Bill Summary – FastDemocracy

Fiscal Note
                                       Fiscal Services Division
SF 575 – Economic Development Authority Policy Bill (LSB1164SZ.2)
Staff Contact: Molly Kilker (515.725.1286) molly.kilker@legis.iowa.gov
Fiscal Note Version – Final Action
Description
Senate File 575 relates to various programs within the Iowa Economic Development Authority
(IEDA).
Division I — Tax Credits
Description
Division I of the Bill changes the Renewable Chemical Production Tax Credit (RCPTC) program,
the Workforce Housing Tax Credit, and the Innovation Fund Tax Credit (IFTC). The Division
removes serine, threonine, and lysine from the definition of “building block chemical” in regard to
the RCPTC and increases the annual tax credit limit for companies that have been in existence
for five years or more to $1.0 million. The Division extends the availability of the RCPTC
through FY 2036 and extends the future repeal date to July 1, 2039. Division I of the Bill also
extends the future repeal date for taxes imposed under Iowa Code sections 422.10B and
422.33 from January 1, 2033, to January 1, 2041. The Bill also eliminates the wait list for the
RCPTC.
Portions of the Workforce Housing Tax Credit criteria are also amended. Under current law, a
housing project that is located in a small city, meets program requirements under Iowa Code
section 15.353, and is developed at a greenfield site may qualify for the Workforce Housing Tax
Credit. Division I provides that instead, a project may consist of the construction of new
dwelling units at a greenfield site, among other potential qualifying criteria for the project.
The Bill also eliminates the wait list for the IFTC and extends the time the IEDA may certify an
Innovation Fund from FY 2023 to FY 2028.
Background
The RCPTC is available to approved businesses that produce renewable chemicals from
biomass feedstock in Iowa. The tax credit is equal to $0.05 per pound of renewable chemicals
produced. To qualify for the credit, a business must apply to and enter into an agreement with
the IEDA prior to the production of any pound of chemical that will earn the tax credit. The tax
credit is available for qualified renewable chemicals produced from January 1, 2017, through
December 31, 2035. In each fiscal year beginning on or after July 1, 2023, and ending on or
before June 30, 2036, the IEDA may award an amount of tax credits under the RCPTC not to
exceed $5.0 million. By January 31 of each year, the IEDA Board, in cooperation with the Iowa
Department of Revenue (IDR), must submit a report describing the activities of the program for
the most recent calendar year to the General Assembly and the Governor. Iowa Code
section 15.320 details the content requirements of the report.
The Workforce Housing Tax Credit is a program administered by the IEDA that assists in the
construction or rehabilitation of housing in communities with workforce housing needs. The
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program provides tax benefits to developers to provide housing in Iowa communities, especially
focusing on projects that use abandoned, empty, or dilapidated properties. The program benefit
is limited to $1.0 million per project and provides tax incentives that include a refund of sales,
service, or use taxes paid during construction. Developers may receive a State investment tax
credit of up to 10.0% of the investment directly related to the construction or rehabilitation of the
housing, or if qualifying under the Small Cities portion of the program, may receive a tax credit
of up to 20.0% of the investment. The tax credit is based on the new investment used for the
first $150,000 of value for each home or unit, is earned when the home or unit is certified for
occupancy, and can be carried forward for up to five additional years or until depleted,
whichever occurs first.
The IFTC allows equity investments to be made into an Innovation Fund, which is administered
by the IEDA. A certified Innovation Fund makes investments in promising early-stage
companies whose principal business operations are located in Iowa if those companies are
engaged primarily in advanced manufacturing, biosciences, and information technology.
Assumptions
• The proposed changes to the RCPTC program will not impact current RCPTC award
   recipients. Participating companies will continue to receive certificates prior to the existing
   deadline until five certificates have been awarded to each eligible business.
• Changes to program limits will not have a significant impact to the General Fund and are not
   included in the fiscal estimate.
• One new renewable chemical facility will qualify under the terms of Division I in each of the
   next three years.
• For the first renewable chemical facility, the production will begin in CY 2025, the first
   certificate will be issued in FY 2026, and the first fiscal impact will occur in FY 2027. The
   other two plants will follow the same fiscal pattern as the first renewable chemical facility.
• The production in each of the new plants will be sufficient each year to be awarded the
   maximum credit of $1.0 million per year for five years.
