But now, a statement from the Iowa Attorney General’s office counters that.

“It is the Attorney General’s responsibility to determine the State’s obligations and liabilities under the Film Tax Credit Program, and we are working on that intensively. The State’s obligations and liabilities may not be determined solely by whether a contract has been signed by the parties, and statements by State officials to that effect are mistaken,” reads the statement from the Attorney General’s office (emphasis added by me). “We understand the difficulties suspension of the program poses for companies doing business in Iowa, and we will weigh that carefully case by case as state officials determine how best to proceed.”

GOVERNOR CULVER APPOINTS FRED HUBBELL AS INTERIM DIRECTOR OF IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT

Joe O’Hern Appointed Interim Deputy Director at IDED

DES MOINES – Governor Chet Culver today announced that Fred S. Hubbell has agreed to serve as the interim director of the Iowa Department of Economic Development (IDED). Hubbell, of Des Moines, has led global companies as well as civic initiatives in Iowa. Because of previous commitments, he will begin the interim appointment on October 5.

In addition, Governor Culver announced that Joe O’Hern, deputy director at the Iowa Finance Authority (IFA), will serve as interim deputy director at IDED, focusing on IDED’s flood recovery efforts.

“The history of the Hubbell family runs parallel to the history of Iowa, and I am honored that someone with Fred’s experience, integrity and commitment to our state will serve in this key position,” said Governor Culver. “Fred’s leadership will help us ensure that proper oversight is in place for IDED programs. And he will play a vital role in our work to support business and job opportunities to help Iowa work our way out of the economic recession.”

“Economic development in Iowa is a critical engine for growth,” said Interim Director Hubbell. “I look forward to helping both Governor Culver and the department address this issue and focus on what IDED does well, which is creating and retaining jobs.”

Added Culver: “Joe O’Hern’s experience makes him an important addition to IDED. He will focus on making sure progress continues with our housing initiatives, the use of CDBG funding, and other initiatives critical to our flood recovery efforts.”

Hubbell has a long history of service to the people of Iowa. He was appointed to serve as chair of the Iowa Power Fund Board by Governor Culver in 2007, and will continue to serve on the board as the representative of IDED. In addition, Hubbell was appointed co-chair of the Iowa Disaster Collaborative, which raised millions of dollars on behalf of those affected by last year’s natural disasters.

Hubbell was a member of the Executive Board and Chairman of Insurance and Asset Management Americas for ING Group, a Netherlands-based banking, insurance and asset management company. Hubbell served as an Executive Board member from May 2000 through April 2006. He was also responsible for Nationale Nederlanden, ING’s largest Dutch insurance company, and ING’s asset management operations throughout Europe beginning in May 2004. Mr. Hubbell retired from ING Group’s Executive Board in April 2006.

Hubbell was formerly Chairman, President and Chief Executive Officer of Equitable of Iowa Companies, an insurance holding company, serving as Chairman from May 1993 to October 1997, and as President and Chief Executive Officer from May 1989 to October 1997. Hubbell served in various capacities with Equitable of Iowa Companies since 1983, in addition to serving as Chairman of Younker’s.

O’Hern is a graduate of Princeton University who spent more than 20 years drafting legislation in the Iowa legislature. President Bill Clinton nominated him to serve as the regional representative for the U.S. Department of Housing and Urban Development in Kansas City, KS. After a number of years at HUD, he took a newly created position as head of the Fannie Mae Partnership Office in Iowa, where he helped non-profit housing groups build more and better housing for low-income families. During his time at IFA, he was appointed to the Governor’s Rebuild Iowa Task Force to help coordinate efforts in rebuilding communities after the natural disasters of 2008.

Governor Chet Culver made a statement today at a news conference in Cedar Rapids which put film industry folks on notice: don’t blame the film office flap for your failure to pay your workers. Culver read his statement during a news conference in Cedar Rapids after he and a top FEMA administrator had toured flood recovery efforts. Culver advised the media throng he had a statement to read, then added to the rest of the crowd: “If people need to move to the next flood related event, they can.” That got a few chuckles, then Culver started reading. Read Culver’s statement below.

CEDAR RAPIDS – Governor Chet Culver made the following statement today about developments at the Iowa Film Office and the Iowa Department of Economic Development during a stop in Cedar Rapids:

“When information was first brought to my attention last week about Iowa’s film tax credit program, I was troubled. But as we began our investigation into this program, and more information has come to light, frankly, I am outraged – not only that a program involving millions of Iowa tax dollars was so mismanaged but that some companies were taking advantage of this situation.

“This problem first came to my attention last week when I was traveling on Tuesday with former director Tramontina. At that time, I asked him to prepare for me a memo outlining problems with the program. And, after receiving that memo, I took immediate steps to protect the taxpayers of Iowa.

“On Friday, I froze state funding for this program until all questions have been resolved and adequate oversight has been resumed. That same day, I accepted the resignation of the director of the Department of Economic Development.

