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Of course the $33 million matters, Governor

Posted November 1st, 2016 to Blog

It seems no Governor Branstad costume is complete without rose-colored glasses, even after Halloween.

For on the final day of October, as goblins prepared to venture out to neighbors’ houses for treats, the Governor offered news on his unilateral decision to privatize Medicaid: It will cost the state an extra $33 million this fiscal year, payments to private companies not previously anticipated.

But he’s telling us not to worry about that spending. For example, the Des Moines Register story prominently noted reassurances from the Governor and his chief of staff, Michael Bousselot:

But the situation will not negatively impact the state budget because Medicaid cost savings will exceed $140 million when compared to the old Medicaid program, they said.

 

Hmmm. So, we’re going to spend $33 million more — $33 million we weren’t planning to spend — and that doesn’t “negatively impact” the state budget?

That is not what we’re told when it’s $33 million for schools, or cracking down on polluters or businesses that deliberately stiff their employees for wages owed. For those things, we just don’t have the money.

Think of it this way: Last month, the Revenue Estimating Conference projected that the state would take in $72 million less in FY2017 than it had estimated in March. That means those funds will not be coming in and may affect what can be spent. Now, we learn of an extra $33 million charge. Already, some $100 million less for the current year.

Of course the $33 million matters. There is an impact on the budget bottom line, and it is disingenuous to suggest otherwise.

Budget projections are always a difficult thing. But from the start of the Governor’s decision to privatize Medicaid, without legislative consent, we have been asked to accept optimistic assessments of what to expect. And if the optimism is misplaced? Education funding and other general-fund priorities inevitably lose.

Medicaid privatization already has scared a fair number of Iowans about their access to health care. Those fears are not resolved. Neither are concerns about the fiscal side of this issue.

owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

A new baseline: Drop in number of uninsured Iowans

Posted September 13th, 2016 to Blog

Nineteen out of 20 Iowans are now covered by health insurance, thanks in large part to the Affordable Care Act and Iowa’s Medicaid expansion. The latest census data, released today, show that the percent of Iowans who were uninsured dropped from 8.1 percent in 2013 to just 5.0 percent in 2015. While 248,000 Iowans were without insurance in 2013, by 2015 the number had dropped to 155,000.

Only four states have a lower percent of the population without health insurance: Massachusetts, Hawaii, Minnesota and Vermont, plus the District of Columbia.

Across the country, the gap has widened between states that expanded Medicaid and those that did not, as shown below. Twenty-eight states, including Iowa, chose to expand Medicaid eligibility in 2014 or 2015 to families with income up to 138 percent of the poverty level. The uninsured population has declined faster in the last two years in the states that chose to expand.

In Iowa, the 2015 census numbers establish a baseline for evaluating the effects of Iowa’s Medicaid privatization, which took place early this year. It will be interesting to see if the uninsured population continues to decline in 2016.

2010-PFw5464Posted by Peter Fisher, Research Director

pfisher@iowapolicyproject.org

For more on this issue, see:
Census Data Show States Not Expanding Medicaid Falling Further Behind, by Matt Broaddus, Center on Budget and Policy Priorities


Fix both ‘cliff effect’ and low minimum wage

Posted August 3rd, 2016 to Blog

As the debate over a Polk County minimum wage continues, the so-called “cliff effect” is being cited as a reason to limit the increase in the wage. This is unfortunate. Capping the wage at a low level would hurt thousands of families, including many with burdensome child care costs.

cliffs3The “cliff effect” results from the design of Iowa’s Child Care Assistance program (CCA), which pays a portion of the cost of care for low-income families. Iowa has one of the lowest eligibility ceilings in the country: 145 percent of poverty. When a family’s income hits that level ($29,120 for a single mother with two children), benefits disappear.

While most work support programs, such as food assistance, taper off gradually, with CCA you just fall off a financial cliff — the “cliff effect.”

We do need to fix that program. But the failure of state lawmakers and the governor to address the CCA cliff effect is not a good reason to forgo needed wage increases for thousands of working families. An estimated 60,000 workers would benefit from an increase to $12 an hour in Polk County; 88,000 by an increase to $15 (phased in over several years).

Of those who would benefit from a higher minimum, 36 to 38 percent are in families with children. To put the CCA cliff in context, recognize:

•     Thousands have high child care costs and incomes below 145 percent of poverty but do not receive CCA. A 2007 study estimated that only about 1 in 3 Iowa families eligible for CCA were actually receiving it. The two-thirds with low wages but without assistance still need higher wages.

