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Policy Points from Iowa Fiscal Partners

Too soon to consider recovery?

Posted April 1st, 2020 to Blog

What is needed in a pandemic is for citizens to stay home, and for public policy to assure access to unemployment insurance and health care, and push support to the health system.

Economists such as former Labor Secretary Robert Reich are making these points — that limiting the spread of the coronavirus is the top priority to save lives.[1] When even economists are pressing the point about public health, our leaders should pay attention. Now is not the time to talk about being “open for business” prematurely, as President Trump once suggested we do by Easter.

That is not to say a public health spotlight precludes steps in the coming weeks and months to set up recovery when that can be the main focus.

Now, jobs remain in critical services in hospitals and electric stations, and some in construction. Factories where people stand next to each other on a production line have different social distancing from workers who build things in the open air. We could expand more of the latter jobs right now where the materials are at hand.

Good examples: Wind turbines and solar installations and the power lines that connect them to the electric grid. Right now we could be constructing clean energy facilities that can be producing electricity in six months or a year when we all want demand to expand. It is an opportune moment to think ahead and start replacing older coal production plants, which have their own health problems.

Public policy has a role here. Just before the Iowa legislators recessed because of the COVID-19 pandemic, they passed — and Governor Kim Reynolds signed — a bill to stabilize the solar industry. It would do this by setting the price for the next seven years for the electricity that MidAmerican and Alliant buy from homeowners and businesses.[2]

Another step the Legislature could take is lifting the limit on the tax credit for businesses and homeowners when they install solar.

The annual amount that could be taken on the credit was not fully used in the first year, but in all years since 2013 installations exceeded the cap, now at $5 million per year, pushing installations completed later in the year to a waitlist.[3] The tax credit eventually comes but not until at least a year later. While an installation completed today will get a federal tax credit when taxes are filed in April 2021, the Iowa tax credit will not happen until 2022 or later.

Why make these Iowa investors wait? Extending the total amount eligible for the credit from $5 million to perhaps $20 million would further stimulate the construction of solar panels just when the economy needs the jobs.

There also is a federal role, as the amount of that credit for both solar and wind is phasing out. This would be a good time to stop the phaseout for the next several years. Tax credits of electric cars could also be enhanced.

COVID-19 has slammed the economy. We need to think about when we will recover but also how we will recover. Jobs in clean energy have been on a growth curve that can be re-established quickly. And these jobs are creating a new energy system that will help us with the next crisis, climate change.

Most agree we should follow science to confront the pandemic. We should also follow the science to prepare for the next crisis — climate change.

David Osterberg is an economist and lead environmental researcher at the nonpartisan Iowa Policy Project in Iowa City. Contact: dosterberg@iowapolicyproject.org.

A version of this column also ran in the April 1 Quad-City Times.

 

 

 

 

[1] MSNBC interview, March 17, 2020. https://www.msnbc.com/the-beat-with-ari/watch/-our-economy-is-shutting-down-clinton-wh-veteran-pushes-lives-over-dollars-in-covid-19-crisis-80868933847

[2] O. Kay Henderson. Iowa House and Senate give solar bill unanimous support. Radio Iowa March 4, 2020. https://www.radioiowa.com/2020/03/04/iowa-house-and-senate-give-solar-bill-unanimous-support/

[3] Iowa Department of Revenue. Solar Energy System Tax Credit Annual Report for 2019. https://www.legis.iowa.gov/docs/publications/DF/1126111.pdf