“Yesterday, I asked Attorney General Miller and Auditor Vaudt to help review the film tax credit program and to provide advice and recommendations on how best to proceed with the program. At the same time, we have dismissed the manager of the film office and accepted the resignation of the deputy director of the Department of Economic Development.

“These actions are intended to protect the best interest of Iowans, and not to harm the growing film and television industry in our state. This program should continue only after we have the controls, oversight, and due diligence in place to assure that it operates properly.

“But, while there were clearly not the controls and oversight in place at the Iowa Film Office, we need to make sure that the film and TV productions in our state are following the rules.

“For example, projects must have commitments for at least 50% of their funding before even applying for assistance under the program.

“In addition, projects are not to receive tax credits until after their work is complete and they have submitted invoices of qualified expenses.

“And, we expect film and television productions to obey Iowa’s labor laws – which mean people get paid for the work they do. That does not mean they wait until after their tax credit has been approved.

“Iowans will not be taken for suckers. While we need to make changes to strengthen management of this program, we are not going to be taken advantage of – and if we are, we are going to claw back and make sure any money wrongfully provided is returned.

“Again, the actions I have taken are to protect the best interest of Iowans, not to harm the growing film and television industry in our state. I hope we move forward, but before we do we must assure that the film program has the oversight in place to assure that it operates properly.”

DES MOINES – Governor Chet Culver announced today the departure of two officials from the Iowa Department of Economic Development (IDED).

The manager of the Iowa Film Office, Thomas Wheeler, has been dismissed from his position effective this afternoon. The Iowa Film Office is a division of IDED. Amy Johnson will serve as the interim manager of the Iowa Film Office.

In addition, the resignation of Vince Lintz as deputy director of IDED has been accepted.

IDED is currently reporting to Richard Oshlo, director of the Department of Management, while new leadership for the department is being considered.

Earlier today, Governor Culver asked the Attorney General, State Auditor and Department of Revenue to assist in a review of the Film, Television and Video Project Promotion Program. On Friday, Governor Culver accepted the resignation of IDED Director Mike Tramontina and asked the Economic Development Board to not approve further film tax credit certificates until questions about the administration of the program are answered.

Joint Statement from Senate Majority Leader Mike Gronstal, Senate President Jack Kibbie, House Speaker Pat Murphy, and House Majority Leader Kevin McCarthy

Regarding Culver-Judge Administration’s response to Film Office controversy

“We are encouraged by the steps taken by the Governor and Lt. Governor to ensure additional accountability and scrutiny with regard to the Iowa Film Office.

“It was prudent for the Governor to announce plans today to involve Attorney General Tom Miller and State Auditor David Vaudt to ensure that every fiscal and legal avenue is pursued against anyone who may have abused this program.

“We are also reassured by their commitment to lift the suspension of the program as soon as it makes sense for responsible projects.”

Iowa Film, Television, and Video Project Promotion Program

This fact sheet has been prepared to provide background information on the Iowa Film tax credit program, including the guidelines for tax credit contracts (including that expenses for production are to be submitted after completion of a project), the top five tax credit recipients, and requirements for projects to be eligible.

Procedures for Tax Credits Contracts:

• Upon completion of the project (or completion of the activities occurring in Iowa), the production company must submit a final expenditure report and any requested supporting documentation to the Department.
• Upon review and qualification of the expenditures, the Department will issue tax credit certificates to the production company and the project’s investors based on the actual amount of qualified Iowa expenditures.
• The tax credits awarded under this program cannot be claimed without a valid tax credit certificate.
• As of July 1, 2009, the film tax credits are subject to a $50 million cap, part of a $185 million cap imposed on several economic development tax credits.
• To date, 22 film projects have received $32 million in tax credits.
• Producers seeking to participate in the program must submit a formal application by the monthly deadline established by the Department.
• Projects approved for participation in the program will be asked to enter into a contract with the Department of Economic Development.
• As of July 1, 2009, projects must commence within four months of executing the contract.  One two-month extension may be granted by the Department.

Top Five Tax Credit Recipients - The following five productions are

1. Ticket Out Productions (“Ticket Out”)
2. Iowa Film Productions Services (“Splatter”)
3. Cornfield Productions (“Peacock”)
4. Changing Horses Productions (Saddle Up Documentary DVDs)
5. Changing Horses Productions (“Saddle Up with Dennis Brouse”)

Project Eligibility Requirements:

• Project must be film, television, or video episode or segment.  Advertising projects in a film, television, or video medium are also eligible.
• Project must be shot in Iowa.
• Project must expend at least $100,000 in qualified Iowa expenditures.
• Project must have an economic impact on the economy of the state or locality sufficient to justify assistance under the program.
• Project must further tourism, economic development, and population retention or growth in the state or locality.
• Project must be widely distributed beyond the Midwest region.
• Project cannot depict or describe any obscene material, as defined by Iowa Code section 728.1.
• As of July 1, 2009, project must have commitments for at least 50% of the funding before applying for assistance under the program.