•     Second, a low wage cap would not help many families barely above 145 percent of poverty, but still facing child care costs of $4,000 to $5,000 a year per child. These families, in many cases married couples with one or both working at a low wage, can’t make ends meet.

•     Third, the other 62 to 64 percent of low-wage workers do not have children, and many families whose children are older do not need child care. A cap on the minimum wage hurts all of them.

Moreover, we need to keep in mind that the cliff is not as sudden as it appears. Because Iowa moved to one-year eligibility, a family whose income rises enough to push them above 145 percent of poverty can continue to receive assistance for another year. In that time, they may find ways to adjust, such as quitting the second or third job or reducing hours or overtime, to stay eligible for CCA but have more time with their children. This is surely a benefit from a higher minimum wage.

Policies that move families toward self-sufficiency are widely supported. We want workers to increase their earnings by furthering their education, finding higher paying jobs, gaining experience that earns them promotions — and have time to care for their families.

Yes, we should fix our child care assistance program, which can penalize all of those efforts. But we should also fix a minimum wage stuck at a level well below what even a single person needs to get by. Past failures to fix one problem should not end up as an excuse to fix neither.

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

pfisher@iowapolicyproject.org

Related:

“Reducing Cliff Effects in Child Care Assistance,” Peter Fisher and Lily French, Iowa Policy Project, March 2014, PDF


A squeaky wheel is heard — but not fixed​

Posted April 27th, 2016 to Blog

Davenport has been the squeaky wheel on school funding inequity in Iowa, and the Iowa House this week tried to apply a drop of oil. Problem is, the whole axle is rusty, and cracked.

By law, 164 school districts — about half of Iowa’s 330 districts — are held $175 below the maximum per-pupil spending amount used to set local school budgets. In fact, almost 84 percent of school districts in the state are $100 or more below the maximum (graph below).

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On Tuesday, the House passed an amendment, H8291, that dealt only with the squeakiest wheel — Davenport — and only for a one-year fix.

Davenport is not buying. In a Quad-City Times story, Davenport lawmakers were not happy. Their school superintendent, Art Tate, called it “no help at all,” and for good measure, put the focus where it needs to be.

Wrote Tate in an email to the Times: “It does not address the moral imperative to make every student worth the same in Iowa.”

The larger question, given that moral imperative, is why more districts aren’t more active on this issue. One reason could be that Iowa’s inequities, while real, do not rise to the level of what might be found in other states.

Another reason might be that just fighting for basic school funding is hard enough, when the Legislature is setting a seven-year pace of funding growth below 2 percent despite faster growth in district costs, strong state revenues and approval of more business tax breaks.

160324-AG-SSA-history

We’re in the closing days, perhaps the closing hours, of the 2016 legislative session, with exceedingly few successes for education and working families. It’s too late in this session to expect real reform of the school funding system, pleas for which have come for many years — and focus on more than the per-pupil cost. There are other equity problems, the largest of which is in funding transportation services.

The weak House attempt at a one-year fix for Davenport, however, is a sign that the squeaky wheel is being heard. Think of what might happen if more wheels squeaked.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org

A squeaky wheel is heard — but not fixed​

Posted April 27th, 2016 to Blog

Davenport has been the squeaky wheel on school funding inequity in Iowa, and the Iowa House this week tried to apply a drop of oil. Problem is, the whole axle is rusty, and cracked.

By law, 164 school districts — about half of Iowa’s 330 districts — are held $175 below the maximum per-pupil spending amount used to set local school budgets. In fact, almost 84 percent of school districts in the state are $100 or more below the maximum (graph below).

Basic RGB

On Tuesday, the House passed an amendment, H8291, that dealt only with the squeakiest wheel — Davenport — and only for a one-year fix.

Davenport is not buying. In a Quad-City Times story, Davenport lawmakers were not happy. Their school superintendent, Art Tate, called it “no help at all,” and for good measure, put the focus where it needs to be.

Wrote Tate in an email to the Times: “It does not address the moral imperative to make every student worth the same in Iowa.”

The larger question, given that moral imperative, is why more districts aren’t more active on this issue. One reason could be that Iowa’s inequities, while real, do not rise to the level of what might be found in other states.