• The timing of future RCPTC claims will be similar to the historic timing of claims.
• The elimination of the wait list for the RCPTC and the IFTC will not reduce revenue as
   neither program has reached the tax credit cap.
• The IEDA assumes that there would be a negligible net impact to the General Fund for
   currently participating companies that have been in existence for five or more years.
• Table 1 shows the timing of RCPTC claims by year based on historical trends.
                                             Table 1
                                     Timing of Refundable
                                           Tax Credits
                                     Year 1           35.4%
                                     Year 2           37.6%
                                     Year 3           26.1%
                                     Year 4            0.9%
                                     Total           100.0%
Fiscal Impact
The initial impact of the RCTPC program to the General Fund under Division I is projected to
occur by FY 2027. The revenue reductions in the first four years, FY 2028 to FY 2031, are a
result of the new awards and additional companies participating in the RCTPC program. The
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RCTPC program is estimated to reduce General Fund revenue by a total of $9.3 million by
FY 2031, as shown in Table 2.
                                         Table 2
                                     General Fund
                                  Revenue Reduction
                                       ($ Millions)
                                  FY 2027 $         -0.4
                                  FY 2028           -1.1
                                  FY 2029           -2.1
                                  FY 2030           -2.7
                                  FY 2031           -3.0
The fiscal impact of the change in criteria to qualify for the Workforce Housing Tax Credit cannot
be estimated with current data.
The extension of the sunset from FY 2023 to FY 2028 for the IFTC will decrease General Fund
revenue as shown in Table 3.
Division II — Iowa Wine, Beer, and Spirits Promotion Board
Description
Division II of SF 575 broadens the membership of the Iowa Wine and Beer Promotion Board to
include spirits. Correspondingly, the Board’s membership is increased from three members to
four, each representing one of the three entities of the Board (wine, beer, and spirits) with a
single representative from the IEDA. Moneys appropriated to the Authority from the Wine
Gallonage Tax, Barrel Tax Revenue, and Beer and Liquor Control Fund as well as moneys
transferred to the Authority may be used by the Authority to promote Iowa wine, beer, and
spirits, including administrative expenses incurred under the promotion.
Division II transfers the lesser of $250,000 or up to 1.0% of native distilled spirits revenue to the
Board. The transfer from the Department of Commerce to the IEDA would be used to promote
beer, wine, and spirits made in Iowa, as well as for administrative expenses related to the
Board.
Assumptions
• Native distilled spirit sales are estimated to be between $1.4 million and $1.6 million annually.
• The predictions are based on historical sales data.
Fiscal Impact
Senate File 575 is estimated to decrease revenue to the General Fund by approximately
$130,000 to $160,000 per year beginning in FY 2024 and transfers the money to the IEDA to be
used to support the Wine and Beer Promotion Board.
Summary of Fiscal Impact
Table 3 summarizes the estimated fiscal impact to the General Fund.
                        Table 3 — Estimated Total Fiscal Impact ($ in Millions)
Division   General Fund Impact                        FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
     I     Renewable Chemical Production Tax Credit    $ 0.0 $ 0.0 $ 0.0 $ -0.4 $ -1.1
     I     Innovation Fund Tax Credit                      -0.1      -1.3     -3.2 -2.9   -4.4
    II     Wine and Beer Promotion Board                   -0.1      -0.1     -0.1 -0.1   -0.1
           Total Revenue Reduction                     $ -0.2 $ -1.4 $ -3.3 $ -3.4 $ -5.6
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Sources
Iowa Department of Revenue
Iowa Economic Development Authority
Alcoholic Beverages Division, Department of Commerce
Tax Credit Award, Claim, and Transfer Administration System (CACTAS)
                                                                               /s/ Jennifer Acton
                                                                                 May 16, 2023
Doc ID 1374171
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
                                                 www.legis.iowa.gov
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Statutes affected: 
Introduced: 15.119, 15.315, 15.316, 15.318, 15E.52, 422.10B, 422.12, 422.33, 15E.117, 123.143
Reprinted: 15.119, 15.315, 15.316, 15.318, 15E.52, 422.10B, 422.12, 422.33, 15E.117, 123.143
Enrolled: 15.119, 15.315, 15.316, 15.318, 15E.52, 422.10B, 422.12, 422.33, 15E.117, 123.143