenue report 3-page PDF

IOWA CITY, Iowa (Feb. 15, 2013) — The largest recipients of a state research credit shared $28.5 million in subsidy checks as some or all paid no income tax in 2012, according to a new report from the Iowa Department of Revenue.

The report released Friday shows that overall, 178 corporations claimed a total of $46.1 million from the Research Activities Credit (RAC) in 2012, including both the regular RAC and a separate supplemental credit, but nine corporations claimed over 90 percent of those funds.

Of those credits, $32.5 million was paid to 130 claimants as “refunds,” the amount paid as checks because the claimants had more credits than income tax liability. Most of those “refunds” went to some or all of the nine largest beneficiaries of the credit.

“This report is the latest evidence of the need for reform of this poorly named ‘tax credit,’” said Charles Bruner, executive director of the Child & Family Policy Center. “The credit is used less to reduce taxes than to provide straight subsidies to big companies through the tax code, outside the budget process.

“It was never designed or promoted for huge subsidies for highly profitable businesses. These state reports are showing not only that the program is very expensive, but that most of the money — over 70 percent in 2012 — is paid out as checks to companies that already have wiped away all their income tax liability.”

A special tax-credit review panel appointed in 2009 by then-Governor Chet Culver urged lawmakers to eliminate the refundability of the credit for large companies, capping its cost and setting a five-year sunset that would require fresh approval to continue the credit. None of these proposals have been followed.

This latest state report shows that eliminating refundability in FY2012 would have cut the cost of corporate RAC credits from $46.1 million to $13.5 million.

“The difference would be enough to fund about 1 percent of allowable growth for K-12 schools in Iowa,” noted David Osterberg, executive director of the nonpartisan Iowa Policy Project.

The state, which spent $21.2 million on the credit in FY2010, is projected to spend $72.2 million on it in FY2017 if there are no changes.

Bruner noted that the RAC began as a way to support start-up companies to do research in Iowa, but that very large, profitable multinational companies dominate its use.

The biggest claimants in 2012, the same top three recipients as in the previous two years, were:
• Rockwell Collins Inc. and subsidiaries, $13.8 million;
• Deere and Co., $11.9 million; and
• Dupont, $8.5 million.

table

As a group, the largest claimants — those with over $500,000 in claims — received credits of $42.1 million — $28.5 million of that in checks considered “refunds,” not as a return for an overpayment of taxes, but for tax credit value beyond their tax liability. The report further disclosed that 91 percent of the credits were claimed by only 5 percent of the corporations (nine).

This is the fourth annual report from the Department of Revenue as a result of a 2009 law requiring disclosure of the overall amount of individual and corporate RAC claims and refunds, and individual company claim amounts in excess of $500,000 for a year. While the law requires reporting of claims for large beneficiaries, it does not require that the amount of “refunds” be individually disclosed.

“The disclosure we have now is an improvement, but remains limited,” Bruner said, noting a stronger law would specify how much of individual corporate claims are paid out as checks, as opposed to credits that remove tax liability.

“Even with revenues coming in strong, the Research Activities Credit is expensive. What disclosure we have, and the limits on that disclosure, show that the RAC is a poster child for the need for accountability on the state’s corporate subsidies,” Bruner said.

Osterberg agreed.

“There simply can be no question that if we are going to spend over $40 million on these subsidies, they should be transparent in the budget process. These resources could be going toward education or water-quality enforcement,” Osterberg said.

“Why do we subsidize something that we know will happen anyway? Rockwell Collins, Deere and DuPont all need to do research to thrive; they will do what research is necessary for their business — they don’t need their taxes cut to persuade them of the need. But even if we think taxes should be reduced to encourage research, why do we send these companies a check on top of eliminating their taxes?

“Perhaps the biggest question is this: Why isn’t the Legislature asking more about it, and demanding answers on behalf of their constituents?”

Besides the top three claimants, John Deere Construction had $3.4 million in claims, Monsanto $1.7 million, with four other companies — Vermeer, CNH America, Kemin Industries and Skyworks — above $500,000.

In addition, the report showed 1,144 individuals claimed a total of $4.5 million from the RAC, with $1.7 million of that paid as refunds to 307 claimants. Individual claimants are not identified in the report.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are at www.iowafiscal.org.

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IFP News: Who Pays Taxes in Iowa?

Posted January 30th, 2013 to Taxes, Who Pays Taxes in Iowa?

Making Wealth Pay: Richest Iowans Pay Lower Tax Rate

Study Shows Poorest or Middle-Income Families Pay Larger Share of Income;
New Report ‘Illustrates Unfairness’ of Proposed $750 Income Tax Credit

Download this news release — 2-page PDF and Iowa fact sheet 2-page PDF

IOWA CITY, Iowa (Jan. 30, 2013) — A new national report shows Iowa taxes — like those in most states — are much greater as a share of income from middle- and low-income families than from wealthy families.

The report, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, by the Washington-based Institute on Taxation and Economic Policy (ITEP), shows the effect of sales taxes and property taxes on lower-income households tilts Iowa’s overall tax system so the poorest pay the highest percentage in taxes.

“The latest findings confirm a nagging problem of inequity in Iowa’s overall tax system,” said David Osterberg, executive director of the nonpartisan Iowa Policy Project, part of the Iowa Fiscal Partnership (IFP).

“In fact, the ITEP report illustrates the unfairness of a new proposal at the State Capitol to give away Iowa’s surplus in $750 chunks through income-tax credits. Many Iowans who pay most of their taxes on sales and property would not benefit from the proposed income-tax credit.”