New solutions needed long term

Posted March 26th, 2020 to Blog
Current estimates of job losses in the COVID-19 recession are hard to fathom. Even with a sizable stimulus, the national economy would shed nearly 14 million jobs by mid-summer; Iowa is projected to lose more than 140,000. To make matters worse, as Josh Bivens of the Economic Policy Institute underscores, this recession is “laser-targeted at low-wage, low-productivity, and low-hours jobs in service industries.”[1] Our most vulnerable workers, in other words, will bear much of the burden: They do not have the option of working from home — a luxury enjoyed by two-thirds of workers in the top quarter of the earning distribution and by one-third of white workers, but by fewer than 1 in 10 workers in the bottom quarter of the distribution, 1 in 5 African-American workers and 1 in 6 Latinx workers. These vulnerable workers face both a much greater risk of unemployment as the service economy shuts down and a heightened risk of exposure to the virus if they keep working. This is a scale of unemployment and social and economic dislocation that our existing programs are ill-equipped to handle. This demands a policy response — state and federal — unprecedented in its scale, and innovative in its efforts to reach those most affected. At the forefront of that policy response is both a dramatic expansion and a fundamental rethinking of unemployment insurance. The first step here has already been taken by the federal government. The Families First Coronavirus Response Act (passed March 18) pumped $1 billion into the administration of state unemployment insurance (UI) programs, in exchange for new state standards and conditions. In order to draw down these funds, states must improve their methods of notifying workers of their eligibility for benefits, provide multiple (not just online) methods of filing, provide prompt notice of the receipt of a claim, waive waiting periods for benefits, waive the requirement that recipients be actively searching for work, and ensure that employers are held blameless for COVOID-19 layoffs. (Conventionally, UI is “experience-rated” so that employers with histories of layoffs are taxed at a higher rates). As Peter Fisher pointed out in recent days, Iowa has met all these conditions. There is still a lot of work to be done — not just to meet the current crisis, but to ensure that our unemployment insurance system is recast for the 21st century and ready for the next crisis. The first task is to make unemployment insurance accessible and available to more workers. In Iowa, just 41 percent of unemployed workers ever see a benefit check. This is better than the national rate (28 percent), but it is still a scandal that well over half of the jobless are left in the cold. We should sustain the “Families First” Act’s commitment to raising the recipiency rate by streamlining the claims process. Federal and state unemployment law should revise our definition of “employee” to better capture the diversity of employment (including the self-employed, gig workers, and the like) in the modern economy. Too often, workers — cleaners, homecare workers, delivery drivers — are misclassified as “independent contractors” and shut out of basic social insurance programs like UI. The Pandemic Unemployment Assistance Program embedded in the latest COVID-19 stimulus bill provides up to 39 weeks of benefits to those (like the self-employed) otherwise ineligible for UI. This is a start — but the real fix would be to recast the law so that such workers are eligible in good times and bad. By the same token, we should make permanent the more generous standard for a “good cause” separation, allowing workers — not just in pandemic conditions — to qualify for UI when they leave their jobs for compelling personal reasons. And we should be more flexible on the terms of “monetary eligibility.” As it stands, benefits in Iowa are based on earnings in the previous year.[2] Many other states allow workers with more sporadic work histories to elect an extended or alternative based period when calculating eligibility. Iowa should make better use of its work sharing program, which allows workers partial compensation for reduced hours, while retaining their attachment to the labor force and their access to job-based benefits such as pensions and health insurance. And we should make benefits available to new entrants to the labor force — students graduating into a recession, returning caregivers, the formerly incarcerated — who deserve support even in the absence of a recent work history. Second, we need to bolster the size and the duration of the basic benefit. Iowa’s current “replacement rate” is less than 50 percent of current wages — higher than the national average (38 percent) but still woefully insufficient to maintain basic expenses.[3] The logic here, of course, is that a low replacement rate will compel the unemployed to look for work. But low replacement rates (and short benefit windows) create enormous economic burdens and, by pressing workers back into the labor force, actually worsen re-employment prospects. As a baseline, UI benefits should be closer to two-thirds wages. And, for the duration of this crisis, they should be 100 percent. After all, places of employment are under order to close down, and those displaced have few options. This is why the pending stimulus bill bumps UI benefits by $600/week through the end of June. Finally, we need to improve the funding of state unemployment insurance programs. The $1 billion boost to administration in the “Families First” legislation does not come close to backfilling cuts in federal aid since the 1980s. During the last recession, 36 state UI trust funds went broke — and most of those entered the current crisis with insufficient reserves. Iowa’s trust fund is in better shape than most, but all state funds will be exhausted once this crisis lifts. Under current law, the state only taxes the first $7,000 in earnings. This should be increased dramatically (Social Security taxes the first $137,700), so that revenues are sufficient to sustain UI administration, and pay extended and disaster benefits when needed. Federal emergency legislation — some in place, some in the pipeline — will install many of these reforms on a temporary basis. But many of the problems being addressed — the accessibility of benefits for deserving workers, the low percentage of the unemployed who receive benefits, the insufficient level and duration of benefits — are broader problems with the UI system itself. Iowa should, of course, do what it can to qualify its workers for extended and enhanced benefits paid for with federal dollars. But it should also follow the lead of other states in making its UI system more secure and equitable on a permanent basis. [1] Josh Bivens, Economic Policy Institute, “Coronavirus shock will likely claim 3 million jobs by summer,” March 17, 2020. https://www.epi.org/blog/coronavirus-shock-will-likely-claim-3-million-jobs-by-summer/ [2] The previous year is defined as the 4 calendar quarters prior to the quarter immediately preceding the month you apply. So if you apply in March 2020, the most recently completed quarter is Oct-Dec 2019, so your benefits are based on earnings in the four quarters Oct-Dec 2018, Jan-Mar 2019, April-June 2019, and July-Sept. 2019. You must have earnings in at least two of those quarters. [3] The inadequacy of this replacement level is compounded by the fact that the benefits are still taxable, and yet they do not count as earnings for purposes of the Earned Income Tax Credit, creating an additional income loss for low wage workers receiving that tax credit. Colin Gordon is a University of Iowa professor of history and is senior research consultant for the nonpartisan Iowa Policy Project. He has authored several IPP reports since the organization began in 2001. Among these are the State of Working Iowa series, and the October 2019 report “Race in the Heartland: Equity, Opportunity and Public Policy in the Midwest,” for Economic Analysis and Research Network members IPP, Policy Matters Ohio and COWS.

