Iowa Fiscal Partnership / Iowa Fiscal Partnership
SHARE:
Policy Points from Iowa Fiscal Partners

Posts tagged Iowa Fiscal Partnership

A full table

Posted November 21st, 2012 to Blog
Mike Owen

Mike Owen

As the serving table groans and the plate runneth over for many Americans on Thanksgiving Day, the bounty of food they enjoy will not be so plentiful for all.

Many Iowans will face a challenge — as they often have — just to be able to provide enough for their family. They will be thankful that our nation does set aside enough to help them get by. It’s nothing extravagant, but it matters in keeping their children and themselves fed when times are tough. It comes in the form of what we have long known as “Food Stamps,” one of the most successful programs ever initiated by the federal government.

Against this backdrop, Congress holds the fate of the Farm Bill, legislation passed every five years. Three-fourths of the package is related to nutrition support, including Food Stamps — now SNAP, the Supplemental Nutrition Assistance Program. The outcome, as outlined by Michael Bruner in a recent brief for the Iowa Fiscal Partnership, Children and the Farm Bill, shows that decisions in the lame-duck session will have important implications for how well SNAP continues to meet the needs of struggling Americans.

Gridlock in Washington over the past year has left this issue hanging. As IPP’s Andrew Cannon noted a year ago in his report on public and private nutrition programs, A Secure Nutrition Network, “Even a robust private network of food banks and food pantries cannot fully cover the needs of food insecure Americans if federal nutrition programs lapse.”

As we celebrate the holidays and prepare for the year ahead, we should note that over 197,000 households in Iowa, representing over 419,000 people, received food assistance benefits in October totaling about $51 million. Is $51 million a lot of money? Yes — and it’s going into local economies across the state, while providing important help to families.

But there’s no one living extravagantly off that assistance. It works out to about $121 a month per person — about $3.89 per day, or $1.30 per meal. It is, as advertised, a “supplemental” benefit for, in many cases, working families.

The table is full of important issues, none more important than assuring that all Americans, particularly children, have enough to eat.

Posted by Mike Owen, Assistant Director

———

Other resources on this issue:

Check out the “Policy Basics” brief from the Center on Budget and Policy Priorities: http://www.cbpp.org/cms/index.cfm?fa=view&id=2226 and the latest food security report from USDA: http://www.ers.usda.gov/publications/err-economic-research-report/err141.aspx


Talk is cheap

Posted November 20th, 2012 to Blog
David Osterberg

David Osterberg

There are three principal problems with the Governor’s proposed Nutrient Reduction Strategy, and they can be summed up in three words: Talk is cheap.

Solutions to this problem start with enforcement, and that takes money. The state of Iowa shortchanges water quality, underfunding it even compared to what we did a decade ago. Our March 2012 report, Drops in the Bucket: The Erosion of Iowa Water Quality Funding, found that this water-quality funding decline came despite greater needs for water protection and public willingness to fund it.

Second, inadequate enforcement of environmental rules for Iowa’s livestock industry has resulted in the state’s censure by the U.S. Environmental Protection Agency, and this threatens our ability to write permits and otherwise enforce our obligations under the Clean Water Act. The strategy bases enforcement on voluntary acceptance of state rules. This has not worked.

Finally, it says much about Iowa’s commitment to water quality — or lack of commitment — when the state proposes a major nutrient reduction strategy and offers no new money to get the job done. The strategy proposes nothing to make sure Iowa does better in assuring clean water for its residents, for states downstream, and the future.

In short, we need a strategy that recognizes the serious water quality problem we have and offers a realistic approach to addressing it. This must be more than a goal — but a guarantee to all Iowans.

Posted by David Osterberg, Executive Director


Does Iowa have the will to govern itself?

Posted November 13th, 2012 to Blog

Does Iowa have the will to govern itself?

How ironic that we have reason to ask that question, a week after a presidential election that capped three-plus years of courting of Iowa voters, and a few days before a potential 2016 candidate visits to start all of it brewing again.