Qualified Expenditures – A qualified expenditure is a payment to an Iowa resident or an Iowa-based business for the sale, rental, or furnishing of tangible personal property or for services directly related to the registered project including but not limited to:

Aircraft
; Vehicles; 
Equipment; 
Materials
; Supplies
; Accounting; 
Animals and animal care; Artistic and design services; Graphics
; Construction; 
Data and information services
; Delivery and pickup services
;Labor and personnel

**
Lighting
Makeup and hairdressing Film
Music
Photography
Sound, 
Video and related services,
Printing, 
Research
Site fees and rental
Travel related to Iowa distant locations
Trash removal and cleanup
Wardrobe

** Prior to July 1, 2009, labor and personnel does not include the director, producers, or cast members.

** After July 1, 2009, labor and personnel includes compensation paid to the principal producer, principal director, and principal cast members if they are Iowa residents or an Iowa-based business.  The amount to include is based on the following formulas:

Minimum Qualified Iowa Expenditure Maximum Compensation for Producer, Director, and Principal Cast Members Maximum Compensation for All Other Labor and Personnel

$100,000 $0 $150,000 per line item/per job category
$10 million $250,000 per person $200,000 per line item/per job category
$20 million $1 million per person $300,000 per line item/per job category

Program Details

Qualified Expenditure Tax Credit

• Prior to July 1, 2009, equal to 25% of qualified Iowa expenditures.
• After July 1, 2009, up to 25% of qualified Iowa expenditures (negotiable).
• May be transferred up to 2 times.
• May be carried-forward for up to 5 years.
Qualified Investment Tax Credit
• Prior to July 1, 2009, equal to 25% of investment in the project or 25% of qualified Iowa expenditures, whichever is less.
• After July 1, 2009, up to 25% investment in the project or 25% of qualified Iowa expenditures, whichever is less (negotiable).
• May be transferred up to 2 times.
• May be carried-forward for up to 5 years.
Income Exclusion for Qualified Vendors (administered by the Dept. of Revenue)
• Prior to July 1, 2009, Iowa-based vendors may exclude 100% of the income from a qualified expenditure directly related to the production of an approved project for Iowa-income tax purposes.
• After July 1, 2009, Iowa-based vendors may exclude 25% of the income from a qualified expenditure each year for four years.

A taxpayer claiming a qualified expenditure tax credit; a business in which such taxpayer has an equity interest; or a business in whose management such taxpayer participates is not eligible to receive this income-exclusion benefit.

Press Conference on Single Family New Construction Program in Waterloo To Be Rescheduled

WATERLOO, IA (September 20, 2009) – The press conference to be held on Monday, September 21st on the Single Family New Construction Program in Waterloo will be rescheduled. The date of the press conference has yet to be determined.

So what was the event that was cancelled? Read about it below (again, it will be rescheduled and will NOT happen Monday).

Single Family New Construction Program Builds New Houses to Replace Flood-Damaged Homes

WATERLOO, IA (September 17, 2009) – Officials with the City of Waterloo, Iowa Department of Economic Development (IDED) and Rebuild Iowa Office (RIO) will announce plans to construct new housing at a press conference in the Summerland neighborhood on Monday, September 21. The Single Family New Construction Program was created earlier this year to build affordable replacement housing units to replace those housing units damaged during the flood.

This program will help fund the construction of 22 new housing units, including 20 single family homes and two condominiums, in 2009. Two local builders and developers participated in the program. The combined total for all of these construction projects is $4 million.

WHO: Waterloo Mayor Tim Hurley, RIO Executive Director Lt. Gen. Ron Dardis, IDED Director Mike Tramontina, Builders Jason Guthrie and John Rooff, City Councilman At-Large Bob Greenwood

WHAT: Press conference to announce Single Family New Construction Program

WHERE: Summerland Neighborhood,  5538 Summerland Dr., Waterloo, IA

RAIN LOCATION: Council Chambers, Waterloo City Hall, 715 Mulberry Street, Waterloo, IA

PROGRAM DETAILS:

Through the Single Family New Construction Program, eligible property owners are offered assistance up to 30% of the purchase price for down payment and closing costs of a new housing unit built for less than $180,000. This program is providing a total subsidy of $1.256 million for the 22 housing units. Construction has already begun on most of these properties.

Qualified applicants must be at or below 100% of Area Median Income by household size established by Housing and Urban Development (HUD). All assisted homebuyers must be able to support a mortgage as evidenced by a firm loan commitment and must maintain the property as their primary residence for five years. Assistance from this program cannot be combined with the Federal Jumpstart Homebuyer Assistance or State Jumpstart Down Payment Assistance programs for the same house or owner.