Lesson from the Recovery Act

Posted March 20th, 2020 to Blog

Editor’s Note: This is an excerpt of a larger report from the Center on Budget and Policy Priorities (CBPP), “Immediate and Robust Policy Response Needed in Face of Grave Risks to the Economy.” It points to lessons policy makers can take regarding state fiscal relief in the American Recovery and Reinvestment Act of 2009, enacted to move recovery from the Great Recession. For the full CBPP report, click here.

Providing Additional Needed State Fiscal Relief

Given the severe threat to the economy — and the resulting threat to state finances — states will likely need additional fiscal relief beyond what (a temporary increase in the share of Medicaid costs borne by the federal government, or FMAP) … would provide. During the last recession, states faced budget shortfalls totaling about $600 billion. The Recovery Act’s FMAP provisions provided roughly $100 billion in fiscal relief — a big help, but well short of what it would have taken for states to avoid laying off teachers and other workers and cutting services in other ways that deepened the recession. Increasing the FMAP is the single most important way to get fiscal relief efficiently to states, but Congress should also enact additional emergency fiscal aid to states. We recommend that this added fiscal relief take a similar form to the Recovery Act’s State Fiscal Stabilization Fund (SFSF), which provided roughly $60 billion in fiscal aid to states.

Given the wide range of fiscal challenges states are facing, they should have significant flexibility over how to spend this aid. The SFSF required states to spend 82 percent of the aid on education, including both K-12 and higher education. A new version of the SFSF should allow states to spend a smaller percentage of the aid on education, so that states are free to best respond to the COVID-19 outbreak and its economic fallout, but still require that a substantial share be used to support state education systems. While many schools and universities will likely be closed in the next few weeks, teachers still need to be paid (to avoid hardship and further drag on the economy). And if revenues decline as sharply as expected, states will face serious difficulties in adequately supporting their schools in the coming fiscal year, when schools will be trying to make up for lost class time. Education accounts for roughly 40 percent of state spending, the single largest part of state budgets, making it very difficult for states to avoid cutting educational services when revenues decline sharply.

As under the Recovery Act, states would be required to distribute funding to schools using their existing funding formulas, which favor low-income districts, or by distributing funding directly to Title I schools (schools that serve a large number of disadvantaged students). States should also be encouraged to use the funding to increase college tuition assistance for low-income people facing a tough job market and students whose families’ ability to help pay for school has diminished. Targeting state fiscal aid to protect education systems in the coming year would benefit the nation’s economy in the longer term by improving the educational outcomes of students, many of whom are now missing weeks of school. And requiring states to distribute a substantial share of this aid to schools would help protect against some states accepting the aid and then using it instead to cut taxes. As under the Recovery Act, this new version of the SFSF should include a maintenance-of-effort provision that requires states to maintain their own education spending at current levels.

Finally, Congress should also consider certain forms of direct aid to localities, whose own budgets will also be deeply harmed. For example, Congress should consider direct aid to public transit systems, whether buses or subways, which stand to lose much of their fare revenue in coming weeks — losses that many of these systems will likely have difficulty recovering from on their own and that will further strain local budgets, risking cuts in other needed public services.