Another reason might be that just fighting for basic school funding is hard enough, when the Legislature is setting a seven-year pace of funding growth below 2 percent despite faster growth in district costs, strong state revenues and approval of more business tax breaks.

160324-AG-SSA-history

We’re in the closing days, perhaps the closing hours, of the 2016 legislative session, with exceedingly few successes for education and working families. It’s too late in this session to expect real reform of the school funding system, pleas for which have come for many years — and focus on more than the per-pupil cost. There are other equity problems, the largest of which is in funding transportation services.

The weak House attempt at a one-year fix for Davenport, however, is a sign that the squeaky wheel is being heard. Think of what might happen if more wheels squeaked.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org

Sensible context on school aid growth

Posted March 29th, 2016 to Blog

There are many ways to measure Iowa’s lagging commitment to public schools. One is a comparison of growth in school aid to growth in state revenues.

As K-12 schools are a significant share of the state budget, it seems sensible that we would expect at least similar numbers of growth in one vs. the other.

Basic RGBThat is not the case.

While not a perfect comparison — there are moving parts with both figures — you can get an idea of the general trend in the accompanying graph. Net General Fund revenues have been coming in with average yearly increases around 4 percent,* while the key school-aid number, for Supplemental State Aid, has averaged about half that.**

The numbers below are taken from the latest Revenue Estimating Conference report, available here: https://dom.iowa.gov/sites/default/files/documents/2016/03/rec-projections-2016-03-16.pdf

  • The actual ending balance for FY2015 (the budget year ending last June 1) showed a net over-the-year revenue change from FY2014 of 5.1 percent. For that same period, schools had 4 percent Supplemental State Aid — the only year that high since FY2010.
  • For the current year, the most recent official revenue estimate is for a 3.3 percent state revenue increase, while schools are operating on budgets reflecting 1.25 percent per-pupil growth.
  • For FY2017, the estimate is for a 4.4 percent state revenue increase, and the deal just hatched at the Statehouse — 13 months late — is for schools to see 2.25 percent per-pupil growth.
  • For FY2018, for budgets to be approved a year from now, the state is expecting 4.1 percent revenue growth. The school aid number for FY2018 by law was to have been set a month ago so school districts could properly plan their budgets when enrollment counts are set this fall, and to negotiate staff contracts without big uncertainties. That number has not been set and apparently will not be during this legislative session, as neither the House nor the Governor is interested.

Understand, the revenue growth number is held artificially low by the growing and incessant demand for business tax breaks that undermine revenues. So the net revenue number would be much higher if legislators wanted it. Instead, they continue to give away hundreds of millions of dollars before they even reach the state treasury.

If the Legislature were to curtail business tax credits even slightly, plenty of money would be available to properly fund education and other actual public priorities that are the traditional and best-focused business of state government.

Alas, that is not the political world in which we live.

*The average growth for general fund revenues includes both actual results for FY11 through FY15, as well as projections by the Revenue Estimating Conference for FY16 and FY17.
**Supplemental State Aid — which is a percentage for per-pupil cost growth that districts must use in building an enrollment-based budget — includes the recent deal approved by the Senate and House and expected to be signed by Governor Branstad.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org
Mike Owen is a former journalist in Iowa and Pennsylvania. He covered state government for the Quad-City Times from 1980-85 and was editor and co-publisher of the West Branch Times from 1993-2001. He is serving his third term on the West Branch Board of Education, and is a member of the Professional Advisory Board of the University of Iowa School of Journalism and Mass Communications.

IFP News: Sales-tax sleight of hand in Iowa

NEWS RELEASE — Proposals test limits of authority, defy voters’ intent and expectations

View the report

IOWA CITY, Iowa (March 10, 2016) — Schools would lose revenue and Iowa voters’ intent would be distorted by new proposals on the state sales tax, according to a report from the Iowa Fiscal Partnership.

“This is the new sleight of hand in Iowa — pass a tax for one purpose, and then shift the way the money will be used. That’s what the Governor is proposing with his attempt to divert funding from the school infrastructure sales tax, and that’s only one example,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project and author of the report for the Iowa Fiscal Partnership.

“Another is a special sales-tax break for manufacturers that the Governor has set in place on his own, without legislative approval. This might change in current budget negotiations, but we likely would not be talking about it at all had the Governor not acted on his own.

“The precedents being set raise uncertainties for the future governance of our state.”
 
