Ethanol Tax Credits Eat Into State Budget
Sioux City Journal:
The Iowa Department of Economic Development wants to cut the tax credits available to new ethanol plants, part of the state government’s growing awareness that tax credits present a serious threat to the state budget.
On Thursday, the Iowa Economic Development Board began to debate the plan and will vote on it late next month.
The proposal would place a $5 million cap on the tax credits for each new ethanol plant, down from the current $10 million cap.
“There is an awful lot of concern about the volume of tax credits and their impact on the budget,” said department director Mike Tramontina. Legislators, especially Sen. Joe Bolkcom, D-Iowa City, have said tax credits need to be studied and possibly reined in. He points to an Iowa Department of Revenue report released this month that shows rapid growth in the awarding of tax credits, from $110 million in the 2000-2001 fiscal year up to $312 million in the first two-thirds ofthe fiscal year.
The bulk of those credits are from programs administered by the economic development department and its board. Tramontina said ethanol plants account for more than 60 percent of the credits awarded by the department in the last two years.
The tax credits are based on the percentage of investment in a new business. Ethanol plants, which have startup costs of up to several hundred million dollars, can rack up much more in tax savings than a new business that might only cost a few million dollars.
In addition to the tax credits, the economic development department gives a $100,000 grant and $300,000 loan to just about every renewable-fuels plant that wants it.
Jerry Courtney, economic development board member from Burlington, said there is so much private financing for ethanol plants that he questions whether the state grant does much good. “We know that they’re not having problems getting money,” he said. More.
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