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Policy Points from Iowa Fiscal Partners

Big ‘Oops’ for tax-cutters in school vetoes

Posted July 15th, 2015 to Blog

Governor Branstad’s vetoes of “one-time” funding pose “ongoing” and “recurring” problems for a major and ill-advised proposal by his allies to restructure personal income taxes in Iowa.

And they should.

During the last session, while lawmakers and the Governor were telling schools the state could not afford more than a 1.25 percent increase in per-pupil school aid, a group in the House was pushing a plan to let individuals choose a “flat” income tax rate option. In other words, figure your taxes under the current rate structure, then compare it to the flat rate, and choose which one costs you less.

It benefits primarily the wealthy, and it costs big money. There is no upside.

We have seen such a proposal in the past, and we are virtually guaranteed to see it again in some form in 2016. Not only does it compound fairness issues in Iowa’s tax structure, but it loses hundreds of millions of dollars in revenue, year after year, that Iowa legislators and the Governor have been telling us we cannot afford to lose.

Its supporters cannot avoid that contradiction, given their obsession this year about not letting a surplus — and a sustained one at that — be used for “ongoing” or “recurring” expenses on grounds they were not “sustainable.” Those are the grounds for the Governor’s vetoes of one-time funds for local schools, community colleges and state universities.

For good analysis of the 2015 alternative flat-tax proposal, which was not presented on the House floor as some of these messaging contradictions quickly became clear, see this Iowa Fiscal Partnership backgrounder by Peter Fisher. As Fisher noted, the projected revenue loss was projected at nearly half a billion dollars — $482 million — for the new fiscal year and around $400 million for each of the next three.

In short, the flat-tax idea is not “sustainable.” No need to discuss in the 2016 session.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

Ongoing mistake in ‘one-time’ rhetoric

Posted July 8th, 2015 to Blog

The Governor appears to be missing his own point.

Vetoing one-time funding for one-time uses — as Governor Branstad did last week — goes against what the Governor himself has been saying. And Iowa students will suffer for it.

Set aside for a moment that it can be quite sensible to use one-time funds for ongoing expenses. It depends on the circumstances. Set aside the fact that Iowa revenues and projections are strong and that state money seems to be available on an ongoing basis for corporate subsidies if not for restoring repeated shortfalls in education funding.

In the case at hand, the Governor vetoed one-time funds — for public schools, community colleges and the three regents universities — that ironically would have been spent in line with his own stated concern. The $55.7 million in one-time funds for local schools and area education agencies would have supplemented regular funding, set at 1.25 percent growth per pupil, all part of a package negotiated by the split-control Legislature.

Here’s the oft-stated concern about one-time funds, in a nutshell: You don’t spend one-time money on things that commit you to the same or greater spending in the future, because you don’t know whether the funds will be there later on.

The compromise on school funding negotiated and passed by legislators (part of HF666) reflected that concern:

  • For K-12 schools, the legislation specifies that funds “are intended to supplement, not supplant, existing school district funding for instructional expenditures.” It goes on to define “instructional expenditures” in such a way that assures the funds are for one-time uses that carry no additional commitment beyond the FY2016 budget year.

So, you can add to one-time expenses that you would have had to leave out, for purposes such as textbooks, library books, other instructional materials, transportation costs or educational initiatives to increase academic achievement. You can’t plan on having the same funds available in the following budget year.

  • For community colleges and the regents, each section of the bill included this stipulation: “Moneys appropriated in this section shall be used for purposes of nonrecurring expenses and not for operational purposes or ongoing expenses. For purposes of this section, ‘operational purposes’ means salary, support, administrative expenses, or other personnel-related costs.”

In his veto message, the Governor stated, “Funding ongoing expenses with one-time money is unsustainable.” In neither case did the Legislature propose doing so.

The larger problem with one-time funding is that such a cautious approach was unnecessary, because funds are available for more ongoing spending on education than what either the Governor or the House leadership permitted. The latest estimates are for 6 percent revenue growth in the coming year.