Houses eligible for this program must be located within the corporate limits of Waterloo and cannot be located in the 100-year floodplain. Properties must be single family dwellings, single family unit condominiums or modular homes on permanent foundations. The housing units must be built by an approved builder and cannot exceed $180,000.

Memorandum
September 16, 2009

TO: Jim Larew, IGOV Chief of Staff; Dick Oshlo, Director, Dept of Management; Bob Bocken, Chair of DED Board

FROM: Michael Tramontina, Director Dept of Economic Development

RE: Film Program Status

DED management is investigating several reported irregularities in the handling of the Film program. At the same time we are: Adapting to the explosive growth of the program; responding to Legislators’ and IDRF’s evaluation of the impact of the program on the state budget; amending administrative rules to tighten eligibility to assure maximum impact on in-state workers and film industry; promote a permanent film production industry in fixed locations. This memo will attempt to bring IGOV, IDOM and the board up to date on each of these issues.

Background

From July 1, 2007 until June 30, 2009 twenty film projects have been awarded a total of $31 million of tax credits. From May until August 2009 approximately $100 million of projects have been induced by the DED board. Of those, approximately $33 million would be applied toward the new cap on DED issued tax credits. The DED board has allocated $50 million of cap toward the film program.

Currently there are four projects being filmed in the state, three in Des Moines area and one in Council Bluffs. During the past week Business Development staff has met with representatives of 20th Century Fox and CBS TV. On Friday we are meeting with a British film maker who is planning to move into a former auto dealership building in West Des Moines to shoot six projects. Other permanent office or studio facilities are currently under construction or planned for South Ridge Mall in Des Moines, and a former Maytag warehouse in Newton.

Investigation of Reported Irregularities in the program

We have heard reports of two vehicles purchased through the tax credit program that were not used directly on a film. Upon learning this management dug into those two projects and was not satisfied with the explanation or the condition of the files and records and determined that procedures had not been followed. We thought the situation serious enough to: Hire an outside CPA firm to serve as internal auditor to do a thorough search of the twenty projects that have been awarded tax credit certificates to date; put on-hold all contracts and tax credit certificates then pending; improved internal controls by reassigning staff duties to put someone other than the Film Office director on reviewing ledgers and receipts; Division Coordinator took control and exercised oversight of every decision.

The Code clearly authorizes the purchase of vehicles but the fact they were luxury vehicles (Mercedes and a Land Rover) were not used directly on the film and the amount of credits claimed was the full purchase price rather than the lease cost during the project were judged to be abuses.

Current administrative rules permit DED to request records for a three year period.

The internal auditors determined:

• Files on each film were inadequate. Most of the necessary information was in unsorted email archives.
• Contracts were amended, often to increase amount of credits requested substantially, after Director/Deputy approval. Signature pages appeared shuffled among versions of contracts.
• A custom database that had been built within the past year specifically to keep track of film projects and their status was never used;
• The instruction to have DED staff from Accounting Team review all receipts as not followed.
• There were only receipts for two of eighteen film projects. Some receipts were obviously prepared in a single batch by the filmmaker who claimed for all of their vendors on identical receipts which were usually not signed.
• Ledger sheets that were accepted as claims were vague and overly broad. It appeared everything was allowed. Tax Credit certificates were issued for the full amount requested. It appeared nothing was ever disallowed.
• Many vendors clearly resided outside of Iowa.
• Some film makers were allowed to claim payment for several roles in a production leading to very high payments. Some of the roles played by a single individual such as Accountant/CPA should have held an arms length relationship but did not. Large payments were also made to family members.
• Interpretations of the law and rules given to film makers often originated from IDRF but it was not clear that they were given enough information to understand the full implications of the response. One instance was the interpretation of an Iowa domiciled company.
• Some of the claimed services where not actually paid for. The vendor deferred payment until credits were sold or film was sold.

Following a meeting with the Program administrator at which he as asked to respond to the findings he was immediately put on paid administrative leave for 7 days and told to be available by phone during working hours

Next Steps

• We have already sent correspondence to the claimants of the two vehicles demanding a return of the value for the credits.
• The internal auditors are preparing a list of documentation to request from each previously approved project. Due to volume we may determine it is a better use of time to visit their office to review the receipts. In that case the visit will be scheduled immediately.
• After reviewing the detailed records we expect to call in at least two individuals to justify their charges. Following that meeting we expect to disallow at least a portion of the claims.
• The Division Coordinator has taken over day-to-day duties of the office including client meetings.
• We have interviewed and expect to hire a new Film Office Director to manage the customer relations.
• We are working on revised administrative rules expected at October, 2009 DED Board meeting including: Setting a sliding scale for the award of credits based on the percentage of Iowans hired; requiring bonded budgets, defining Iowa domiciled company; clarifying use of Deferred Payments of Services in Kind.

Additional issues

Some of the problems eminate from the statute that specifically identifies a very broad list of eligible expenditures and allows a credit that is comparatively lucrative.

