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Posts tagged Budget and Tax

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.

 


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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Iowa’s Problem of Priorities

IFP BACKGROUNDER / 
Costly Business Property Tax Cut Excessive — Hurts Family, Kids’ Services 

2-page PDF 

Tax cuts have consequences. In the case of the massive commercial property tax cut enacted two years ago, those consequences have become all too real.

Iowa’s economy continues to rebound and state revenues are projected to rise nearly 5 percent next year, yet we find ourselves struggling to finance our most important basic services, like education. Why? Because we are giving away most of the increased revenue to commercial property owners, with no public benefit to show for it.

The commercial property tax cut will result in an estimated $277 million hit to the state budget next fiscal year, more than double this year’s cost as provisions phase in.[1] This means that the property tax cuts will consume 68 percent of the estimated $408 million in increased state revenue.[2] The small amount remaining is far too little to cover even the normal increases in the cost of providing public services due to inflation.

While the legislation has been sold as a general property tax cut, only 11 percent of the property tax reductions will flow to residential and agricultural property owners next year.[3] The rest goes to owners of commercial property, apartment buildings, industrial facilities, railroads and utilities.

The legislation has two major provisions. A Business Property Tax Credit is entirely state funded and is of more benefit to owners of small properties, since the maximum value of the credit represents a larger share of their taxes. The most costly provision reduces the assessed value of commercial and industrial property to 90 percent of actual value, with the state reimbursing localities for the resulting revenue lost.[4] This provision lavishes the majority of its benefits on large property owners.

About $5 million will flow next year to the 11 largest big-box retailers, none of them Iowa companies.[5] While this is real money flowing out of the Iowa treasury, a few hundred thousand a year to the likes of Wal-Mart or Target is of little import to them, and will have no effect on their decisions to build in Iowa, which are driven by the size of the consumer market here. There was never a case for commercial tax reductions; overall business tax levels in Iowa for a long time have been below the national average — a point you rarely hear, and never from the business lobby.[6]

What exactly are the consequences?

The cost of running schools will keep rising faster than state aid, resulting in layoffs, increased class sizes, program reductions, and more years of outdated textbooks.

The Governor’s budget proposes sizable cuts to state health care programs and requires state agencies to finance salary increases by reducing staff, thus reducing state services.

Once again we will not expand the state’s preschool program for 4-year-olds, a measure that has been shown to be an effective economic development tool yet fails to help many low-wage workers needing full-time preschool.

Our child care assistance program, with one of the lowest income cutoffs in the country, will keep penalizing families for earning more. Bi-partisan support for funding to improve water quality and expand access to mental health care will likely be for naught.

We have a problem of priorities. We keep underfunding services for average Iowa families — education, health, work supports, natural resources — in order to finance massive tax reductions to businesses that don’t need it. And we spend in excess of $350 million each year on business tax credits that continue on autopilot, with no sunset, despite the state’s own analyses that fail to find evidence of appreciable benefit to the state from some of the largest of these subsidies.[7] 

It is time to admit that the tax cuts enacted in 2013 were excessive, and are causing long term damage to the state. At the very least, the $50 million increase in the business property tax credit portion of those tax cuts scheduled for next year should be delayed or eliminated.

But that is not enough. There should be a moratorium on any further tax cuts or tax credits. All business tax credits should be subject to effective caps and sunsets to force a serious evaluation.

Without such measures, we will continue down the road of tax-cutting our way to mediocrity and shortchanging our children’s future. 

                      

2010-PFw5464A shorter version of this piece appeared as a guest opinion by Peter Fisher, Research Director of the Iowa Policy Project, in The Des Moines Register on March 6, 2015. This version has been updated to reflect March estimates by Iowa’s Revenue Estimating Conference. (See endnote 2)

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project and the Child & Family Policy Center. Reports are at www.iowafiscal.org.



[1] The Legislative Service Agency projects that general fund appropriations resulting from the property tax legislation will total $277.1 million for FY2016: $162 million to replace local revenue lost because the bill reduced commercial and industrial assessments to 90 percent of actual value, $14.9 million in state foundation aid to schools triggered by the reduction in assessed value, and $100 million for the business property tax credit. LSA, Fiscal Services Division, Summary of FY 2016 Budget andDepartment Requests, December 8, 2014, page 53. https://www.legis.iowa.gov/docs/publications/LADR/435197.pdf

[2] The $408 million represents the increase in state’s net receipts plus transfers, according to the Revenue Estimating Conference, March 19, 2015. The increased revenue was estimated at $338 million in December. However, the larger increase comes about not because the March revenue estimates for FY2016 are higher (they are actually a little lower) but because the revenue estimate for the current fiscal year dropped $90 million. Thus while the increase looks bigger it is a result of a worse fiscal situation for the state. https://www.legis.iowa.gov/docs/publications/BL/656455.pdf

[3] Legislative Services Agency, Fiscal Note on SF 295, May 22, 2013. https://www.legis.iowa.gov/DOCS/FiscalNotes/85_1464SVv2_FN.pdf

[4] The state promised to reimburse these losses fully only through FY 2017; after that, local governments will be on the hook for an increasing portion of the lost revenue. In addition, the state is not reimbursing localities for any of the revenue lost from a third provision that reduces the assessed value of residential rental property.

[5]Estimate based on January 2012 taxable values and the statewide average property tax rate on commercial property of 3.77 percent for FY2015.  The 11, in order by 2012 valuation statewide and with the location of the corporate headquarters, are Wal-Mart (AR), Target (MN), Menard’s (WI), Lowe’s (NC), Walgreen’s (IL), Kohl’s (WI), Younkers (PA), Home Depot (GA), K-Mart (IL), Best Buy (MN), and Sears (IL). The 11 had $1.33 billion in taxable valuation, so that the reduction to 90 percent for January 2014 values amounts to $133 million, assuming valuations before the reduction remained about the same.