With or without the one-time funds that would have helped school districts, the legislative compromise ensures the continued erosion of the basic building block for school budgets, the per-pupil cost.

150602-AG-history
Supplemental State Aid (formerly termed “allowable growth) defines the percentage growth in the cost per pupil used to determine local school district budgets, which are based on enrollment. For FY2016, the Legislature and Governor have set the growth figure at 1.25 percent. Though state law requires this figure to be set about 16 months before the start of the fiscal year, the issue was not resolved until last week, when the Governor signed the legislation, and the fiscal year had already begun. The Senate passed 4 percent growth for FY2017 and the House 2 percent, but no compromise emerged and that remains unsettled. The education funding vetoed last week by the Governor affects separate one-time spending that would not have affected future budgets.

For the last six budget years, per-pupil budget growth has been above 2 percent only once. Once it was zero, and schools for the coming year are at 1.25 percent. This does not come close to meeting the costs of education at the same level year after year.

Ultimately, that is the test of what is, or is not, sustainable.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

 

See the Iowa Fiscal Partnership statement from July 2

Budgeting in the dark

Posted April 13th, 2015 to Blog

April 15 is more than Tax Day. It’s also Budget Day, the date by which Iowa school districts are required to certify and adopt their budget for the year starting July 1.

And that’s important, because Iowa schools consider themselves bound by law.

This stands in stark contrast to the General Assembly. The Legislature and Governor, you see, have not told the school districts yet how much money they will have for this budget that must be set by Wednesday. By law, they’re about 14 months late … and counting.

You read that right. Lawmakers were supposed to tell school districts in February 2014.

If schools were really getting the “first bite at the apple,” as some are so fond of saying, this number would have been set. Instead, schools are left wondering how much of the core of the apple will be left when legislators finally get their act together.

Those first bites are already gone — to backfill property-tax cuts, or to provide giant subsidies to multistate corporations that pay no income taxes to our state, or to let millions slip through corporate tax loopholes while our Legislature looks the other way.

The budget deadline is here, and schools don’t know how much they will be permitted to spend, how much of it will be state aid, or how much to levy in the property tax share of that budget.

How, then, do districts respond?

The safest approach for school districts is to assume the worst. This will differ around the state; for many, it means no increase in state aid or per-pupil budget growth.

Because budgets are a mix of state aid and property tax, and you’re assuming no state aid increase, you’ll be setting a levy at its highest amount. If state aid comes in higher, you will lower your levy to the authorized amount — but your overall budget may still be too low to meet the needs you have identified.

While these little tricks keep your district within the law, they do nothing for the spirit of transparency, to enable everyone to be part of the process.

  • District residents don’t really have a clear picture of what their levy will be, so what can they expect to learn, or say, at the required public hearing?
  • District teachers and board members trying to negotiate contracts in good faith through the winter and early spring have no firm numbers to discuss.
  • District administrators trying to plan for fall classes may not be sure whether they will be able to keep current staff levels, or be able to add staff to meet increases in enrollment, special needs, or demands for achievement in cutting-edge fields of study.

All we know as April 15 approaches is that districts, one way or another, will meet the letter of the law. No thanks to state legislators.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
Editor’s Note: Mike Owen has been a member of the West Branch Community School Board since 2006.

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Avoid snap judgments on SNAP use

Posted April 10th, 2015 to Blog

Legislators have enough to do finding answers to real problems. However, some seem ready to invent problems so they can come to the rescue.

Case in point: the Missouri representative who wants to stop food assistance recipients from buying steak.

Photos, please, of this actually happening. Because common sense tells us that other than some unusual case or two, it’s just not the way people allocate their meager food assistance benefit.

Why? Let’s look at the average benefit in Iowa from SNAP — the Supplemental Nutrition Assistance Program, formerly known as Food Stamps.