This excerpt is one small section of a CBPP report by Sharon Parrott, Aviva Aron-Dine, Michael Leachman, Chad Stone, Dottie Rosenbaum, LaDonna Pavetti, Ph.D., Peggy Bailey, Chuck Marr, and Kathleen Romig. We share it on the Iowa Policy Project blog as an example of one approach that research and experience have shown will be needed as states and local governments attempt to contribute to recovery from the current health emergency.

Time for state to act

Posted March 16th, 2020 to Blog

170118_capitol_170603-4x4The Pelosi-Mnuchin stimulus package that passed the U.S. House on Friday includes many measures to protect ordinary Americans who may see lost wages or who may need to stay away from work because someone in the family needs attention.

According to The Washington Post:

“The agreement reached Friday is primarily aimed at expanding the safety net to cope with the potentially catastrophic economic impact of the coronavirus. In addition to ensuring free coronavirus testing, the plan would dramatically increase several benefits, particularly family medical leave and paid sick leave, while also bolstering unemployment insurance; spending on health insurance for the poor; and food programs for children and the elderly.”[1]

The food program expansion “nullifies existing work requirements on the food stamp program.”[2] The medical leave and family leave section will allow up to two-thirds of salary to a great number of employees including full tax credits from employment tax for self-employed individuals.[3] The federal share of Medicaid is boosted and unemployment insurance is strengthened.

According to the Center on Budget and Policy Priorities (CBPP), the Medicaid boost means an additional $240 million is available for Iowa.[4] Noted CBPP’s Jennifer Sullivan:

The House COVID-19 bill’s temporary Medicaid funding boost, if in effect for all of calendar year 2020, would deliver roughly $35 billion in immediate, needed relief to states, which will face growing costs due to the virus and a likely economic downturn. … Similar measures have been a critical part of economic stimulus packages under both Democratic and Republican administrations….

The bill, expected to pass the Senate in a few days, addresses what many expect to be a downturn in the economy caused by the pandemic reaching U.S. shores.

Responsible actions at the federal level require a state response as well. Iowa Policy Project blog posts in recent days have noted good opportunities:

First, Iowa needs improvements in the unemployment system: (1) Relax the job search requirements to enable individuals forced into unemployment by the virus to collect UI benefits; (2) Allow individuals forced to take a leave of absence to collect UI during that period; (3) Establish procedures for individuals losing a job for health safety reasons or to care for a family member with the virus to qualify for UI, and (4) Establish rules under which employers’ unemployment experience rating is not harmed by virus-related layoffs.[5]

Second, Iowans need strong Medicaid and SNAP benefits now more than ever. The safety net helps us all — not just current beneficiaries, but also those on the edge of financial security and the general economy. Any legislation, such as SF430 and HF2030, that imposes new bureaucratic hurdles for struggling Iowans not only will take food and doctor’s visits away when people need them the most, but hurt local communities as well.[6]

[1] Erica WernerMike DeBonisPaul Kane and. Jeff Stein. The Washington Post, “House passes coronavirus economic relief package with Trump’s support,” March 14, 2020. https://www.washingtonpost.com/us-policy/2020/03/13/paid-leave-democrats-trump-deal-coronavirus/
[2] Ibid

[3] H. R. 6201 Making emergency supplemental appropriations for the fiscal year ending September 30, 2020, and for other purposes. Page 93 and 103. https://docs.house.gov/billsthisweek/20200309/BILLS-116hr6201-SUS.pdf

[4] Jennifer Sullivan, Center on Budget and Policy Priorities, “Medicaid Funding Boost for States Can’t Wait,” updated March 13, 2020. https://bit.ly/3d1jPBQ

[5] Peter Fisher. IowaPolicyPoints.org blog post,Protecting workers from coronavirus impacts.” March 14, 2020.

[6] Natalie Veldhouse. IowaPolicyPoints.org blog post, “Make Iowa resilient: Strengthen supports for working families.” March 13, 2020.

osterberg_david_095115David Osterberg co-founded the Iowa Policy Project and is a researcher with the organization.

dosterberg@iowapolicyproject.org

 

Protecting workers from coronavirus impacts

Posted March 14th, 2020 to Blog

Widespread cancellation of public events and travel and the closure of public schools and universities across the state will deeply affect many Iowa workers. Some will lose jobs. Others will have hours reduced, particularly in the hospitality sector: hotels, restaurants, bars, event centers, tourist attractions, movie theaters and other entertainment and sports venues.