Yet the question is unavoidable. Consider two pieces in today’s Des Moines Register.

First, the Register reports, the federal Environmental Protection Agency may take over water quality enforcement in Iowa due to weak efforts by Iowa’s state Department of Natural Resources (DNR).

As IPP’s David Osterberg recently told EPA officials to hold DNR more accountable because the state is underfunding water protection.

“EPA should help the agency in bargaining with a legislature that has shown itself to be less concerned with water quality protection than tax cuts. … There is no question that if EPA simply accepts the agency’s agreement to try to do better, water quality will not improve in this state.”

If the EPA admonishment of Iowa’s lax environmental enforcement were not enough, we also are waiting for the state to offer its long-overdue decision on how to proceed on health reform. The 2012 election affirms the Affordable Care Act will not be repealed, so the state’s dragging its heels on creating a health insurance exchange no longer makes sense — if it ever did.

Yet, we now have a real question of whether it’s a good idea for the state to move ahead on its own with an exchange, where Iowans can shop for affordable insurance and not be denied coverage, or having the federal government do it for us. As the Register opined in an editorial today, “It is too important for this state to mess up.” Citing problems implementing temporary high-risk pools, and political dealings in previous legislative attempts to create an exchange, the Register noted:

“Iowans need the coming insurance marketplace to work for them in years to come. But state leaders have shown they are not the ones to design it.”

Can we govern ourselves? Apparently national candidates will come calling in Iowa without worrying about that. So maybe we should answer if for ourselves.

Posted by Mike Owen, Assistant Director


Small businesses understand competitive realities, role of government

Posted October 25th, 2012 to Blog
Mike Owen

Mike Owen

Political talk pandering to small businesses is commonplace, and often involves inaccurate assumptions about positions on taxes and the role of government. Thus, they are not only frequent, but frequently wrong.

A survey released today by the Small Business Majority (SBM) www.smallbusinessmajority.org — a nonpartisan small-business advocacy group — found wide acknowledgement of the need for more equitable, sustainable fiscal choices in Washington. As noted by SBM:

Contrary to popular belief, nationwide scientific opinion polling conducted earlier this month found that the majority of small business owners—more of whom identify as Republican than Democrat (47%-35%)—believe that raising taxes on the wealthiest 2% is the right thing to do in light of our budget crisis. What’s more, 40% strongly believe this.

The polling also found the majority of entrepreneurs see a productive role for government in helping small businesses achieve success. Nearly 6 in 10 agree government can play an effective role in helping small businesses thrive.

These are interesting results but they should not be terribly surprising.

Folks in small business know:

  • Budgets have two sides — spending and revenue.
  • Small businesses benefit when employees and consumers are educated, safe, healthy and financially secure.
  • Small businesses can compete when the playing field is level for all businesses; it’s hard to compete with bigger competitors who are getting special breaks from the referee — government.

And there are lessons in this for state policy makers as well.

Tax breaks geared to multistate corporate giants that can shift profits to other nations or states do not benefit small businesses, or all businesses equitably, and do not always help the economy. It is clear that people running small businesses understand this.

Iowa can make the playing field better, and restore squandered revenue, by plugging tax loopholes that are costing the state $60 million to $100 million a year. Several states already do this, including four of the six states that border Iowa: Illinois (home of Deere & Co.), Wisconsin, Minnesota and Nebraska. But Iowa lawmakers have refused to defy the big corporate lobbyists that have stood in the way of this important reform, known as “combined reporting.”

You can learn more about that and other inequitable, unaccountable tax breaks in Iowa at the Iowa Fiscal Partnership website, www.iowafiscal.org.

Posted by Mike Owen, Assistant Director


Better understanding the 47 percent

Posted October 1st, 2012 to Blog
Heather Gibney, Research Associate

Heather Gibney

The current political environment has set off a firestorm of confusion about who does and who does not pay taxes in America — and unfair criticism of many working families and others.

