Chemical tax credit proposal to return

Source: By Matthew Patanem, Des Moines Register • Posted: Wednesday, July 22, 2015

A proposal for a tax credit meant to jump start a new chemical production industry in Iowa will come before lawmakers again in January.

Despite failing this past legislative session, state economic development officials plan to bring the proposal to the state Capitol next year.

The Iowa Economic Development Authority pitched the tax credit last year as a way to build a new industry cluster that would benefit from Iowa’s ethanol and biofuel industry.

The tax credit legislation passed the Iowa House, but became mired in tense budget negotiations involving state education funding in the state Senate.

“This was politics. This got caught up in the end-of-session politics,” Authority Director Debi Durham said.

Senate Majority Leader Michael Gronstal, D-Council Bluffs, said the authority was asking for too much money at a time when lawmakers were debating how to fund the state’s schools.

The tax credit is geared toward companies that take chemicals made from fuel production and use those byproducts to make other chemicals or consumer products.

For example, for every pound of a chemical a company produced, it would receive a 5-cent tax credit.

If approved, the authority would have had a pool of $15 million it could award each year. That amount would have fallen under the authority’s annual tax credit cap, which sits at $170 million.

The program would have ended after 10 years if it started in 2015.

Even though it would have fallen under the authority’s current cap, Gronstal said it would have cost the state too much.

“I think it’ll be pretty hard for us to commit to a $150 million price tag and that’s what they’re asking for,” he said.

A fiscal note for the legislation estimated the new tax credit would have cost the state $15 million annually starting in the 2018 fiscal year. Since the chemical tax credit would be transferable and refundable, the fiscal note expects companies would claim the full $15 million each year.

Gronstal said he offered the authority $20 million to $25 million for a two-year pilot program, but the authority declined.

He added that he thinks the tax credit is a good idea, but the cost needs to be negotiated.

“I’m willing to work with the department on this, but again they’re asking for $150 million at a time when we can’t afford the level of inflation for K through 12 education,” Gronstal said.

Durham said a cash up-front program like the two-year pilot would not incentivize the growth of the industry properly.

“I am always willing to negotiate when it’s a real negotiation, when it’s a real deal … (but) the premise of the program needs to stay the same,” she said.

Instead, Durham said she offered to reduce her agency’s $170 million tax credit cap.

“We did everything and then to say that we couldn’t do this because of education, when everybody knows that this has nothing to do with that,” Durham said. “The kind of funds we are talking about here were not on the table for education.”

The tax credit is a priority for economic development officials, especially because it would have made Iowa the first state to have such an incentive program, they said.

“It would have been a first in the world economic incentive for the biochemical industry. This thing had the attention of the global biochemical industry,” said Brent Willett, the executive director of the Cultivation Corridor, during an interview earlier in July.

Durham said Iowa can still be first to the table, but other states are watching.

“I absolutely believe that if we do not (pass legislation), we have the potential of letting another state take that momentum from us and I think that would be unfortunate,” Durham said.