The six-page report is available here: http://www.iowafiscal.org/sales-tax-sleight-of-hand-in-iowa/.

In the paper, Owen looks at a sales-tax break implemented unilaterally by the Branstad administration, as well as various proposals that would extend a state sales tax currently designated for school facilities and equipment — but only if shares of the funding are diverted to other purposes.

 
The Iowa Association of School Boards (IASB) uses Department of Revenue data to project the Governor’s plan, now in the House as HF2382, would cause a loss of $426 million for school infrastructure from FY2017 through FY2029, when the current tax expires.

Schools would see a 20-year extension of the tax under the Governor’s plan, but would receive $4.7 billion less through FY2049 than under a straight 20-year extension of the sales tax for its currently defined use, according to IASB.

 
“That sales tax would not exist but for local votes across the state, for the revenues to go to school infrastructure, and secondarily to offset property taxes,” Owen said. “What the Governor and proposals in the Iowa House would do is to divert that funding to purposes never intended.

“They would do this in the near term, changing the rules of the current law set to expire in 2029, and they would do so in greater proportions over the following 20 years. Construction costs for schools will not be going down over that time.”

Proposals also would impose new restrictions on schools’ ability to spend the funds, and two would require voter approval by supermajority for even relatively small-scale construction projects, anything over $1 million.

 
“Once more, we see efforts to impose minority rule against efforts to improve our public infrastructure, to make it more difficult for school boards to do their jobs,” said Owen, who is serving his third term as an elected school board member in West Branch.

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

Iowa Sales-Tax Sleight of Hand

POLICY BRIEF

Proposals test limits of authority, defy voters’ intent and expectations

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By Mike Owen

Recent proposals and actions on Iowa’s sales tax would directly cost Iowa schools funding for both facilities and general operations, and most critical services could expect less as well. Aside from fiscal impacts, these proposals ignore existing law or voters’ directives, and long traditions in the way we govern ourselves. To many, this is a low road — of lower revenues, services and commitment. We map that road below.

Here we do not review in detail the impact of the sales tax on various types of Iowa households, though we examine Iowa’s significant shifts toward regressive taxation (particularly the sales tax) in greater depth elsewhere.[i] Rather, we focus on the revenue and governance issues raised by a recent unilateral action by the Branstad administration for a special sales-tax break, and pending proposals by the Governor and legislators to change intended spending from sales taxes now in place. Each represents a sleight-of-hand either in defiance of existing laws that have not been duly changed, or of promises made to voters who years ago authorized specific tax policy changes with clear expectations on the use of new revenue.

These new, opportunistic approaches are suddenly possible because of Iowa’s polarized political landscape. Ironically, they capitalize on what education and environmental advocates had seen as opportunities to progress despite a general lapse of the state’s commitment of funding. Only an expectation that lawmakers will not agree to stop the Governor permits him to act unilaterally on a sales tax exemption, a reinterpretation of longstanding existing law to grant manufacturers a special break without prior legislative approval. Only the looming expiration of­­ the school infrastructure sales tax gives the Governor an opportunity to attempt a diversion of that funding from school districts to water programs — an immediate loss to schools in the near term, and insufficient resources for schools and the full range of environmental priorities for the long term.

Meanwhile, policy makers do not follow the dictates of law for school funding, nor the direction of voters on environmental funding. Legislators already routinely dismiss their annual legal deadline for setting state school aid levels 14 months ahead of schools’ own budget certification deadlines. And we now see attempts by both the Governor and some legislators to come up with proposals that divert revenue and change the rules for funding of school facility needs. While education advocates have voiced concerns for several years about the state’s commitment to funding of public schools, environmental advocates have done the same through five-plus years of legislative inaction following a 2010 electoral victory. That year, voters statewide approved a constitutional amendment directing the first three-eighths-cent sales-tax increase to a trust fund to enhance stewardship of Iowa’s land, air and water resources — not all of which are in the Governor’s plan. 

 

The Sales Tax Under Current Law

Iowa’s state sales tax is part of a three-pronged funding structure to support state and local services and infrastructure: state and local sales and excise taxes; state income tax and local income surtax; and local property tax. State law governs all of these. The state sales tax is 6 percent on applicable purchases and services, with exemptions set by state law. The first five pennies of sales tax per dollar go to the state general fund; the sixth penny is dedicated to school infrastructure or school property tax replacement. That penny is worth about $435 million to Iowa schools in Fiscal Year 2016.[ii]

New Proposals Reduce Revenues for Services, Either Directly or Indirectly

Each of the imminent or proposed actions summarized below provide less revenue for public education than is provided under current law. These come at a time when the Legislature and Governor have settled Iowa into a trend of holding down the basic building block of school budgets — per pupil cost — in a formula designed to produce equitable funding for a student regardless of his or her school district. These actions give local school districts scant ability to sustain funding over time.

