In the final days of the first-session of the 83rd General Assembly, the House of Representatives approved legislation that may have consequences on important economic development programs. On April 24, 2009, the House passed Senate File 483 by a vote of 52-43. All Republicans present in the chamber at the time of the vote, voted against the measure.
Along with other provisions, Senate File 483 places a limitation on the aggregate amount of funding issued to five tax credit programs. The maximum amount is not to exceed $185 million each year. However, the Department of Economic Development can decide to issue tax credits in the amount above that, but the aggregate amount of tax credits the following year must be reduced by a corresponding amount.
Among the list of tax credit programs affected by the cap include two important economic development initiatives: the Enterprise Zone program and the High Quality Jobs Creation program.
The Enterprise Zone program was created in order to kick start development and revitalization projects in targeted economically distressed areas by providing tax incentives to businesses and developers. The financial incentives for the program include:
- property tax exemption of up to 100% of the value added to the property for 10 years,
- funding for training new employees,
- refund of state sales, service or use taxes paid on projects during the construction phase,
- an investment tax credit of up to a 10 percent of the qualifying investment amortized over 5 years,
- the refundable research activities credit may double while the business is participating in the program.
In order to be eligible for the Enterprise Zone program, businesses are required to make a minimum qualifying investment of $500,000 over a three year period, which includes the cost of land, buildings, building upgrades, manufacturing machinery and equipment, and computer hardware. In addition, the business must create a minimum of 10 full time jobs over a three year period and maintain them for a minimum of 10 years and pay a starting wage equal to 90 percent of the average county or regional wage, and standard medical and dental benefits.
Counties that have existing Enterprise Zones are: Kossuth, Winnebago, Worth, Mitchell, Howard, O’Brien, Palo Alto, Floyd, Cherokee, Pocahontas, Humboldt, Franklin, Fayette, Clayton, Ida, Sac, Calhoun, Hardin, Monona, Crawford, Jackson, Clinton, Harrison, Shelby, Audubon, Guthrie, Cass, Adair, Keokuk, Montgomery, Adams, Union, Clarke, Jefferson, Fremont, Taylor, Ringgold, Decatur, Wayne and Appanoose. Furthermore, counties that are eligible but do not have established Enterprise Zones are: Page and Van Buren.
Cities that have existing Enterprise Zones are: Mason City, New Hampton, Sioux City, Fort Dodge, Waterloo, Manchester, Dubuque, Marshalltown, Tama, Cedar Rapids, Des Moines, Newton, Muscatine, Davenport, Council Bluffs, Albia, Ottumwa, Burlington, Fort Madison and Keokuk. Cities that are eligible but do not have established Enterprise Zones are: Waverly, Cedar falls, Boone, Ames, Marion, Urbandale, West Des Moines, Ankeny, Coralville, Iowa City, Indianola, Knoxville and Oskaloosa.
Another important economic development program limited by the cap established in Senate File 483 is the High Quality Job Creation program. The High Quality Job Creation program is designed to provide businesses with tax credits to help with the costs associated with locating, expanding and or modernizing their facilities.
Tax incentives available to eligible businesses include:
- a 20 year property tax exemption up to 100 percent of the value added to the property,
- a refund of sales, service or use taxes paid on projects during the construction phase,
- a refund of sales and use taxes paid on racks, shelving and conveyor equipment for warehouses or distribution centers,
- an investment tax credit equal to a percentage of the qualifying investment amortized over five years (this credit is earned when the corresponding asset is placed in service and can be carried forward seven years)
- the refundable research activities credit may be doubled while the business is participating in the program.
In order to be eligible for the program, a business must be a non-retail or non-service operation and meet a minimum of four of the following requirements: offer a pension or profit sharing plan for employees, produce value-added goods, provide medical and dental insurance and pay 80 percent of the premiums, offer child care services, invest a minimum of one percent of pretax profits in research and development, invest a minimum of one percent of pretax profits in employee training, offer active productivity and worker safety improvement programs, and purchase and occupy a vacant building which is at least 20,000 square feet.
At this time, it is unclear how much financial assistance each program will receive. Senate File 483 provides the Department of Economic Development – with approval of the Board – the authority to decide which programs receive the funding and at what levels.
The bill has been sent to Governor Culver and now awaits his signature or veto.