It’s true that 47 percent of Americans pay no federal income taxes, but they do pay taxes. In fact, almost two-thirds of the 47 percent are low-income, working households who are paying payroll taxes to help finance Social Security and Medicare, and many pay federal excise taxes on things like gasoline, alcohol and cigarettes.[1] These households are also paying a large percentage of their income in state and local sales and property taxes.

Many working Americans are exempt from the income tax because of features Congress added to the tax code — with overwhelming bipartisan support, in an effort to enable people to care for themselves and their children while encouraging them to work. Some of these features include the Earned Income Tax Credit, a Ronald Reagan era anti-poverty program that enables low-wage working families with children to meet their basic needs while promoting employment. In addition, the child tax credit gives families a tax credit through the form of a refund check even when they don’t owe federal income taxes.[2]

The other one-third of the 47 percent — those households that aren’t paying either major federal tax — includes those who are unemployed, low-income senior citizens who paid taxes during their working years and aren’t currently taxed on Social Security benefits, students, those who have disabilities or can’t work due to serious injury and people who don’t meet the income tax obligation because their wages aren’t high enough.

Often missed in the focus on those who are not currently paying income taxes is the errant assumption that all those people have never paid taxes and never will. Just because a household doesn’t owe income tax one year, doesn’t mean they won’t pay income taxes over their lifetime. For many, a career change, the loss of a job, a disability or injury, or low wages can lead to incomes too low to pay taxes.

Iowa households who aren’t paying federal income tax are still paying a large percentage of their incomes to state and local taxes. As the Iowa Policy Project reported in (2009), moderate-and low-income Iowans pay more of their income in state and local taxes than the rich do. [3] [4]

whopays2009As the graph at right shows, Iowa’s regressive tax system takes a larger share of the incomes from those who have the least, and a smaller share from those who have the ability to pay a larger percentage of their income. Make no mistake: Working Iowans pay taxes.

For more on this issue, see our two-pager, “Better understanding the 47 percent.”


Did Iowa just get taken to the cleaners?

Posted September 21st, 2012 to Blog
Peter Fisher

Peter Fisher

The enormous package of state and local incentives provided to the Egyptian company Orascom to locate a fertilizer plant in Lee County has drawn considerable attention. The package includes $110 million in state tax credits and other incentives and $133 million in local tax abatements — a total of $243 million when all is said and done. All this to attract a plant that will employ just 165 workers.

At a cost per worker of nearly $1.5 million, the incentive is an astounding amount, well beyond the normal range of awards, in Iowa or anywhere else. (While the company claims a large number of ancillary jobs will follow, these claims are unverifiable, and it is not clear how many would even fall to Iowa residents; furthermore, there are always some spin-off jobs with any project, so the valid comparison with other awards is in terms of cost per direct job.)

Yet little attention has been paid to what is possibly the largest incentive provided: tax-exempt bonds, not even included in the above calculations.

Early on in the negotiations, in fact last April, the Iowa Finance Authority awarded Orascom up to $1.19 billion in Midwest Disaster Area (MDA) bonds. These bonds are exempt from federal income tax; Midwestern states affected by the 2008 flood were each given an allocation of these bonds to be awarded to projects in eligible counties — those declared disaster areas after the flood. The $1.19 billion loan would constitute 46 percent of the Iowa allocation.

Because the interest is exempt from federal income tax, the wealthy individuals and financial institutions that would purchase such bonds will accept a lower interest rate than they would require on taxable corporate bonds. The after-tax rate is what they focus on. This means that the company saves money. How much? That depends on the spread between corporate bond interest rates and tax-exempt rates.

Information from officials at the Iowa Finance Authority indicates that the spread would likely range from 1 percent to 2 percent. For a $1.19 billion bond issue to be repaid in equal annual installments over a 20-year period, the savings in interest would amount to between $153 million and $297 million, depending on what the interest rate differential turned out to be.