Administrative Change in Sales-Tax Law Without Legislative Approval

The first policy change, an administrative order to be implemented July 1 unless blocked by a veto-proof majority in the Legislature this spring, unilaterally reinterprets existing sales-tax law governing purchases by manufacturers. The Iowa Department of Revenue (DOR) preliminarily estimated the cost of this change to be $35 million or more in FY2017, which begins July 1. While there has been no official update of that estimate, many have projected it to be higher.[iii]

The governance issue may be of even greater importance than the fiscal impact. One observer with experience in the world of administrative rules, in testimony to the DOR on the proposed rule change, called it “an unprecedented potential shift of institutional, constitutional forces.”[iv] James C. Larew, an Iowa City attorney and former general counsel to Governor Chet Culver, stated:

“The balance of political power changes from one election to the next. 

“The balance of constitutional power — the relationship between the Iowa General Assembly and executive departments of our state government — is more serious and more lasting. 

“Broad statutory interpretive powers given up by the legislature to an executive agency, in one moment of time, concerning one issue, are not easily later recovered.”

The sharp partisan divide between the Iowa House and Senate appears to be weighing against a reversal of the Governor’s new interpretation of longstanding tax law, though about two months into the session there are indications that lawmakers may agree on a compromise that lessens the fiscal impact.[v] If the Governor’s change stands, it leaves an open question of how many other executive-branch reinterpretations of other tax laws may occur with this precedent, and with fiscal impacts of their own.

The following proposals stem in part from pressure for greater environmental funding, and capitalize on school districts’ interest in extending a statewide sales tax currently designated for school infrastructure funding but set to expire in 2029. Each proposal would cut into schools’ exclusive use of those funds even before the deadline.

Diverting the “Statewide Penny” from School Infrastructure for Other Uses

The so-called “statewide penny” is the sixth cent of Iowa sales tax — the sixth cent per dollar in sales on goods or services, added in 2008. After Governor Branstad first took office in 1983, he proposed and passed an increase in the sales tax from 3 percent to 4 percent. Again, in 1992, he approved an increase in the state sales tax to 5 percent. Meanwhile, beginning in 1998, local school districts were permitted to seek, through authority granted countywide, a 1 percent sales-tax increase to fund school infrastructure. This was known as the School Infrastructure Local Option, or SILO, tax. Frequently, these local referendum campaigns included assurances to voters by school administrators and school board members that the penny would be used for school facilities — and could not be used for salaries or other purposes. In 2008, these local SILO taxes were converted to a statewide tax, with an expiration date of Dec. 31, 2029. The stated legislative intent in the law is that the 1 percent tax “shall be used solely for purposes of providing revenues to local school districts under this chapter to be used solely for school infrastructure purposes or school district property tax relief.”[vi] Further, local districts must follow a voter-approved “revenue purpose statement” governing how the funds — from what is called the Secure and Advanced Vision for Education, or SAVE, fund — will be used within the bounds of the state law.

School officials across Iowa have been seeking an extension — or removal — of that sunset provision because they are allowed to borrow money against those anticipated SAVE revenues. The closer they get to that 2029 date, the more they are limited in long-term borrowing against that revenue source for school infrastructure projects. Schools also have been concerned about the possibility of attempts to scoop revenues from that source for other purposes. The Iowa Association of School Boards made “preserving the integrity of the statewide penny sales tax for school infrastructure,” along with repeal of the 2029 sunset, one of its four priorities for the 2016 legislative session.[vii] Proposals under consideration offer a nod to the latter — extending the law rather than repealing the end date — only by losing the “integrity of the statewide penny.”

Governor’s Plan — Diversion for Water Programs

While the question of school infrastructure is one of many funding challenges for schools as operational budgets have been held down by lawmakers in recent years, environmental advocates have sought more resources to deal with land and water management at a time of serious pollution issues. The latter have been highlighted by a 2015 lawsuit by the Des Moines Water Works against three counties whose ag-based pollution has driven up water treatment costs for their urban and suburban neighbors downstream.