Those are among the jobs with the lowest hourly wages and are the least likely to include health insurance and sick leave benefits. Workers with less than a high-school education, women, and workers of color are over-represented in those occupations. That makes them more vulnerable in the current crisis.

Fortunately, a set of safety-net programs is already in place. It is designed to both help those workers and mitigate the impact on the Iowa economy: unemployment insurance, food assistance, and Medicaid in particular.

But these programs are not as strong or as comprehensive as they should be, and the impacts of the virus present additional problems. The Iowa Legislature should act now to bolster the effectiveness of those programs, both to help reduce the spread of the virus and to alleviate the economic hardship that is certain to become widespread.

First and most important, we need to make it possible for sick workers to stay home without losing their livelihood. If Congress fails to enact emergency paid sick leave, the state should step up to fill the void. The current crisis highlights the inadequacy of the current system.

The United States is nearly the only developed economy that fails to mandate paid sick leave. As a result, low-wage workers in our country and our state cannot afford to stay home; they have to show up for work and risk infecting customers and other workers. The failure to mandate sick leave for fear of imposing a cost on employers or taxpayers now threatens to contribute to a much wider economic cost, as the reaction to the virus threatens the livelihoods not only of low wage workers but of a wide swath of Iowa businesses. A recession made worse by inadequate public policies will cost us all.

Second, we need to make certain that our current system of unemployment insurance (UI) is adapted to the special problems presented by the virus pandemic. Unemployment insurance is not a substitute for paid sick leave; workers who lose their job because of illness are generally not eligible for UI. Someone put out of work must be ready and able to work and must actively seek work in order to qualify for UI benefits. The state can and should relax those work search requirements because of the post-pandemic circumstances.

Another problem arises when a business temporarily affected by the loss of customers puts workers on a leave of absence. In Iowa, a worker on a leave of absence is not considered unemployed. This must change. States do have discretion in this area, as outlined in a recent memo from the U.S. Department of Labor, which provides guidance in the case of an individual placed on leave because an employer temporarily shuts down due to COVID-19, or an individual is quarantined and will return to work with that employer at the end of the quarantine:

Federal law would permit a state to treat the separation here as a temporary layoff. States have significant discretion to determine able, available, and work search requirements, and they can determine that the suitable work for this individual is the job he or she intends to return to after business resumes. As provided in 20 CFR 604.5(a)(3), individuals are able to and available for work if their employer temporarily laid them off and the individuals remain available to work only for that employer.[1]

The Department of Labor has recognized other situations that can arise and provides further guidance on how states can adjust their UI program for the new circumstances. In the case where “[a]n individual is quarantined by a medical professional under government direction or leaves employment due to a reasonable risk of exposure or infection (i.e.; self-quarantine) or to care for a family member and either does not intend to return to the employer or the employer will not allow the individual to return.” In that case, federal law gives states discretion “to determine whether the separation here is a quit or a discharge and whether the circumstances are allowable under the state’s good cause/just cause provisions.”

Finally, employers should not be penalized for layoffs caused by this public health crisis; they should not have their experience rating downgraded and future UI insurance premiums raised in these circumstances.

Iowa legislators take need to step up and make these changes to our unemployment system rules:

  • Relax the job search requirements to enable individuals forced into unemployment by the virus to collect UI benefits;
  • Allow individuals to collect UI during a forced leave of absence;
  • Establish procedures for individuals to qualify for UI after losing a job for health safety reasons or to care for a family member with the virus, and
  • Establish rules to help employers, so that their unemployment experience rating is not harmed by virus-related layoffs.

These changes should be widely publicized, along with a reminder to employers that Iowa does have a short-time compensation program (work sharing) which can be a useful way of allowing workers to receive partial UI benefits when their hours have been cut. These changes are needed to help workers weather this economic situation, to facilitate taking workers out of employment when their continued work would jeopardize public health, and to reduce the impact of an economic downturn on Iowa businesses.

