Iowa gave corporations $42 million in tax credits in 2017. Is it too much?

Iowa wrote nearly $42 million in refund checks to corporations last year under a controversial tax credit program, according to a new report from the Iowa Department of Revenue.

In total, Iowa awarded more than $66 million to corporations and individuals in 2017 through the Research and Activities Tax Credit. The program offers incentives for performing research functions in Iowa.

Much of the tax credits last year went to big corporations, including:

Rockwell Collins , which claimed $13.9 million in R&D tax credits

, which claimed $13.9 million in R&D tax credits Deere & Co. , which claimed $7.5 million in R&D tax credits

, which claimed $7.5 million in R&D tax credits Green Plains Inc. , which claimed $5.3 million in R&D tax credits

, which claimed $5.3 million in R&D tax credits Pioneer DuPont, which claimed $2.6 million in R&D tax credits

Corporations claimed $55 million in tax credits, much of which was issued as refund checks. The program issues refunds when R&D tax credit claims exceed a company's or individual's state tax liability and no state income tax is owed.

In 2017, those checks for companies and individuals totaled $46 million. That's up from $43.7 million in 2016, the department of revenue reports.

Democrats and Republicans alike have questioned the tax-credit program in recent years, particularly as the state slashes funding for other programs during a budget shortfall.

"The state budget is in freefall right now, and one of the reasons is these bloated tax giveaways," said Sen. Joe Bolkcom, D-Iowa City. "We’re not going to right the ship here without serious reforms of this tax credit."

The total value of all of Iowa's tax credits has ballooned by 180 percent since 2005, from $153 million to an expected $427 million in 2018, according to a Des Moines Register analysis.

The research activities credit is Iowa's most expensive behind only the Earned Income Tax Credit, which supports more than 220,000 low-income working families.

More: Iowans divided on views of state's economic development incentives, Iowa Poll finds

Bolkcom said Iowa's R&D tax credit is far too generous. He doesn't want to eliminate it but wants to see caps on the program.

"As Iowans, we tend to be a frugal lot of folks. And this credit just flies in the face of any kind of conservative, tight-with-the-dollar approach," he said. "Bank robbers rob banks because that’s where the money is. And if you want to reform tax credits, you go to where the big spending is. And this one is ripe for reform."

In her Jan. 9 Condition of the State address, Gov. Kim Reynolds announced plans to form a bipartisan task force to study all tax credit programs.

Reynolds spokeswoman Brenna Smith said the governor is focused on her legislative agenda, which includes a sweeping tax-reform proposal. The tax-credit task force will launch "sometime later this spring," Smith said.

But Bolkcom said that effort should start now.

"The problem is here today," he said.

House Appropriations Committee Chairman Rep. Pat Grassley, R-New Hartford, unveiled legislation last year that would have capped and gradually reduced the amount the state spends on tax credits.

It also would have ended refundable tax credits altogether.

On Thursday, Grassley cautioned that tax credits won't be an immediate fix for Iowa's budget problems: It would take several years for the state to realize any savings from reforms, he said.

Grassley wants a review of all tax credits. He wants to see a review of refundability as part of that process.

“I think we have to be careful not to just completely structurally tear them down,” he said of all tax credits. “If we think they’re working, you can do other things to make them a little less lucrative and make them a little more affordable."

Debi Duram, director of the Iowa Economic Development Authority, has championed the R&D tax credit as an important economic development tool. She has argued that companies that do their research in Iowa are more likely to manufacture their products here.

But Durham is open to making changes to the program, which is administered by the revenue department, not IEDA. She said Iowa's tax credit is modeled after a federal program which operates "a bit on the liberal side."

Durham said companies such as Rockwell Collins and John Deere conduct high-value research as they innovate in Iowa. But sometimes basic processes such as moving to lean manufacturing methods can qualify for the R&D credit.

Aside from changing what work can qualify, she said she's willing to consider a cap for the program.

"I think that's a reasonable conversation to have," she told the Des Moines Register on Jan. 25. "So it's not that we're not going to give them the tax credits, it's just they may not get it all in one year."

An analysis of annual revenue reports by the Iowa Fiscal Partnership shows that corporate claims for the R&D tax credit have more than doubled from 160 in 2010 to 373 in 2017. The number of claimants receiving the credit as checks rose from 133 in 2010 to 227 in 2017, according to the analysis.

“This reckless giveaway goes on year after year — just like Iowa’s shortchanging of public schools and human services, which is related,” Mike Owen, executive director of the left-leaning Iowa Policy Project, said in a news release. “This is one place where the state could find revenue to better meet needs, but there appears to be no interest from the Governor or legislative leaders to reform the program.”