The Governor’s proposal amounts to a bait-and-switch tactic to voters who passed local school infrastructure sales taxes, and to legislators who converted them into a statewide tax in 2008. Iowa Code Chapter 423F, with the same restrictions on the use of revenue.

Voters had approved strategies to address both challenges, for schools and the environment. While the Governor purports to do the same with a different approach, the changes weigh heavily against schools, when compared with current law for the near term and educator-backed proposals for the long term. While he would extend the school facilities sales tax from 2029 to 2049, he would reduce the share of that tax going to schools for the next 13 years, and limit growth to only $10 million a year statewide — a net loss to schools of $425.9 million through 2029.[viii] At the same time, he would divert increasing shares of the growth in those revenues through 2049 to water programs — an estimated $4.7 billion. See Figure 1 below.

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The history of this sixth penny of the state sales tax is important, as it established a level of political legitimacy for a tax increase among legislators who have not typically been out front in favor of tax increases. Its roots are in local votes across Iowa, where voters were asked to add a penny per dollar in sales tax to fund improvements to school facilities and equipment. This purpose was expressly stated for those elections. The Legislature in 2008 — following those local, carefully focused ballot issues — converted the local taxes to a statewide sales tax with a common expiration date and the same purpose as that used to sell voters on the tax increases from the outset. It is quite likely that without the local taxes in place, there would have been no political vehicle for establishment of the statewide tax that replaced them.

At the same time the Governor’s plan ignores the historical justification for the sixth penny of sales tax, he has rejected implementation of an alternative for water-quality funding that Iowa voters have given him. The 2010 referendum — passed in the same election that returned the Governor to his office after 12 years away — did not require the passage of a sales tax, but it did designate the first three-eighths of a penny of the next sales tax increase to be used for environmental stewardship. Voters said “yes” to a penny for school infrastructure, and said “yes” to three-eighths of a cent for water and land improvements. Voters have not granted authority for the Governor’s hybrid approach.

House Alternative Proposals to Divert School Revenue

Proposals in the Iowa House offer other ways in which the sales-tax increase is extended, but for uses different from those in the 2008 legislation that created the sixth penny of sales tax and different from those in the local option votes that set up the statewide tax. One, HF2382, builds on the Governor’s proposal for water quality funding, but also includes provisions to permit use of the funds to ease statewide inequities in per-pupil spending[1] — with restrictions that do not exist for other general spending — and inequities in transportation spending. The funds could not be used for teacher pay, for example, which is a major share of the cost of educating students. The legislation also carries new requirements for a voter referendum on any school facility project costing over $1 million, and approval by a supermajority of at least 60 percent. Already, a supermajority is required for a general obligation bond issue against property tax. Adding this requirement for use of the sales tax would further institutionalize minority rule against school facility improvements, even for relatively small-scale construction projects. Other proposals in the House — HF2260, HSB549 and HSB548 — also would impose new limits on spending and divert funding currently designated for school facility improvements under long-accepted restrictions that schools have not contested. HF2260 includes a provision to allow for the use of the funds to help address inequities from district to district in the share of their budgets that go to transportation costs — one issue raised by education advocates about reforms needed in the school funding formula.[ix]

The desire of school districts to extend the tax for its currently authorized use is the opening, as noted above, for a host of new restrictions that lawmakers have sought to impose on public school spending authority in the state — with window-dressing solutions for other concerns schools have raised about statewide equity.

Property Tax Impact of Branstad Plan

A notable consequence of this change may well be property-tax increases — in two ways —because less funding would be available in real terms through the SAVE disbursement. First, districts looking for resources will be more likely to increase their Physical Plant and Equipment Levy, if they are not already at the maximum $1.67 per $1,000 levy rate. Second, where SAVE funding can reduce the need for, or size of, property tax-based bond issues for facilities, districts might be left with no other option, provided they have the bonding capacity to do so. In both cases, these could cause property-tax increases — even though reductions in property tax have been the driving message behind tax changes by both the Governor and legislators in recent years.