People who qualify for SNAP are making less than $2,200 a month in a three-person family, about $2,600 in a four-person family. On average, their SNAP benefit as of March was about $1.18 per person per meal. That’s why they call it “supplemental” assistance: On its own, SNAP is not enough to keep bellies full, let alone fully support good family nutrition.

SNAP is there to help people piece together what they need to get by. SNAP is part of a mix of resources that includes a share of a low-wage family’s own earnings, and probably the help of a local food pantry.

During the Great Recession, SNAP clearly helped Iowans. In our slow recovery from the last national recession, the number of SNAP recipients rose to over 423,000. As things have gotten better, that number has steadily fallen and was under 393,000 as of last month — a decline of 7 percent. That’s the way it is supposed to work.

But for those who still need it, SNAP is there. This critical point should not be missed by distractions like the bill in Missouri, or others that may crop up — even in our state.

The fact that SNAP exists says more about us as a nation than do snarky shoppers who stalk the poor in the checkout line.

Do we really want people who don’t even believe in SNAP to nitpick what people can buy with it? Because those are often the people attempting to call the shots on what goes in the shopping cart.

I’m not buying what they’re selling. They can check my cart.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
 Hear Mike Owen and KVFD’s Mike Devine discuss this issue in this April 9 interview.

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Keeping Ahead of the Kansans

Posted April 9th, 2015 to Blog

As state legislators consider drastic cuts in Iowa’s income tax, they would do well to consider the experience of our neighbor Kansas, which enacted a huge income tax cut in 2012, and cut taxes again in 2013. These cuts have dramatically reduced state funding for schools, health care, and other services.

It is instructive to consider as well the experience in Wisconsin, where a large personal income tax cut took effect at the start of 2013, with similar results: subsequent job growth of 3.4 percent, farther below the norm than Kansas’ 3.5 percent from the implementation of its tax cuts.

None of this should come as a surprise. Most major academic research studies have concluded that individual income tax cuts do not boost state economic growth; in fact, states that cut income taxes the most in the 1990s or in the early 2000s had slower growth in jobs and income than other states.

Businesses need an educated workforce, and drastic cuts to education are likely to make it difficult to attract new workers, who care about their children’s schools at least as much as they care about taxes.

2010-PFw5464Posted by Peter Fisher, Research Director, Iowa Policy Project

See Fisher’s Iowa Fiscal Partnership Policy Snapshot on this issue.

 

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Keeping Ahead of the Kansans

Posted April 9th, 2015 to Blog

As state legislators consider drastic cuts in Iowa’s income tax, they would do well to consider the experience of our neighbor Kansas, which enacted a huge income tax cut in 2012, and cut taxes again in 2013. These cuts have dramatically reduced state funding for schools, health care, and other services.

It is instructive to consider as well the experience in Wisconsin, where a large personal income tax cut took effect at the start of 2013, with similar results: subsequent job growth of 3.4 percent, farther below the norm than Kansas’ 3.5 percent from the implementation of its tax cuts.

None of this should come as a surprise. Most major academic research studies have concluded that individual income tax cuts do not boost state economic growth; in fact, states that cut income taxes the most in the 1990s or in the early 2000s had slower growth in jobs and income than other states.

Businesses need an educated workforce, and drastic cuts to education are likely to make it difficult to attract new workers, who care about their children’s schools at least as much as they care about taxes.

2010-PFw5464Posted by Peter Fisher, Research Director, Iowa Policy Project

See Fisher’s Iowa Fiscal Partnership Policy Snapshot on this issue.

 


Start with ‘zero’ on credits

Posted March 11th, 2015 to Blog

It was​ fascinating Tuesday to see Iowa lawmakers talking about zero-based budgeting — starting every budget from scratch — when they have refused to do the same with tax credits.

Spending on tax credits — including millions to companies that don’t pay any state income tax — just keeps going on and on.

And on.

And on.