These tax-exempt bonds could have been used in Lee County or in Scott County; both were flood disaster areas and both, at one point, were under consideration as a location for the fertilizer plant. When the Scott County site was rejected, attention turned to Illinois, specifically the area near Peoria. But neither Peoria County nor any counties surrounding it were eligible for the Illinois allocation of MDA bonds.

This means that Lee County was starting with a huge advantage over the Illinois site: the availability of an incentive probably worth in the neighborhood of $200 million.

While the MDA bonds cost federal taxpayers, there is no loss of Iowa income-tax revenue. (The federal cost comes because the federal government forgoes income-tax revenue on the interest, which must then be made up by the rest of federal taxpayers.) But the point is that, whoever bears the cost, this was a very large incentive that Iowa could provide and Illinois could not.

Thus it raises the question: Given this advantage from the start, why was it necessary for the state of Iowa and Lee County to double down and provide another $200 plus million, especially when the Illinois tax incentives were not even a reality — they had passed the Illinois Senate, but not the House, and the Legislature had adjourned months ago?

Did Iowa just get taken to the cleaners?

Posted by Peter Fisher, Research Director


Does Iowa know when to walk away?

Posted September 5th, 2012 to Blog
Peter Fisher

Peter Fisher

There’s Texas Hold ’Em,” and then there’s “Iowa Fold ’Em.”

Wouldn’t you just love to play poker against the folks who run this state?

They never call a bluff. Companies come calling with demands for tax breaks and big checks, or they’ll build somewhere else. And Iowa just happily falls in line with the demands. You can almost hear Kenny Rogers singing in the background: “Know when to walk away, and know when to run.”

The latest: Today the board of the Iowa Economic Development Authority (IEDA) is scheduled to consider sweetening its already generous offer to Orascom — $35 million to build a $1.3 billion fertilizer plant in Lee County — to about $110 million with a slew of new tax credits. As The Des Moines Register points out today, that’s $110 million for 165 “permanent” jobs paying on average $48,000 a year, plus construction jobs that will be gone when the project is finished.

The state tax credits are in addition to the enormous benefit the state is providing by allocating federal tax-exempt flood recovery bonds to this project. If the interest rate difference — between taxable and tax-exempt bonds — were 1 percentage point, the company would save $320 million in interest payments over the life of the $1.2 billion bond. That would bring the firm’s total benefits to $2.7 million per permanent job, a truly astounding number. Even without considering the federal interest subsidy, the state tax credits would total $687,500 per job, many times the typical level of subsidy in deals such as this.

There are no estimates available about the potential environmental costs that will be caused by this plant. Since Iowa does a poor job of monitoring for pollution damage, those ongoing costs might be low, but if there is an accident, it could be costly.

The Register also quotes Debi Durham, head of IEDA, that incentives wouldn’t be needed if Iowa were to reduce corporate income tax rates. Nonsense. Research has shown repeatedly that this is a myth, and that in fact, Iowa’s income taxes paid by corporations are competitive with other states. In many cases, giant corporations are paying not a dime in income tax yet getting huge subsidy checks from the state to do things they would do without incentives.

This hand is the one we are dealt from years of unaccountable economic development strategies by Iowa state government.

Time for a fresh deck.

Posted by Peter Fisher, Research Director

The bridge to recovery

Posted August 29th, 2012 to Blog

There’s a whole lot of politickin’ going on these days and one of the targets is the American Recovery and Reinvestment Act, or ARRA, or the “stimulus.”

One of the points we made at the Iowa Fiscal Partnership during and after the adoption of the Recovery Act was its use as a “bridge” for state services. As we note on our IFP website, “economic stimulus measures need to be targeted, timely and temporary, to act as a bridge across the economic and fiscal valley of a recession.”

Recall that some in the Legislature, and some folks during the 2010 campaign season, complained that such use of “one-time funds” was a bad idea for ongoing services — that it would create a “cliff” in funding that, once exhausted, would leave the state on the hook for new responsibilities it might not be able to afford.