In addition, the sales tax for school infrastructure already provides some property-tax replacement funding, to the Property Tax Equity and Relief (PTER) Fund.[x] The Governor’s proposal would reduce that by a total of about $9 million through 2029 compared to current law, and by about $102 million overall compared to a simple 20-year extension of the current law.[xi]

Constitutional Amendment Remains in Place

One of the problems with setting tax policy through a constitutional amendment is that policy makers lose flexibility. Diverting other funds now for the purpose designated by the 2010 constitutional amendment may well tie lawmakers’ hands in raising revenue in the future. The next three-eighths of each penny raised by a sales-tax increase will go to environmental programs, regardless of action amending the use of the school infrastructure sales tax. In the event of a sales-tax increase in the next five-10 years, it is inevitable that this would set up new competition for revenues between environmental advocates and advocates for other critical services left out of the Governor’s plan. Would there be a move to redirect the diversion from the school infrastructure tax? How might this affect bonding arrangements for projects for either water quality or schools? It would be best for lawmakers to address such scenarios before, rather than after, passage of anything along the lines suggested by the Governor.

Conclusion

Transparency is essential for Iowans to understand how and why they are being taxed, and how the revenues will be used. Whatever their perceived merits, the tax policy changes that we examine here are being pursued in defiance of understandings and expectations that exist by both tradition and law. The precedents they offer raise uncertainties for future governance of our state.

Ultimately, the Governor’s proposed diversion of school funding to water programs is a response to a short-term challenge in both areas with, at best, long-term uncertainties. More likely it poses a long-term hindrance to school districts’ ability to meet facilities needs, and to the funding choices of future legislators and governors.

Finally, while we do not delve deeply with this paper into the tax fairness issues posed by an enhanced focus on the sales tax where revenues are needed, it is well established that Iowa’s sales taxes disproportionately affect poorer households. To put even more reliance on this most regressive piece of Iowa’s state and local tax structure, which overall is regressive, means policy makers should be looking at offsets to assist low-income families in conjunction with sales-tax increases. None of these proposals make an attempt to balance out fairness issues, which also is true of the solution offered by the 2010 constitutional amendment. Some proposals in the House, in fact, would exacerbate fairness problems, by encouraging local school districts to buy down property taxes with sales-tax revenues.

 


[1] Iowa school budgets are built based on a per-pupil cost, which varies by as much as $175 per student from the highest to lowest district. About half of Iowa school districts are at the lowest level, and in recent years this has prompted calls for a legislative solution. For more on this issue, see “Building blocks of inequity,” Iowa Policy Project blog post, February 2016, http://iowapolicypoints.org/2016/02/10/building-blocks-of-inequity/


[i] Cementing Inequity: Richest Iowans Pay Lower Tax Rate, Iowa Fiscal Partnership, January 14, 2015. http://www.iowafiscal.org/cementing-inequity-richest-iowans-pay-lower-tax-rate/
[iv] Testimony of James C. Larew, Iowa City attorney and former administrative rules advisory and General Counsel to Governor Chet Culver, Dec. 1, 2015. Available here: http://www.iowapolicyproject.org/2015docs/151201-Larew-DOR_RulesTestimony.pdf.
[v] The Gazette, Cedar Rapids, March 9, 2016: Iowa legislators move forward with compromise on taxes. http://www.thegazette.com/subject/news/government/iowa-legislators-move-forward-with-compromise-on-tax-policy-compromise-20160309
[vi] Code of Iowa, Chapter 423F.1 Legislative intent: https://www.legis.iowa.gov/docs/code/423F.pdf
[viii] Calculations by Shawn Snyder, Finance Support Director, Iowa Association of School Boards.
[ix] See December 2015 testimony to Iowa Legislature School Finance Inequities Committee, https://www.legis.iowa.gov/committees/meetings/documents?committee=24164&ga=ALL, and the committee’s final report, Jan. 1, 2016: https://www.legis.iowa.gov/docs/publications/IP/765872.pdf
[x] Iowa Code Chapter 423F https://www.legis.iowa.gov/docs/code/423F.pdf, Iowa Code Chapter 257.16A https://www.legis.iowa.gov/docs/code/423F.pdf. The Property Tax Equity and Relief (PTER) Fund receives a state appropriation, plus funds from the Secure an Advanced Vision for Education (SAVE) Fund, after per-pupil allocations are made as a result of the statewide 1 percent sales tax for school infrastructure.
[xi] Calculations by Shawn Snyder, Finance Support Director, Iowa Association of School Boards.

 

IPP-Owen-2013-5464Mike Owen is executive director of the Iowa Policy Project (IPP) in Iowa City. A former journalist in Iowa and Pennsylvania, he has been a member of the West Branch Community School District Board of Education since 2006.