The cost of the program is increasingly a problem in a time of declining state revenue.

Read the release below:

GOVERNOR CULVER ACCEPTS RESIGNATION OF MIKE TRAMONTINA AS DIRECTOR OF IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT

DES MOINES – The Director of the Iowa Department of Economic Development, Mike Tramontina, has tendered his resignation, effective immediately, to Governor Chet Culver.

The Governor has accepted Tramontina’s resignation.

The Department of Economic Development will report to Richard Oshlo, the interim director of the Department of Management, while new leadership at IDED is being considered.

NOTE: The following letter was sent from Governor Culver to Robert Boeken, chair of the Iowa Economic Development Board, this afternoon:

September 18, 2009

Mr. Robert Bocken
2904 15th Ave NE
Fort Dodge, IA 50501

Re: Film, Television and Video Promotion Program

Dear Mr. Bocken:

While there have been many reported benefits resulting from the Iowa Department of Economic Development’s implementation of the film, television and video project promotion program established under Iowa Code section 15.393, I am also very troubled by information very recently received by our office that there have been insufficient procedures in place to assure a full and accurate accounting of expenditures made to enable persons to qualify for tax credits under the program.

Therefore, until all reasonable questions about the administration of this program are answered, I ask that no further schedules of qualified expenditures be approved nor any further tax credit certificates be issued.

I am confident that our office, in working with your Board and others asked by us to review these matters, can resolve pending issues efficiently and effectively, allowing us to move forward with this important program in a manner that is both consistent with the intent of this legislation and that protects the interests of Iowa taxpayers.

Sincerely,

Chester J. Culver
Governor of Iowa

HARKIN: $1.5 BILLION INCLUDED FOR IOWA IN SENATE STIMULUS PACKAGE

Washington, D.C. – U.S. Senator Tom Harkin (D-IA) today announced that there are more than $1.5 billion in critical investments for Iowa included in the Senate version of The American Recovery and Reinvestment Act. These investments will create and save jobs; help with budget shortfalls to prevent deep cuts in basic services such as health, education, and law enforcement; cut taxes for working families and invest in the long-term health of our economy.

“The economy is now shedding an average of 17,000 jobs a day, and new foreclosures average 9,000 a day.  We are facing what could be the deepest, longest recession since the Great Depression.  We must act quickly and boldly,” said Harkin.  “This bill will create jobs now while also laying the foundation for a stronger economy that works for all Americans in the future.”

The American Recovery and Reinvestment Act provides $888 billion in investments and tax cuts.  Of this total, $694 billion will enter the economy by the end of Fiscal year 2010, meaning that 78 percent of the monies allocated will reach the American people by September 30, 2010, providing an immediate boost to the overall economy and creating an estimated four million jobs nationwide.

Below are the approximate investments Iowa could see if the Senate bill is passed and signed into law by the president.  These amounts only include major accounts that are allocated by formula, and do not include the considerable funds that will be allocated competitively by the executive branch.

Nutrition Programs
• $2.3 million for School Lunch Programs
• $109 million for the Supplemental Nutrition Assistance Program
• $776,000 for the Emergency Food Assistance Program
Homeland Security Programs
• $639,000 for the Emergency Food and Shelter Program
Clean Water Programs
• $24 million for the Drinking Water Fund
• $54 million for the Clean Water Fund
Transportation Funding
• $389 million for Iowa’s Highway fund
• $46 million for Transit Funding
Housing Programs
• $7.6 million for public housing capital
• $14.8 million for HOME funding
• $16.8 million for homelessness prevention
Law Enforcement / Crime funding
• $14 million for Byrne/JAG funding
• $978,000 for crime victim programs
• $1 million to protect children against internet crimes
• $3.2 million to assist women who are victims of violence
Energy Programs
• $6.6 million for Iowa’s energy program
• $48.6 million for weatherization programs
Labor, Health and Human Service and Education Programs
• $18.1 million for Child Care and Development Block Grants
• $5.2 million for Head Start
• $625.6 million for the state stabilization fund
• $65.4 million for Title 1 programs
• $140.1 million for Special Education Part B Grants
• $46.1 million for Higher Education Facilities
• $1.6 million for Adult Employment and Training
• $78.7 million for School modernization
• $5 million for education technology
• $2.2 million for Community Service Block Grants
• $441,000 for Senior Meals
• $3.9 million for Employment Service Grants
• $5 million for Dislocated Worker Grants
• $5.4 million for vocational rehabilitation programs
• $7.2 million for immunization programs

The Grassley-targeted news conference which started at 12:30 p.m. was held at the Iowa AFL-CIO office in Des Moines, but a telephone call to the office at 12:24 yielded a message which said the office was closed.  The following people were billed as participants in that news conference:

Danny Homan, President, AFSCME Iowa Council 61
Chris Bern, President, Iowa State Education Association (ISEA)
Sue Dinsdale, Organizer, Iowa Citizen Action Network (ICAN)
Jan Laue, Secretary-Treasurer, Iowa AFL-CIO

According to a news release, the above speakers intended to make "an Appeal to Iowa Senator Grassley – Don't let Iowa down – Iowa working families need your vote for the economic recovery plan. Our state is hurting now and we need help."