[1]   U.S. Department of Labor, Employment and Training Administration. Unemployment Insurance Program Letter No. 10-20. March 12, 2020

2010-PF-2sqPeter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City.

pfisher@iowapolicyproject.org

 

Make Iowa resilient: strengthen supports for working families

Posted March 13th, 2020 to Blog
170803-healthcare-acaThe Coronavirus (COVID-19) crisis is a good time to recognize the strong public structures we have in place to protect Iowans most vulnerable to economic challenges. Two federal-state programs are ready to address times like these: Medicaid and the Supplemental Nutrition Assistance Program, or SNAP. A health emergency is an opportunity to bolster both programs to make sure they operate as intended, mitigating the impact on Iowans while our state and local leaders do what they can to contain the spread of the virus. These two work support programs ensure that Iowans have access to the food and medical care. The accessibility and adequate funding of these programs ensure all Iowans are protected. The specific programs help those who have fallen on hard times. Making sure everyone in society gets health care reduces the transmission of disease. When schools are closed, children who get free meals need SNAP to ensure there is enough food at home. These are especially important concerns during crises. Ironically, the integrity of these programs has been threatened recently at the federal and state levels:
  • State and federal attempts to impose additional work reporting requirements and redundant quarterly eligibility checks for benefits would kick some families off of these vital work supports.
  • Federal rule changes including time limits on benefits and eliminating efficient and streamlined processes to qualify, as well as budget cuts, all threaten the ability of SNAP to prop up workers, families and communities during an economic slowdown that may be one of the impacts of COVID-19.
  • Similarly, budget cuts and the move to block grants fly in the face of Medicaid’s stated goal to provide health care to low-income Americans especially during an economic downturn.
We need Medicaid and SNAP now more than ever. It would be a timely move for lawmakers to step back and recognize that the safety net helps us all. Iowa bills SF430 and HF2030 impose bureaucratic hurdles that will serve to take food and doctor’s visits away from Iowans. Especially during a public health crisis, we need our leaders looking for ways to help all Iowans get ahead. 2018-NV-6w_3497(1)Natalie Veldhouse is a research associate at the nonpartisan Iowa Policy Project. nveldhouse@iowapolicyproject.org

Blog: Tax plan harms most seniors

Posted March 11th, 2020 to Blog
iowacapitol-rotundaSeniors in particular should be wary of Governor Reynolds’ tax-shift plan because, like most Iowans they would, in general, see little or no benefit and could even be worse off. The list of those harmed by this plan is significant already.
  • Poor and moderate-income Iowans will lose income and services.
  • Environmental and outdoor recreation advocates who sought a sales-tax increase to fund their priorities will get far less than they expected because the Governor proposes to change the rules.
  • Education, law enforcement and other services will suffer with net losses in general fund revenues that the governor is demanding.
Add seniors to the list. It is clear seniors are among the losers in this legislation unless they are (1) rich or (2) not concerned about the public services that will be lost. Iowans at low and moderate incomes already can count on paying a greater share of their income in state and local tax under the plan. That’s because it trades a sales tax increase, which disproportionately affects those at lower incomes, for cuts in the income tax and property tax, which helps wealthier filers. To get her way at the expense of low-income Iowans no matter their age, the Governor wants to change the law that set up the constitutional amendment approved by voters in 2010. The amendment directed the next three-eighths-cent sales tax to a Natural Resources and Outdoor Recreation Trust Fund. That law, set up to implement the fund, said trust fund moneys would “supplement and not replace” appropriations for the purposes named for the fund. That is important on two counts. Besides throwing aside the expectation of all of the designated sales tax increase providing new money for those purposes, her plan shortchanges the specified purposes, cutting trails, REAP, and much of the funding for the Department of Natural Resources. Beyond the formula change that should concern anyone who voted for the amendment in 2010, seniors in particular should be wary because the Governor is embracing the voters’ consent to a tax increase only if she can cut other taxes by a greater amount. Her proposed income tax cuts are guaranteed to hinder Iowa’s long-term commitments to other services, from education funding for grandchildren’s schools, to corrections to safety-net supports — and make the overall tax system less fair to the poor and middle-income Iowans and especially seniors. A bad deal for seniors The Governor’s plan would raise the sales tax by a full penny, not just three-eighths of a cent for the trust fund, and use the majority of the increased revenue to cut income taxes. That would be a bad deal for most seniors. The Iowa Department of Revenue has estimated that an additional penny sales tax would cost the average lower income household in Iowa without children about $40 on average (with a range of $30 to $50). That includes all households making less than $30,000. Those in the $30,000 to $50,000 gross income range would pay $68 to $90 more.  Data from the Institute on Taxation and Economic Policy indicate that 40 percent of Iowa households earn under $50,000.[1] But estimates from the Iowa Department of Revenue show that the income tax cuts would not provide any measurable benefit for the lowest-income 40 percent of seniors – an average tax savings of just one dollar, for those with taxable income under $10,000. Because of favorable tax treatment for seniors, many currently pay no income tax and thus would get no benefit. Those earning $50,000 to $75,000 total income represent the middle 20 percent of Iowa households. They would pay $100 to $120 more a year in sales tax under the Reynolds plan, but save only about $33 in income taxes. At least 60 percent of seniors, in other words, pay more under this proposal – and they are paying more largely to finance bigger tax cuts for the wealthiest Iowans. Seniors count on many public services that are funded by state and local government. So while seniors largely will not benefit on the revenue side, they will also lose on the expenditure side, in lost services. These services cannot avoid cuts if the Governor gets her way. Under her proposal, there will be about $175 million less revenue in the general fund each year, which means less funding for education, health care, and other services. A key reason most seniors do not benefit It also is helpful to remember that many seniors have several built-in exceptions to income tax. These exceptions make new income-tax cuts meaningless or minimal to them, unless they are quite well off already:
  • All Social Security benefits already are exempt from state tax in Iowa.
  • The first $6,000 in pension benefits per person ($12,000 per married couple) is exempt from tax.
  • Those age 65 or older receive an additional $20 personal credit.
  • While non-elderly taxpayers are exempt from tax on the first $9,000 of income, for those age 65 or older, the exemption rises to $24,000. For married couples, the threshold is $13,500 for the non-elderly, but $32,000 for seniors.
In short, under current Iowa tax law, seniors get very substantial income tax breaks. For seniors especially, new tax-cut promises are hollow — just like, if the Governor gets her way, the promises that came with the 2010 campaign for a constitutional amendment for a sales tax increase to fund water quality and recreation.   [1]   Those with taxable income under $10,000 account for 41 percent of senior tax filers for Tax Year 2022, according to Table 5 in the Iowa Department of Revenue memo to Jeff Robinson on the impact of SSB3116 on seniors, Feb. 14, 2020. Those with $10,000 to $20,000 taxable income account for another 17 percent of senior taxpayers. 2010-PFw5464Peter Fisher is research director of the nonpartisan Iowa Policy Project.   osterberg_david_095115David Osterberg is IPP’s environmental researcher and co-founded the organization in 2001.