According to the ITEP report, the average effective overall tax rate for the non-elderly taxpayers in the bottom 20 percent is 10.9 percent. The rate drops steadily to a 6 percent level for the top 1 percent of taxpayers. In the middle 20 percent, the level is 10.1 percent.

The report — available at www.whopays.org and www.iowafiscal.org — separately examines the share of income paid at various income levels for sales and excise taxes, personal income tax and property tax. It also calculates the reduction, a tax offset going mainly for higher-income families, caused by the ability to deduct state and local taxes from federal income tax. In addition, Iowa state income-tax payers may deduct their federal income taxes paid, again a device that disproportionately benefits higher-income earners.

 “The state’s present surplus is a poor excuse to give one more break to the wealthiest — at the expense of fairness for lower-income earners, and at the expense of critical public services that need to be funded,” said Charles Bruner, executive director of the Child & Family Policy Center, also part of IFP.

For low-income families (earning below $21,000 per year), sales and excise taxes take a 6.4 percent share of family income, compared with 0.9 percent in the top 1 percent (income of $312,000 and higher).

“We know that governors nationwide are promising to cut or eliminate taxes, but the question is who’s going to pay for it,” said Matthew Gardner, executive director of ITEP and an author of the study. “There’s a good chance it’s the so-called takers who spend so much on necessities that they pay an effective tax rate of 10 or more percent, due largely to sales and property taxes. In too many states, these are the people being asked to make up the revenues lost to income tax cuts that overwhelmingly benefit the wealthiest taxpayers.”

State consumption taxes (mainly sales taxes) are particularly regressive — meaning they take a greater share of income from people at low incomes than people at high incomes. Overall, those rates average 7 percent for the poor, 4.6 percent for middle incomes and a 0.9 percent for the wealthiest taxpayers nationwide.

Gardner noted that in some states, there are efforts to cut or eliminate the income tax, and that of the 10 most regressive tax states, four do not have any taxes on personal income and one applies it only to interest and dividends. The other five have a personal income tax that is flat or virtually flat across all income groups. 

“Cutting the income tax and relying on sales taxes to make up the lost revenues is the surest way to make an already upside down tax system even more so,” Gardner stated.

The data in Who Pays? also demonstrates that states commended as “low tax” are often high-tax states for low- and middle- income families. 

“When you hear people brag about their low tax state, you have to ask them, low tax for whom?” Gardner said.

The fourth edition of Who Pays? measures the state and local taxes paid by different income groups in 2013 (at 2010 income levels including the impact of tax changes enacted through January 2, 2013) as shares of income for every state and the District of Columbia.  The report is available online at www.whopays.org.

Low-Income Iowans Pay Greater Share of Income in State/Local Tax Than Higher Income Iowans

who pays graph

who pays table

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The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are at www.iowafiscal.org.

The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) nonprofit, nonpartisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies. www.itep.org.

 

Keys to Fairly Assess the Effective Return on Investment from Public Business Subsidies

IFP BACKGROUNDER

Basic RGB

 

The following are key factors to assessing the return on investment of public economic development programs, tax credits and expenditures.

Most importantly, it is critical to establish a credible way to estimate the degree to which any state economic development program, tax credit, or expenditure actually produced the economic activity and the degree to which the activity would have occurred anyway.This must go beyond beneficiaries’ claims about the value of the business subsidy, to hard evidence that a subsidy or set of so-called “incentives” tipped the balance to assure at least a portion of the investment. After this determination, a methodology for calculating public ROIs must address these key issues:

  • Calculate public investments in terms of public returns, not increased overall economic activity. Public returns involve increased revenue to the state (in taxes and fees) as a result of the increased business activity, and are the way to measure public (tax dollar) investments for their returns.
  • Establish a reasonable time frame for making these estimates, with returns in future years appropriately discounted. A public investment, like a private one, needs to produce returns over a reasonable time period, and future returns should be appropriately discounted.
  • Compare the return on investment in economic development expenditures with the potential gains from alternative uses of the funds. A proper analysis would account for the lost opportunities that would come from making those investments elsewhere.
  • Estimate the impact of the investment on the direct level of economic activity that is projected to occur, including any potential for displacing existing economic activity. The public interest is in net new economic activity, not displacement of one activity with another, which also can provide unfair advantages to new over existing businesses. Displacement occurs when a subsidy simply enables one business to capture an existing firm’s share of a state market that is not expanding.
  • Incorporate additional public costs, as well as benefits, from the economic activity. There may be additional public sector costs that have to be factored in, particularly for additional demands on public services and business-related infrastructure needs or workforce expansions when new economic activity draws people (and service users) to Iowa from outside the state.
  • Only count any return once, even if multiple, independent investments were made to produce it. When multiple economic development subsidies are used to produce increased economic activity, the public return from that activity needs to be apportioned among those multiple subsidy programs, so it is not counted multiple times.
  • Recognize that ROI is only one factor to consider in determining public purpose and benefit.  Some investments can produce economic gain, but at a public cost (environmental degradation or public health and safety). Others can produce public benefits in those areas.  Although these do not have a monetary value, they are important considerations in making public investments and need to be recognized in ROI analyses.
  • Audit for impact and accuracy. Estimates and claims are only estimates and claims; there needs to be monitoring for actual impact, use, and achievement of public goals.
This is a summary of an Iowa Fiscal Partnership Policy Brief, “Bang for the Buck: Calculating the State’s Return on Investments in Economic Development,” by Charles Bruner and Peter S. Fisher (January 27, 2010). www.iowafiscal.org