Grassley went on the Senate floor today to share his opinion of the stimulus package – in its present form.  Here is the text:

Floor Statement of Senator Chuck Grassley:
Opening Floor Debate on Stimulus Bill
Delivered Tuesday, February 3, 2009

The matter before this body is the Majority’s stimulus bill.  It merges the products of last week’s markups in the Finance Committee and the Appropriations Committee. 

Twenty three Senators were involved in the Finance Committee markup.  In that group, there were 13 Democrats and 10 Republicans.  Thirty Senators were involved in the Appropriations markup.   In that group, were 17 Democrats and 13 Republicans.  That means over half of the Senate has been involved in either the Finance part or the Appropriations part.  For the first time, however, all Senators will have to consider this very large and complicated piece of legislation. 

I’m first going to discuss process and then focus on the substance.  Because I’m the senior Republican on the Finance Committee, I’m going to focus on the Finance Committee’s portion.  I, like 69 other Senators, am still studying the Appropriations part.

First off, I want to thank my friend from Montana, Chairman Baucus, for courteously and professionally consulting members on this side.

We had one bipartisan members meeting where Chairman Baucus patiently heard us out.  In addition, Chairman Baucus apprised me of the negotiations between the Democratic Leadership of both bodies and the Obama Administration.  Those Democrats-only negotiations were extensive.  Folks on our side who read press reports could see that.   Further evidence of that deal-making is the relatively small differences between the basic structure of the Ways and Means and Finance Committee packages.  I want to congratulate Chairman Baucus on those negotiations.   The fruit of that labor is the Finance Committee package. 

One significant change followed a recommendation I made in early January.  That was the addition of the alternative minimum tax (“AMT”) patch for this year.  Its addition means over 24 million families need not worry about an average tax increase of at least $2,000 per family for this year.

But let no one be mistaken that this bill is the result of bipartisan negotiations.  While Republicans were courteously consulted at the member and staff level, we were never at the negotiating table.  Speaker Pelosi best described the bottom line on the process. She said: “Yes, we wrote the bill.  Yes, we won the election.”  That quote comes right out of the front page of the Washington Post, dated Friday, January 23, 2009.

Indeed, there was a rumor floating around about an informal agreement among Democratic members. The agreement appeared to be to vote against any Republican amendment, no matter the merits.  If you review the markup, you’ll find that nearly all Republican amendments were defeated on a virtual party line vote.  You’ll also find, for the first time in recent Finance Committee tax legislative history, small issues or modifications raised by dissenting members, with a couple of exceptions, were not accommodated. So, let’s be clear.  We knew, at the outset, the markup would ratify a deal made between the Democratic Leadership of the House and the Senate. No Republican ideas need apply.  With the exception of the AMT patch amendment, that was the basic outcome. 

Since the largely partisan markup process finished up, we’ve been told by the President and members of the Democratic Leadership that this bill is open to improvement by amendment.  I’m hopeful we’ll see follow-through on that.

That’s a few comments on the process.  Now, I’ll turn to the substance.

But before I get into to the substance, I’d like to pull back and talk about the larger picture for a couple minutes.  Majority Leader Reid opened debate on this bill yesterday.  Yesterday was also Groundhog Day.  My first chart is a depiction of Punxsutawney Phil, that famous weather forecaster. Yesterday Phil saw his shadow.  Groundhog Day is a recurring event.  Groundhog Day is also the title of a famous film starring Bill Murray.  Here’s a picture of Phil and Bill driving along.   

In the movie Groundhog Day, Bill Murray finds himself continually repeating the same routine. 

Now, my friend, Chairman Baucus, last year, rightly pointed out the message from the film.  The message was that Bill, guided by Phil, eventually had to figure out what he was doing wrong.  Once Bill figured it out, he escaped the infinite loop.  On this bill, we need to learn from Bill and Phil’s adventure.  We cannot and should not legislate in a hasty manner and place ourselves in an infinite loop of repeating the same exercise.  Democrats and Republicans and the President need to get this right.  We cannot casually deficit- spend and ask America’s taxpayers to clean up the fiscal mess with high taxes down the road. 

To me, there is a particularly compelling irony to the fact that we are debating another stimulus bill at roughly the same Groundhog Day timeframe.  One year ago, almost to the exact day, the Senate spent a week debating the economic stimulus package.  The target time set for enacting legislation was similar to the one for this package.  I’m talking about the President’s Day recess.  Let’s keep the Groundhog Day irony in mind as we move forward.  Let’s not repeat the same exercise, except this time, with much bigger dollars.  Let’s get it right.   