Historically poor commitment to schools

Posted March 4th, 2020 to Blog, Budget, Economic Security, Education
To put the House-Senate agreement on school aid in perspective, take a step back for a better view.
The legislative agreement is for 2.3 percent Supplemental State Aid (SSA), or growth in the per-pupil spending figure that Iowa school districts use to build their budgets, which are based on enrollment.
As the graph below shows, for the decade of FY2002 through FY2011, that per-pupil figure fluctuated some but rose by an average of 3.1 percent per year (shaded area, left side of graph). For the next decade, from FY2012 to the FY2021 SSA agreed to this week, the plan will provide average growth of only 1.8 percent per year (shaded area, right side of graph).
Iowa’s commitment to public education in the 10 years from 2002 to 2011 stands in stark contrast to that of the most recent 10 years.
Notably, that earlier period provided more sustainable funding despite the deepest recession in the United States since the 1930s. Also notably, one reason for that was the state’s wise decision to use one-time funding from the federal Recovery Act — known to many as “stimulus” — to hold schools harmless as much as possible, bridging the recessionary gaps in revenues that would have forced slower growth or even cuts in per-pupil funding.
The contrast in SSA over time puts in perspective the political chatter around school funding from those who have held education lower than what is necessary for schools to keep up with costs, let alone to tap students’ potential to reach for greater achievement.
As for “historic” levels of funding — of course even a $1 increase provides a new record. You don’t have to see an actual cut to know you are being underfunded. If growth isn’t enough to keep up with costs, and it has not been for many years now, the only “historic” note is the defiance of Iowa’s tradition of commitment to education.
Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. He served on the West Branch Community School Board from 2006-2017.
mikeowen@iowapolicyproject.org

Cutting revenues, holding back schools

Posted February 11th, 2020 to Blog

It is worth noting that as the Iowa Senate passed an exceedingly meager 2.1 percent growth in per-pupil spending for Iowa’s K-12 public schools, Governor Reynolds’ tax bill offers a net reduction in revenue.

But even the governor has proposed more for FY2021 — 2.5 percent — than the Senate approved Monday. As shown below, the governor’s plan keeps Iowa on a long-term downward trendline (in red) for school funding growth. The Senate plan goes lower.

