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Report gives Iowa passing grade on business incentive enforcement

Dave DeWitte, CR Gazette –

A national report that examines state practices to require companies to meet promises exchanged for economic development incentives gives Iowa a passing grade, despite serious concerns with one program.

Good Jobs First evaluated 238 programs in every state and the District Columbia that cost taxpayers $11 billion per year in a report called “Money-Back Guarantees for Taxpayers.”

Requiring businesses to honor promises such as a fixed number of jobs created or an average pay level for employees is becoming more important, the group’s researchers said, during tough economic times that have strained state budgets.

The group’s report ranked Iowa fifth-best nationally in enforcement of job-creation and job-quality standards, with a C+ grade, and a score of 69.

Authors of the report gave Iowa as an example of inconsistency among states in requiring high accountability and transparency in economic development programs, however.

Iowa’s Research Activities Credit program was awarded a score of only 18 on a 100-point scale, while no other three state economic development programs evaluated received a lower score than 72.

“Fifty states have divergences of more than 50 points among programs,” said lead researcher Philip Mattera. “Iowa was worst with a 78-point difference between its best and worst programs. This shows states know how to apply rigorous enforcement standards, but often fail to do so.”

The Research Activities Credit is a refundable state income tax credit for qualified research and development expenditures. Administered by the Iowa Department of Revenue, it has been criticized in previous reports by the Iowa Policy Project. The Iowa City-based policy group says the program often issues checks to corporations in undisclosed amounts that can exceed a company’s corporate income tax liability. Most of the money goes to the state’s largest manufacturers, the group claims, and it does not serve its intended purposes of fostering RandD-focused startup companies.

The Research Activities Credit was the most costly of four Iowa programs evaluated in the report, at $45.2 million in 2010. None of the other three programs evaluated cost even half as much.

The report gave Iowa’s Enterprise Zone program for businesses a score of 90, its High Quality Job Creation Program a score of 96, and its Industrial New Jobs Training Program a score of 72.

Mattera said the weaknesses probed in the report included state requirements that businesses provide follow-up reports on their performance in meeting standards for economic development incentives, without any independent investigation by the state to determine if their reports were correct.

Another issue probed in the report was a lack of online disclosure by the state of which companies have not complied by deadlines, and what if any action was taken.

Disclosure of non-compliance and enforcement actions taken against non-compliant companies was a good indicator of which states are serious about requiring companies to perform on commitments to receive economic development incentives, the report said.

The lowest ranking states were Alaska (50) North Dakota (49) South Dakota (48) and New York and Wyoming (tied at 45th). The District of Columbia was dead last.

Vermont was the highest-ranking state, with a grade of 79, followed by North Carolina, Nevada, Maryland and Iowa.

Good Jobs First Executive Director Greg LeRoy said the debate over taxpayer benefits that often focuses on the spending of state government units should not exclude businesses that make commitments in order to receive economic development incentives.

If money is wasted on economic development incentives, “everybody else has to pay higher taxes or get lousier public services,” LeRoy said.

Good Jobs First, based in Washington, D.C., is a research organization that has long focused on issues related to job generation and economic development subsidies. The group is funded mainly by foundations, LeRoy said, with a small percentage of its funding from organized labor groups.

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