Now, I’ll discuss the substance.  First off, I want to make it clear that most on our side agree with President Obama that a stimulus is necessary.  The economy is flat on its back.  Too many Americans who want to find work can’t find jobs.  A lot of Americans are worried that their job will be the next to go.  We get that on our side.  Everyone here knows we need to do everything we can to get the economy moving again.  Where we differ is the degree to which the engine ought to be government or the private sector, especially America’s biggest job creator, our small business sector.  These are honest, well-intentioned philosophical differences, but they are there.  On our side, we want the new jobs to come from the private sector.  On the other side, the preference is to grow employment through an expansion of government.

Many on the other side and opinion makers who agree with them are invoking the example of President Hoover.  They seem to be doing it to portray anyone who questions the trillion-dollar package as a reincarnation of Hoover economics.  It’s an unfair characterization.  Again, let’s be clear, folks on our side recognize the need for action. 

Also, though Iowans are rightly respectful of the only Iowan to be President, President Hoover, we recognize history.  And I’d instruct the other side on a couple lessons from the Hoover era.  One lesson: don’t obstruct free trade.  The highest tariff levels in the history of this country, the Smoot-Hawley tariffs, were enacted in the Hoover era.  There is little doubt those protectionist barriers made the Great Depression worse.

Another lesson from the Hoover era: don’t raise taxes.  President Hoover signed into law significant tax increases.  Like the high tariffs, economic history tells us, these burdensome taxes retarded the economy’s ability to recover.

On this side, we agree that the lessons from the Hoover era need to be learned.  We cannot be passive.  Errors of omission on fiscal stimulus should be avoided.  Likewise, errors of commission on fiscal stimulus, like impeding free trade and raising taxes, also should be avoided.      

By the conclusion of this debate, those differences will be plain to the American People.  We will see the differences fleshed out in debate and amendments.  That’s the way it should be.  As I indicated above, most on our side want to improve the bill.  Our amendments, large and small, will be offered as improvements to the bill.  We hope the other side is sincere in the desire to change the bill in a way that can garner a large bipartisan majority.

Whether Republicans or Democrats have been in control, the test of proper stimulus boils down to three words.  (Point to Larry Summers chart.) All of them begin with the letter “t.”  Stimulus proposals should be timely, targeted, and temporary.  I have a chart that depicts the test.  (Point to stimulus “three t’s” test chart.) 

If you apply the three t’s test to much of the spending in this proposal you will find it fails the test.  We’ll get into that when we examine and debate the bill. 

Some folks might ask what’s the problem if we overshoot and flunk the test.

The first problem is we’re running out of budget room.

The bill before us will, when interest costs are included, add almost $1.3 trillion to the deficit. 

All of this extra deficit increase would be proposed when the baseline deficit for this fiscal year will hit $1.2 trillion.  That amount exceeds all historical records.

As a percentage of our economy, that will mean 8.3 percent.  That amount easily exceeds the previous peak of 5.7% in 1983.  It’s almost 50% percent above any comparable post World War II levels. 

The figures on federal debt held by the public are likewise staggering. 

In the period of 2001-2007, debt held by the public increased by comparatively smaller amounts, roughly less than 1% per year.  This year’s change easily exceeds all of that. 

So, we need to acknowledge the deficit situation we’re in.  It is very serious.  So, whatever we do, we ought to not make the long-term fiscal situation worse than it is. The other problem is that, if we prime the pump too much and the pumped out stimulus doesn’t materialize until after the hoped-for recovery is upon us, then we might risk too much stimulus.  The result could be inflation.

Let’s bring a sharper focus on this point.  The Congressional Budget Office (“CBO”) tells us that less than half of the appropriations amounts will be spent out by the end of fiscal 2010.  The Finance package does a bit better.  Ironically, the tax policy stimulus, much maligned by the hard-core of both Democratic Caucuses, helps the spend-out ratio greatly in the Finance package.

The theory for erring on the side of overloading on the spending side is that we need to direct dollars to the folks most likely to spend them.  This is the reason we are told that we need extra FMAP money, expanded entitlements, and other state aid.

It misses the point that the U.S. fiscal policy system already has an arsenal of anti-recessionary automatic stabilizers directed at the same population.  These stabilizers provide immediate assistance to those most vulnerable to an economic downturn.  CBO says these benefits, including food stamps, unemployment insurance, and Medicaid will grow to $250 billion this year.  That built-in lower-income population stimulus will be equal to 1.8% of our economy.

It also misses the point about ensuring that the lesson of moral hazards applies to the states.  The fiscal problems faced by many of our states and localities are largely the result of their inability to keep spending in line with revenue. 

Between the third quarter of 2006 and the third quarter of 2008, state revenue increased 7 percent and state spending increased 15 percent.  In other words, the states and localities spent $2.22 for each additional dollar of revenue.    The states have been on a spending spree.  And they’ve dug themselves a hole. 