Companies basically get to appropriate state money to themselves. Quite a deal if you can get it.

If the state were to sunset business tax credits, as recommended in 2010 by a special governor-appointed Tax Credit Review Panel, lawmakers could review each one and decide which are actually producing a public benefit, whether any of them are money well spent. If so, they could renew the credit. If not, we could put our resources where they make more sense for all Iowans.

Maybe a part-time legislature could start with a zero base on tax credits before we talk about it for an entire state budget.

Owen-2013-57Posted by Mike Owen, executive director of the Iowa Policy Project

Beyond politics: Teacher pay in context

Posted March 4th, 2015 to Blog

Funding for Iowa schools has been under discussion for nearly the entire legislative session. The Iowa House has one version of a funding bill and the Iowa Senate has one with a higher funding level. Schools use their money for a variety of things that support the education of students from kindergarten to the senior year of high school. One obvious part of funding is teacher salaries.

During debate at the Capitol, State Representative Greg Forristall called for a salary freeze for teachers. According to Iowa Public Radio, Forristall stated in the Education Committee that farmers are expected to make 30 percent less in this coming year. “Maybe this is the year that teachers could accept last year’s salary,” he said.[1]

Also according to Iowa Public Radio, the speaker of the Iowa House, Kraig Paulsen, said teachers are bargaining for raises that cost too much money.[2]

So how have salaries changed over the years in Iowa? The National Center for Educational Statistics gathers average annual salary for teachers in public elementary and secondary schools by state going back to school year 1969-70.[3]

In that year salaries for Iowa teachers converted to present dollars averaged $51,170. In the school year 2012-13, the most recent figures, the same average teacher earned $51,528. That’s a difference of only $360 over almost 45 years.

Put another way: The Mrs. Brown or Ms. Green who taught you was paid about the same as your kid’s teacher gets today.

Secondly, Iowa average salaries are below the national average of $56,383.

Iowa teachers could go over our northern border and earn almost $5,000 more in Minnesota. On the other hand, South Dakota teachers on average earn $12,000 less. (South Dakota teachers even make less than teachers do in Mississippi.) Iowa is near the middle of average salaries for all teachers compared to other states.

When it comes to starting teacher salaries, however, Iowa ranks 33rd in the nation at $33,226.[4] We are similar to Wisconsin and Kansas. We are below Illinois and Minnesota as expected. What is surprising is that starting salaries here are almost $3,000 below Alabama and even lower than in Texas.

The disagreement in funding for schools includes many aspects. Before one should believe that teachers have bargained for too much or need a pay freeze, it might be good to look at this data.

[1] http://iowapublicradio.org/post/republican-lawmaker-freeze-teacher-salaries
[2] http://iowapublicradio.org/post/paulsen-teacher-raises-too-big
[3] http://nces.ed.gov/programs/digest/d13/tables/dt13_211.60.asp
[4] http://www.nea.org/home/2012-2013-average-starting-teacher-salary.html
IPP-osterberg-75Posted by David Osterberg, Co-founder of the Iowa Policy Project

Beyond Battelle: Let’s broaden the dialogue of Iowa economic health

As Iowa legislators this week start work on a course to a more robust and diversified economy, discussion already has focused on a new privately funded report, Iowa’s Re-Envisioned Economic Development Roadmap.[1]

Produced by Battelle Technology Partnership Practice and commissioned by the Iowa Partnership for Economic Progress,[2] the $400,000 report makes some important points and deserves a careful look.

It focuses heavily on the importance of business to promote economic activity, but its core message acknowledges the significant role of public investments in providing the foundations for Iowa’s economy. This includes the education system needed to develop the skills, talents and capacity of the current and future workforce, including those who will become the future entrepreneurs and leaders for the 21st century.

While the report acknowledges the centrality of an educated and skilled workforce and a high quality of life to making Iowa an environment for business to flourish, it places very little focus upon how government can deliver on that role. It falls to government to educate that future workforce — at the early childhood, primary and secondary, and higher education levels.

