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Community-Based
“Angel” Initiative Approved
On
Thursday, February 7, the House Ways and Means Committee
unanimously approved HSB 625 (now House File 2271).
Otherwise known as the “Angel Investment and
Community-Based Investment Initiative,” this bill creates a tax
credit for investments in qualifying businesses and
community-based seed capital funds.
These
tax credits are only allowed for an investment made in the form of
cash to purchase equity in a qualifying business or in a
community-based seed capital fund.
The
scope of the credits is not limited to individual credits.
Investments in community-based seed venture capital funds
-- such as those that are now forming in Ames, Sioux City, and
Iowa City -- are also encouraged through this bill. House File 2271 provides that for tax years beginning on or
after January 1, 2002, a tax credit shall be allowed against
personal and corporate income tax, the franchise tax for financial
institutions, and the insurance premium tax.
Also included are moneys and credit taxes for credit unions
that are the result of investments made in either community-based
seed capital funds or qualifying businesses.
With
this bill, a twenty percent credit (which cannot exceed $50,000
per investment, with the total credits limited to $250,000) is
allowed per investor. An
investor and all affiliates of the investor cannot claim tax
credits for more than five different investments in five different
qualifying businesses in one year.
Another
stipulation of the Angel Investment/Community-Based Initiative is
that the total amount of credits issued may not exceed $10
million, as well as the total amount of credits is capped each
year. For fiscal
years 2003 and 2004, the total amount of the credits issued cannot
exceed $3 million each year, and for FY 2005, the amount cannot
exceed $4 million. These
credits cannot be redeemed during any tax year beginning prior to
January 1, 2005, and are non-transferable.
The
Iowa Capital Investment Board, as created in HF 2078 (Iowa Capital Formation Act), administers the tax credit
certificates. Additionally,
the bill limits the administrative burdens on the Iowa Department
of Revenue and Finance by utilizing the Iowa Capital Investment
Board, and makes credits easy to track, control and administer.
GOVERNOR
RELEASES PLAN FOR
FY 02
BUDGET
DEFICIT
Citing
a possible $120 million revenue shortfall for FY 2002, on Monday
the Governor released his plan to deal with the Fiscal Year 2002
budget deficit.
As
Majority Leader Rants did last week, the Governor has asked the
Revenue Estimating Conference (REC) to meet as soon as possible to
set revenue growth for FY 02 and FY 03. The REC will likely reduce
the FY 02 estimate from 1.5 percent to -1.0 percent. That is a
difference of $120 million in revenue.
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In order to make up for the
shortfall in FY 02, Governor Vilsack proposes transferring the $120
million from the Economic Emergency Fund (EEF). In FY 03, he
depletes the fund by transferring $48 million from the EEF.
At the beginning of FY 01, the
EEF was filled to 5 percent, or $237 million. Due to the
procrastination and mishandling of the budget by the Governor, FY 01
ended with a $66 million deficit. $66 million was transferred from
the EEF to the general fund to cover the Governor’s deficit,
leaving the fund with $171 million. Deducting the $120 million for
FY 02 and the $48 million for 03, the EEF would be left with only $3
million. However, the Governor recommends transferring $3.3 million
from the EEF to the Cash Reserve Fund (CRF) to fill the CRF back to
its statutorily required 5 percent level. That would leave the EEF
completely empty.
His solution to this is
implementing a 98 percent spending limitation beginning in FY 04
until the EEF is filled back up to 5 percent. Considering he's
failed to abide by a 99 percent limit in the past (two of the
Governor’s last three budgets were declared illegal because they
violated the 99 percent spending limitation law) it is hard to
believe he could follow a 98 percent limit. In addition, the $500
million in trans-notes borrowed by the Treasurer must be repaid by
June 30, 2002. If revenue growth continues at the same pace as last
year, in July, 2002, the state will not have enough money to pay its
bills on time.
In
FY 03, the Governor has to adjust the base budget downwards by $120
million. In order to do this, he will impose the equivalent of a 2.6
percent across the board cut. However he will exempt K-12, Medicaid,
the Regents, community colleges, Corrections and Public Safety, so
the effective rate cut will be much higher. Otherwise, he is
proposing the same budget he proposed in January ($48 million from
the EEF, $58 million from the use tax, $16 million from reciprocity,
etc.).
The
Governor says he wants to use the EEF to fill the gap in FY 02 but
fix the problem in FY 03. However, his fiscally reckless FY 03
budget will only make the situation worse and eventually a tax
increase will be needed to eliminate the deficit.
Remember, the $400 million deficit of the early 1990s
wasn’t created overnight, but rather by the same incremental
changes (scooping of funds, not paying bills on time, pushing bills
into the next fiscal year, etc.) that the Governor is recommending
today.
Ways
& Means Update
Bills
Passed in the Ways & Means Committee this week:
No
bills were passed out of committee this week.
Bills
Assigned in the Ways & means Committee This Week:
No
bills were assigned in committee this week.
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