Now, we will hear that an FMAP slush fund for states is necessary to avoid tax increases at the state and local level.  We’ll also hear that vital services will be cut unless we cut a big blank check to the states.  Just as we did during the Finance Committee markup, some on our side will test those assumptions with amendments on those points.  An open-ended slush fund is not targeted.  It’s true no matter how you dress it up.

Perhaps the most disturbing stimulus test failure is on the third “t.”  I’m referring to the temporary test.   In this package, there are many new popular spending programs labeled temporary.   Those programs total $140 billion.   If these programs are extended or made permanent, we can expect another $1.3 trillion added to future deficits.

And I will challenge anyone on the other side to tell me these programs will be turned off once enacted.  With large Democratic majorities and a Democratic President, I’d say any such promise is dubious for this Congress.  It’s about as deliverable as a promise to sell the Brooklyn Bridge.   

To sum it up, this package meets a different three t’s test.  We start with trillion dollar deficit.  We have a bill that, with interest included, adds more than another trillion to future deficits.  We have a bill that has new spending, ostensibly labeled as temporary, but likely to be extended, that bakes into the cake another trillion into future deficits.   Passing this three “t’s,” as in trillions, test ought to give any Senator pause.

From our side’s view, those are the major shortcomings on the substance.  Although we saw execution of a deal to vote down our amendments in committee, no matter whether our ideas were meritorious or not, we’d like to be constructive and build on the parts of the package we support.   In other words, we hope our amendments will be more openly received on the Senate floor.

In this respect, we’ll go back to the major difference between the parties on how to get the economy moving again.  On our side, we’d like to push more incentives for long-term growth of private sector jobs.

There is a good start on a broad-based middle-income tax cut in the package.  We’d like to expand the tax cut to cover all middle income taxpayers.  During last Fall’s campaign, the President described as middle class families making less than $250,000.  Many of the tax cuts don’t apply to millions of families making less than $250,000.  Doesn’t make sense to me to call a proposal a middle class tax cut if it doesn’t apply to millions of middle-class families.

And we’d like to direct that at labor and capital income earned by middle income taxpayers.  Since we weren’t at the negotiating table to offer these pro-growth ideas, you’ll see them arise as constructive offers to improve the package before us.

Now I’ll turn to some of the specific health-related provisions in the Finance Committee package.

Spending in this bill should be judged based on two criteria: will it stimulate the economy and is the money being well spent?

In committee, we aired out honest disagreements over whether several of these provisions are actually stimulative.

Improving health information technology is critical for our health care infrastructure.

I support many of the provisions that are in the Finance Committee bill.

But I have to ask: will it stimulate our economy and is it money that we should add to the deficit rather than offsetting it?

It wasn’t so long ago that 16 BILLION dollars was a lot of money around here.

Providing assistance to states makes sense if we are concerned about states raising taxes or cutting spending.

But is 87 BILLION dollars the right number and is increased Medicaid spending the right way to do it?

Could we better stimulate economic recovery using all or part of that money elsewhere?

The Finance Committee package also includes a 2-year extension of our current Trade Adjustment Assistance programs.

I’m working with the Chairman to see if we can agree with our counterparts on the House Ways and Means Committee on a broader reauthorization of these programs, but that’s still a work in progress.

Apart from Trade Adjustment Assistance, I’m disappointed that this Administration isn’t focusing on trade as a component of the economic stimulus package.  As I said above, we should heed an important lesson from the Hoover era.  Economic growth comes from expanding free trade, not contracting it.

Opening up new markets for U.S. exporters should be part of the mindset to stimulate our economy.

Our pending trade agreements with Colombia, Panama, and South Korea provide significant opportunities to do just that and should be implemented as soon as possible.

As we go through the bill, our side will offer several amendments that I hope will be accepted to try to make the bill better answer the questions I have raised.

The people back home see Congress spending vast amounts of taxpayer dollars and they are counting on us to ensure their money is spent wisely not wastefully.

UPDATE:  Governor Culver issues statement on stimulus.

GOVERNOR CULVER JOINS COLLEAGUES IN SUPPORT FOR FEDERAL ECONOMIC STIMULUS

DES MOINES – Governor Chet Culver along with 18 of his gubernatorial colleagues from across the nation have written a letter to President Barack Obama in support of the American Recovery and Reinvestment Act, the federal economic recovery package currently being considered by Congress.

The letter, signed by a bipartisan group of Governors including the current chair and vice chair of the National Governors Association, says the legislation creates a partnership between federal and state government to stimulate the economy.

The Governors also write that the legislation’s support for public education, health care, and infrastructure “will create and preserve jobs today, and represents a sound investment in our long-term economic interests as well.”

Governor Culver is proposing the Rebuild Iowa Infrastructure Investment Authority to create jobs and strengthen the economy in Iowa. The plan would invest $700 million to support a wide range of infrastructure projects across the state.