 

110929-ifp-newlogo10IPP and the Child & Family Policy Center in Des Moines are two nonpartisan, nonprofit Iowa-based organizations that formed the Iowa Fiscal Partnership, to make public policy analysis available to all Iowans. Reports are at www.iowafiscal.org. The Iowa Fiscal Partnership is part of the national State Priorities Partnership, with IFP research supported in part by the Stoneman Family Foundation and the Annie E. Casey Foundation, as well as individual and organization donors in Iowa. IFP analysis is solely the responsibility of the authors and may not reflect the views of supporting funders.

IFP Statement: Governor diverts revenue — and attention from choices on water and schools

IOWA CITY, Iowa — The Iowa Fiscal Partnership today issued this statement regarding Governor Branstad’s promotion of a study claiming economic benefits of his proposed diversion of sales-tax revenue to water projects:

The Governor’s office today asserted that his proposal to divert revenue from the school infrastructure sales tax to clean water initiatives “would mean more jobs for Iowa families.” This assertion is quite misleading, because the Governor puts his plan in a vacuum.

In fact, there are alternatives to the Governor’s plan, both in funding of water strategies and in the use of an already established statewide penny sales tax that he would divert from its intended purpose: school infrastructure. The study the Governor relied on makes it clear that researchers could not say whether the Governor’s diversion would create more jobs or fewer jobs than alternative uses of the funds.

The Governor’s news release cherry-picks the study’s findings, quoting a line from its executive summary, that on an annualized basis, “projected spending under this proposal would generate approximately $690 million in economic activity, 1,150 full-time direct employment positions and 2,800 total full-time positions.”

The statement conveniently ignores the next, and concluding, line of the researchers’ own summary of their findings: “However, it should be understood that alternative projects and proposals are likely to result in similar economic activity and employment.”

We make no conclusion about the researchers’ findings. That there are economic benefits in addressing Iowa’s significant problem with agriculture-induced water pollution will surprise no one.

What also would be no surprise is that economic benefits would result — perhaps more — from increased school infrastructure spending. The Governor’s plan diverts funds from that already designated purpose between 2017 and 2029, and would direct the lion’s share of growth in that revenue source to his preferences for the 20 years following.

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. Reports are at www.iowafiscal.org.

Unspoken budget choices for Iowa

Posted March 2nd, 2016 to Blog

DSCN5662-detail240200There’s a reason we can’t have the things we need. We keep giving money away, often without a good understanding of why we’re doing it.

A good example is the so-called “coupling” legislation now moving through the Iowa Legislature. It would do some sensible things, but others — not so much, and not for the reasons being promoted. Read more about it in this Iowa Fiscal Partnership policy brief.

Most of the cost of the coupling bill is for a business tax break. The Farm Bureau recently quoted one of its local leaders, Washington County Farm Bureau vice president Tye Rinner, that this provision is “really important to us right now.”

“We’re all in limbo right now waiting to see what’s going to happen and that’s keeping us from making the investments in equipment, buildings and other capital purchases, which would also create jobs in our rural communities,” Rinner was quoted.

Unfortunately, that message has little to do with the legislation under consideration. What is missed is that the bill at the Statehouse would make changes for only one tax year — and it’s one already past. The changes are retroactive to tax year 2015.

So if farmers or other business people wanted to make a capital investment that would benefit from the kind of tax provisions being proposed, they would not get the break. They’d be too late.

On the other hand, the bill would reward decisions already made. It’s not an incentive to do something they would not have done anyway — and it’s very costly. It’s about $98 million that was not in the budget for the current year, and would hit the ending balance.

In perspective, this must be seen as a budget choice, put up against other ways to use that $98 million, which would go against the resources on hand for the new fiscal year. You might have noted the difference between the House and Senate on a school aid number is 2 percent in supplemental state aid, whether to set per-pupil cost growth at 2 percent or 4 percent. The difference is about $85 million, according to the Iowa Association of School Boards.

So as you can see, we can subsidize business people to do something they already did without a subsidy, or for less money we can have a 4 percent increase in school aid. The House speaker says we can afford the first choice, but not the second. Both positions cannot be so.

2010-PFw5464Posted by Peter S. Fisher, Research Director for the Iowa Policy Project.
Contact: pfisher@iowapolicyproject.org