The report does not adequately address the challenges Iowa faces in creating that higher skill level among its emerging workforce — in particular, the need to address lagging and stagnant educational achievement. To do so takes resources, and the report’s emphasis is to leave in place a business subsidy structure that has increasingly reduced the state’s ability to meet those needs.

The report itself was overseen largely by business leaders and economic development agency staff. However, these are not the only stakeholders in Iowa’s economic future; many others need to engage in the dialogue about Iowa government’s role in economic development.

The Battelle Report raises one perspective on economic development. Lawmakers, the media and the public need to insist that other perspectives and expertise also are fully considered and vetted.

More Iowans need an invitation to the table.

08-Bruner-5464Charles Bruner is executive director of the Child & Family Policy Center, www.cfpciowa.org, part of the Iowa Fiscal Partnership, www.iowafiscal.org.

Note: This piece also ran as an “Iowa View” in The Des Moines Register, Jan. 14, 2015.

[1] Technology Partnership Practice, Battelle Memorial Institute, December 2014, “Iowa’s Re-Envisioned Economic Development Roadmap.” http://www.iowaeconomicdevelopment.com/battelle
[2] Iowa Economic Development Authority, News release, Dec. 18, 2014, “Governor, IPEP Release Findings of 2014 Battelle Report, a New Economic Development Roadmap for Iowa,” http://www.iowaeconomicdevelopment.com/newsdetails/6051

A brief, shining moment

Posted January 8th, 2015 to Blog

It was a brief, shining moment for Iowa, and it came five years ago today.

A special Tax Credit Review Panel appointed by then-Governor Chet Culver, after an in-depth examination of all Iowa tax-credit programs, offered a 10-page review with some tough recommendations.

As the Iowa Fiscal Partnership* stated the day of the report’s release, Jan. 8, 2010, the panel “took an important step to make Iowa business subsidies more accountable and transparent.”

Major recommendations of the Tax Credit Review Panel were to:

•   Provide a five-year sunset on all tax credits;
•   Eliminate the refundability of the Research Activities Credit for large companies;
•   Eliminate the film tax credit;
•   Eliminate of the transferability of other credits;
•   Place all business credits under a $185 million cap;
•   Reduce the rate for the School Tuition Organization (STO) Tax Credit and lower the cap; and
•   Impose an income test for the Tuition and Textbook Tax Credit.

Action in the Legislature, unfortunately, fell well short of those bold proposals, as we noted in a report that spring. In their biggest moves, lawmakers set up a periodic review of tax credits but required no action to affirm the value of any credits, and they put light restrictions on some credits. Some of those limits already have been raised; the proposal to restrict the STO subsidy for private school tuition not only was ignored but the credit has been expanded.

In short, five years later, Iowa is as lax as ever in its treatment of these subsidies. Under the sunset clause recommended back then, we would in 2015 be preparing for a round of debate and action to keep, expand, limit or eliminate certain tax credits. Instead, we have no expectation of any debate, let alone any action. If the credits are working, we don’t know because beneficiaries are not forced to show it.

It is not too late for Iowa lawmakers to address these issues and include some water in the tax credit reform glass. We said that in 2010, and we can say it again in 2015.

The seven members of the Tax Credit Review Panel, by the way, were Richard Oshlo, then interim director of the Department of Management; Fred Hubbell, interim director of the Department of Economic Development; Rob Berntsen, chair of the Iowa Utilities Board; Bret Mills, executive director of the Iowa Finance Authority; Cyndi Pederson, director of the Iowa Department of Cultural Affairs; Mark Schuling, director of the Iowa Department of Revenue; and Jeff Ward, executive director of the Iowa Agricultural Development Authority.

Their work was good and important, and with hundreds of millions of dollars at stake, we should not forget it.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

*The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City, and the Child & Family Policy Center in Des Moines.