How Community Development Tax Incentives Have Benefited Primary States: Iowa

Published by Peter Lawrence on Tuesday, January 28, 2020 - 12:00am

With the presidential caucuses and primaries approaching, it is important for advocates to highlight the importance and influence of the main community development tax incentives have had on each of the early nomination contest states as a way to raise awareness and support for those incentives. These financing tools have made real, positive differences in the lives of low-income people and communities in every state.

This post is the first in series that will examine the effects of community development tax incentives in early primary states, beginning with Iowa, where the first presidential nomination contest is taking place.

Politics

  • Democratic and Republican presidential caucus: Monday, Feb. 3
  • Delegates: 49 democratic (41 pledged, 8 unpledged), and 40 pledged republican delegates
  • Allocation method: proportional caucus/convention
  • Electoral votes: 6  
  • 2016 Democratic primary election results: Hillary Clinton won Iowa by 49.9 percent to 49.6 percent over Bernie Sanders
  • 2016 Republican primary election results: Ted Cruz won Iowa by 27.6 percent to 24.3 percent over Donald Trump
  • 2016 general election results: Donald Trump won Iowa by 51 percent to 41 percent over Hillary Clinton

Demographic, Economic and Housing Background

Iowa unemployment rates (2.6 percent) and median rents for a two-bedroom home ($759 per month) are better than those for the United States as a whole (3.6 percent and $964 per month, respectively). Despite these conditions, the housing situation for rural low-income Iowa renters is bleak; 40 percent of renter households are cost burdened (meaning they spend more than 30 percent of their income on rent), and 63 percent of extremely low-income renter households are severely cost-burdened (meaning they spend more than 50 percent of their income on rent). According to 2019 U.S. Census estimates, the median household income in Iowa is $58,570, which is lower than the U.S. median income of $63,179. Out of all Iowans, 11.2 percent live below poverty level which is lower than the national poverty rate of 14.6 percent. The rural population in Iowa is also greater than the rest of the United States; 40.7 percent of Iowans live in non-metro areas, which is much higher than the 14 percent of residents who live in non-metro areas nationally.

Low Income Housing Tax Credit (LIHTC) Usage

Since 1987, the Iowa Finance Agency has allocated a total (9 percent and 4 percent combined) of more than $224 million in annual LIHTC allocations. According to the National Council of State Housing Agencies (NCSHA) Factbook, between 1987 and 2018, 25,421 affordable rental homes have been developed or preserved with LIHTC financing, serving 64,727 low-income households. However, according to the latest Census estimates, 67,247 renter households are still severely cost-burdened , illustrating the need for more affordable homes. In 2018, the LIHTC created 594 affordable rental homes in Iowa. Of these, 396 homes were new construction, 18 homes were substantially rehabbed, and 180 homes were acquired and rehabbed. According to the 2018 NCSHA Factbook, 32 percent of LIHTC homes in Iowa serve elderly residents, which is higher than the nationwide average of 28.7 percent of LIHTC homes created for elderly residents. The prioritization of the large rural population can also be seen through Iowa’s LIHTC allocation– 32 percent of LIHTC homes in Iowa were created for rural renters, compared to 8.8 percent of LIHTC homes created for rural renters nationwide. See the map below for the distribution of LIHTC properties in Iowa.

Snapshot: LIHTC Properties and Poverty Rates in Iowa Image 1
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NMTC Usage

Since 2003, $960.4 million qualified low-income community investments (QLICIs) for the new markets tax credit (NMTC) have been invested to Iowa. More than $1.5 million in QLICIs were made in 2019.  The NMTC Coalition estimates that the NMTC has created 6,900 jobs in Iowa between 2003 and 2017. Between 2003 and the second quarter of 2019, the NMTC made 49 Iowa community projects possible, including manufacturing expansions, hospitals, daycare centers and more.

HTC Usage (IA)

The National Trust for Historic Preservation’s state data reports that since fiscal year 2001, 331 projects have been financed by the historic tax credit (HTC) in Iowa, including Dubuque’s Town Clock Building restoration; the transformation of a former Caradco millwork factory into housing and mixed retail space; and the restoration of Saint Mary’s Catholic Church. The HTC has created 23,825 jobs in Iowa from fiscal year 2002 to 2018. Other benefits include gross domestic product (GDP) growth; the most recent annual economic impacts report provided by the National Park Service, shows that in fiscal year 2018, Iowa saw $206.7 million growth in GDP because of the HTC, and since fiscal year 2014, Iowa GDP has grown by $840.7 million due to the HTC.

PTC and ITC Usage

Senate president pro tempore and Finance Committee Chairman Chuck Grassley, who has been representing Iowa since 1981, is known as being instrumental in the implementation and continued success of the renewable energy production tax credit (PTC). This credit has been very successful in Iowa. The American Wind Energy Association ranks Iowa as the second state in the nation for wind energy as a share of total electricity generation and second state in the nation for installed capacity with more 8,900 megawatts (MW). In 2018, wind powered 34 percent of Iowa’s electricity, and there were between 9,001 to 10,000 direct wind industry jobs. According to the Solar Energy Industries Association, the solar investment tax credit (ITC) has financed enough solar energy in Iowa to power 12,569 homes and has created 844 solar jobs. The summary below describes some of the benefits community development tax credits have brought to Iowa.

LIHTC, NMTC, HTC, PTC, and ITC Use in Iowa
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Opportunity Zones

There are 62 designated opportunity zones (OZs) in Iowa. According to the Economic Innovation Group, 61 of Iowa’s opportunity zones are low-income and one is low-income contiguous. A zone is designated as low-income if the tract has at least a 20 percent poverty rate, or if the median family income in the tract is below a certain threshold. Additionally, a zone can be designated as an opportunity zone if the tract’s population is less than 2,000 people and it is within an empowerment zone and shares a border (is contiguous) to another low-income community. The minority (non-white) population in Iowa’s OZs is 25 percent, compared to 57 percent nationally. Non-metro areas make up 58 percent of Iowa’s OZs, and the OZs have a poverty rate of 22 percent, lower than the national average for OZs of 28 percent. The median family income in Iowa’s OZs is $49,200 per year, higher than that of OZs nationally ($47,316) and the unemployment rate in Iowa OZs is 27 percent, lower than the average for OZs nationally (31 percent). In addition, 46 percent of renter households in Iowa’s OZs are rent-burdened. The bar graph below compares Iowa’s OZs to national OZs.

Iowa Opportunity Zones vs. U.S. Opportunity Zones Image 3
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