200115-SSA-shaded-roadmap6.jpg

The governor’s tax shift proposal trades a sales-tax increase for income-tax cuts: a bad deal both for tax fairness and adequate revenues. In doing so, she has chosen to pit education advocates against environmental advocates — who would see much less in funding for water quality and trails than voters directed in 2010 in a constitutional amendment. And, she would make our overall tax system tilted even more heavily to the wealthy than it is now.

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Poor and inequitable funding of public schools and other critical public services are directly related to an inequitable tax system that relieves those most able to pay — the wealthiest — of that responsibility.
The governor is demanding that the package of tax changes actually cause a net loss of revenue. This is not only a severe twisting of voters’ intent in 2010 in approving use of the next sales tax increase to raise funding for environmental and recreational enhancements, but a mathematical guarantee that other services will be held down or even cut.
If we are going to adequately fund programs to improve environmental quality and educational achievement, it starts with protecting all of those programs and promoting equity and fairness in how the revenues are raised.
M
Mike Owen is executive director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org

Reining in business tax breaks

Posted February 5th, 2020 to Blog

It has become a familiar story: Tax breaks and tax expenditures growing at a pace that spending on traditional state priorities cannot match. This growth continues on autopilot, year after year, with little scrutiny and often with weak justification.

The cost of business tax credits under the income tax grew from $214 million in Fiscal Year 2015 to $244 million in FY19, and is projected to be $287 million for FY20.[1] The commercial and industrial property tax cuts enacted in 2013 have added significantly more to that estimate. The business property tax credit enacted in that legislation, which will remain at $125 million every year, will bring the overall state cost of business tax credits to more than $400 million by FY20. In other words, business tax credits in total will have about doubled in six years. (See graph.)

Related business breaks would drive total spending on subsidies to business much higher.

      • Iowa in recent years has spent $152 million annually to backfill local public revenues lost when commercial and industrial property assessments were rolled back to 90 percent of actual value, a tax break to business.[2]
      • Revenue losses from the state’s failure to enact combined reporting to plug loopholes in the corporate income tax amount to an estimated $200 million.[3]
      • The state also spends nearly $60 million annually backfilling the loss of tax base to school districts as a result of city and county use of tax increment financing, much of which reduces the costs of business development.[4]

The total cost of business subsidies, in other words, approaches $800 million, even without other so-called tax expenditures, such as the state’s use of single-factor apportionment.

Tax credits have the same impact on the state’s bottom line as any other spending. Such spending comes outside the normal budget process where agencies, advocates and constituents make proposals that lawmakers vote up or down, on the record. Tax credits, with few exceptions, cause spending outside that competition.

State spending on business subsidies necessarily comes at the expense of other budgetary priorities, including education, health, and public safety. Investments in education and infrastructure, the building blocks of a strong economy, suffer when the annual budget debates start out with a billion dollars already committed to business incentives.

Real reform is needed now more than ever.

See our Roadmap for Opportunity two-pager on this topic.

[1] The following tax credits listed in the Iowa Department of Revenue Contingent Liabilities Reports are included in our analysis as business tax credits: Enterprise Zone Programs, High Quality Jobs Program, Historic Preservation, Industrial New Job Training Program (260E), Research Activities, Targeted Jobs, Venture Capital, Accelerated Career Education, Redevelopment, Renewable Chemical Production, Renewable Energy, Wind Energy Production, Biodiesel Blended Fuel, E15 Gasoline Promotion, E85 Gasoline Promotion, Ethanol Blended Gasoline, Ethanol Promotion. With the exception of Historic Preservation, this list is in line with credits classified as “business incentives” by the Iowa Department of Revenue in their most recent tax expenditure study. https://tax.iowa.gov/reports/2010-iowa-general-fund-tax-expenditures-excel.

[2] Legislative Services Agency, Summary of the Governor’s Budget Recommendations FY2021. Jan. 16, 2020, page 212.

[3] Iowa Department of Revenue, 2017.

[4] Legislative Services Agency, FY 2018 Annual Urban Renewal Report, February 15, 2019, p. 24. About 15 percent of TIF erxpenditure in FY18 went directly for business projects; it is not known how much of the 63 percent that went to property acquisition, roads, bridges, utilities, and water or wastewater treatment plants was associated with business development.

Peter Fisher is research director of the nonpartisan Iowa Policy Project.

pfisher@iowapolicyproject.org