The chairman of the Grow Iowa Values Fund board says the fund may fall far short of hitting its projected half-billion mark.

The fund, established this year by the Legislature, expects to receive $503 million over a seven-year period from a combination of federal dollars and revenues from state sales and use taxes. The money would be invested to create new businesses, spur university research, train workers and improve quality of life in Iowa.

So far, the state has received about $50 million from the federal government, which is all it expects to get through June 2004. Another $50 million is expected next fiscal year, but isn’t guaranteed. Beyond that, however, the funding is largely dependent on the state’s economic growth.

The fund’s financing structure is based on the growth of sales and use taxes. In fiscal 2003, the state collected $1.45 billion in sales taxes, which was down 2/10 of 1 percent from the previous fiscal year. Use tax collected was $254.2 million, up 6.6 percent.

Because the fund is entitled only to those amounts exceeding 2 percent growth in sales and use tax receipts, it won’t get any money if the economy is stagnant.

That’s just what some expect. The state’s Revenue Estimating Conference has forecast zero growth in sales tax and 2 percent in use tax for fiscal 2004.

“I’m not very optimistic that we’ll ever see any funds from the sales and use tax,” said Holmes Foster, who chairs the Values Fund board and is one of REC’s three members. “And you have that compounding effect; it has to go up that much each year.”

The status of the Value Fund’s checkbook is one of the topics the Values board will discuss Monday at its monthly meeting.

“If we get everything from the federal government, then we can look at the fund as being $100 million, then we can invest that much as far as requests are concerned,” Foster said.   “But beyond fiscal year ‘05, that’s a very large unknown. I’m looking at the fund as having at this moment $100 million.”

A big factor in the flat revenue outlook is the five-year phase-out of the tax on residential utility use. That reduces the state’s tax receipts by about $20 million per year. The tax cut, enacted by the Legislature two years ago, equates to a 1.3 percent reduction in revenue each year, according to a state Department of Revenue analyst.

The Values Fund legislation provides that if less revenue is received than had been anticipated, it will be apportioned to the fund’s programs on a pro-rated basis.

The Values Fund board has already committed $20 million to three companies since it first convened in late July.

The Iowa Department of Economic Development does not anticipate a cash crunch, however.

“We’re smart enough to make sure everyone’s able to get what they’re awarded,” said Jeff Rossate, IDED’s director of business development.

Rossate said large funding requests by companies, if granted, will likely be pieced out over the seven-year life of the fund. It’s also likely the federal funding will be reserved in the latter years of the fund to even out uncertain sales and use tax funding.

Foster said a longer-term approach to the Values Fund is needed.

“If this fund is going to be ongoing, it has to have a stable source of funding or it’s going to die,” he said.