[6] Iowa: Where Business Taxes are Low. Iowa Fiscal Partnership, March 5, 2014.  http://www.iowafiscal.org/iowa-where-business-taxes-are-low/

[7] Iowa Department of Revenue, Contingent Liabilities Report, December 2014 https://tax.iowa.gov/sites/files/idr/Contingent%20Liabilities%20Report%201214.pdf. For evaluations of tax credits by the Iowa Department of Revenue see https://tax.iowa.gov/report/Evaluations?combine=Study; also of note is the State of Iowa Tax Credit Review Report, prepared by the Governor’s Tax Credit Review Committee, January, 2010. http://www.dom.state.ia.us/tax_credit_review/files/TaxCreditStudyReviewReportFINAL1_8_2010.pdf

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.


See ya later, Gator: Civics lesson from bowl game

Posted December 31st, 2014 to Blog

ipp-kinnick6Of course we’re all excited that the Iowa Hawkeyes will be playing Jan. 2 against Tennessee in the — uh, what’s the name of that bowl again?

It has something to do with tax preparation. (No royalties are being paid for publication of this message, so no need to repeat it.) So for now, let’s just call it the Pay Your Taxes Bowl.

Or, to recognize what we do by preparing and paying our taxes, we could make it the Feed the Hungry Bowl, the Educate the Children Bowl, the Fix the Highways Bowl, or the Clean the Air and Water Bowl.

In years past, most bowl games promoted a tradition, or an image, related to their locale. This game in Jacksonville, Florida, used to be called the Gator Bowl, and that was the name of the stadium. Now it’s played in a rebuilt stadium named for a bank.

The Gator Bowl has a storied past, including a good game in 1983 between the Iowa Hawkeyes and the Florida Gators, who won 14-6.

Even the Beatles played there once — though it was for a concert, not a gridiron battle with the Beach Boys — and that seems more interesting than the heavy-handed advertising that dominates these games now. Maybe the Fab Four Bowl? Strawberry Fields Bowl? Hold Your Hand Bowl?

There was a time when the Orange Bowl wasn’t connected to the name of a delivery service or a credit card company. There was a Citrus Bowl in Florida and a Peach Bowl in Georgia. I remember going to the Alamo Bowl once, happy to see the name bound to the enduring history of San Antonio, with no connection to rental cars.

Almost all bowls now feature a corporate sponsor’s name, so it may be in the nature of things that when many Iowa fans remember “The Catch” by Warren Holloway to beat LSU as the clock expired, they involuntarily associate it with the name of a credit card.

Still, we should acknowledge the irony that with the corporatization of all that is good, like football bowl games, at least one bowl game is associated with paying taxes instead of avoiding them.

Just understand: Some of us will still think of it as the Gator Bowl.

Go Hawks!

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

Editor’s Note: This piece was published as an Iowa View in the Dec. 28, 2014, Des Moines Register


Leveling the playing field

Posted December 11th, 2014 to Blog

Small business owners get it: They follow the rules, but preferential treatment for giant companies puts them at a disadvantage.

Case in point: Lora Fraracci, who had an excellent guest opinion in today’s Cedar Rapids Gazette about practices big companies use to avoid paying U.S. taxes. The problem is not exclusively an issue with the lax U.S. tax code. It is a big problem at the state level as well.

Ms. Fraracci runs a residential and commercial cleaning business. As she noted:

“As a small-business owner in Des Moines, I play by the rules and pay my taxes to support our American economy. I create jobs that will continue to support our local economy. When the playing field is so uneven it makes it hard to realize this dream.”

The issue has been receiving some national attention, but many may not realize the prevalence of this problem and its extension to state taxes. While Ms. Fraracci and other small businesses, or Iowa focused businesses, follow the rules, large companies they may serve can find a way to either (1) avoid the rules, or (2) block stronger rules.

The Iowa Fiscal Partnership has written about these issues for some time, and the reports are on our website.

The biggest Iowa breaks come in two ways: tax loopholes and tax credits.

Tax loopholes have been estimated to cost the state between $60 million and $100 million a year. Loosely written law is an invitation to big companies’ lawyers and accountants to find ways to lower their firms’ taxes. Multistate firms can shift profits to tax-haven states and avoid taxes they otherwise would be paying in Iowa. That creates the uneven playing field Ms. Fraracci sees.

Iowa could fix this by adopting something called “combined reporting,” which the business lobby has fought tooth and nail when proposed in the past by Governors Tom Vilsack and Chet Culver. Many states — including almost all our neighbors (Illinois, Wisconsin, Minnesota, Kansas and Nebraska) — already do this. See our 2007 report, which remains relevant because Iowa has refused to act.

Tax credits are particularly costly, rarely reviewed with any sense that they will be reformed. This is illustrated best with the Research Activities Credit, which provides a refundable credit to big companies to do something they are likely to anyway: research to keep their businesses relevant and competitive.

In 2013, that credit cost $53 million, with $36 million of that going to companies that paid no state income tax in Iowa. The default position must be that this is wasted money, because it is never reviewed in the regular budget process the way other spending is examined every year — on schools, law enforcement, worker protection and environmental quality. In Iowa, spending on tax credits is spending on autopilot.

Read here about Iowa’s accountability gap on tax-credit spending.

Looking ahead, as a new legislative session approaches and we hear repeatedly that things are tight, keep these points in mind to better understand the real fiscal picture facing Iowa. The more small-business owners understand this, the more likely pressure can build for real reform.

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