Late last week, the nonpartisan Legislative Services Agency shed new light on this discussion with a simple bar graph on the front page of one of its “Issue Review” reports, this one about Iowa state appropriations over time.

Iowa appropriations graph

Source: Iowa Legislative Services Agency, August 2012

Note the green portion of the bars, representing where ARRA funds filled in for lower state revenues caused by the Great Recession. No cliff emerged following the use of ARRA funds as state revenues (the red portions of the bars) rose. But note from FY2009 to FY2010 how state resources might have fallen without the ARRA funds. That potential cliff would have threatened state funding of education and health services that Iowans depend upon.

Clearly, the folks promoting one-time-fund orthodoxy were wrong, and the “bridge” analogy was spot-on.

The stimulus successfully bridged the gap in revenues to stop the critical loss of state services, and maintain the benefit of those services to the state’s economy.

Posted by Mike Owen, Assistant Director


Why the federal budget debate matters in the states

Posted August 9th, 2012 to Blog

There’s doggone near nobody who isn’t concerned about dealing with the nation’s long-term budget challenges of deficit and debt.

What not enough people will recognize, however, is the danger of diving headlong into a deficit-cutting approach that just digs a deeper hole, both for the economy and for the critical services that federal, state and local government spending supports.

Ryan budget impacts

Center on Budget and Policy Priorities

And that’s the problem with the so-called “Ryan Budget,” named for Congressman Paul Ryan. That approach, passed by the House, makes cuts to funding for state and local services that are far deeper than the cuts many expect to happen with sequestration, the automatic cut process demanded by last year’s Budget Control Act compromise.

A new report from the Center on Budget and Policy Priorities outlines the challenge for states generally with the Ryan approach:

  • Federal cuts of 34 percent by 2022 to Medicaid compared to current law, and by steadily larger amounts after that.
  • Federal cuts of 22 percent in 2014 and in later years to non-defense “discretionary” spending — which leaves Medicare and Social Security alone but hits local and state services in education, infrastructure such as roads and bridges, and public health and safety including law enforcement.

For Iowa, the non-defense “discretionary” cuts are projected at $237 million in 2014 alone, and $2.1 billion from 2013 through 2021.

Want clean water? If you live in Iowa, where the state routinely shortchanges environmental enforcement, how bad do you think things might get when the federal funds are cut as well? Concerned about the quality of your food? Or your kids’ schools? Maybe the safety of the bridge you’re approaching on the way to work?

Well, folks, you get what you pay for.

Posted by Mike Owen, Assistant Director


Iowa’s holiday from taxes — and reality

Posted August 3rd, 2012 to Blog
Mike Owen

Mike Owen

Oh, boy! It’s sales-tax holiday weekend in Iowa.

We’re talking about a “7 percent off” sale, folks — on only a limited list of items. When’s the last time that brought you into a store? At any other time of year, it would not draw customers, but guffaws. Seven percent? Really?

As IPP’s Andrew Cannon pointed out last year at this time, these gimmicks “drain revenue, and feed unfairness in a state tax system.” They are found, according to the Iowa Department of Revenue (DOR), in 17 states, and take various forms.

Of course the folks in the malls will say they’re great — anything to get someone in the door. But think about it. We’re literally talking about a few bucks off a pair of jeans, about $5 off a $70 pair of shoes. You could do a heck of a lot better on a regular sale at a store even when you’re paying sales tax.

And when you’re paying the tax, you’re not stiffing the school that your child will be attending in a few weeks in new jeans and shoes.

There is a price to public services any time we chip away at revenues. Whether the cost is around $3 million — as this gimmick appears to cost, according to a 2009 report from the DOR — or $40 million in some business tax credit program, it all adds up. Money not brought in due to exceptions in the tax code costs the bottom line every bit as much as money spent by a state agency.

Make no mistake, Iowans are being sold a bill of goods — but at least it’s tax-free!

Posted by Mike Owen, Assistant Director