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Posts tagged Mike Owen

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.

A good deal if you can get it

Posted February 19th, 2016 to Blog

But research credit refund checks are poor fiscal stewardship

The millions Iowa gives to companies that do not pay state income tax is about the same amount of 1 percent in state school aid.

That’s one takeaway from the latest annual report from the state on Iowa’s Research Activities Credit (RAC). That tax credit is used far less to ease taxes than to shovel subsidies to big corporations outside the budget process, whether they pay taxes or not.

The report shows that in 2015, 248 companies had $50.1 in claims from this tax credit. Because the credit is refundable, companies get the full benefit no matter how much they owe (or don’t owe) in taxes. And the report shows that of those claims, 75 percent, or $42.1 million, were paid as checks to 186 companies that paid no corporate income tax to the state.

As we note in a summary by the Iowa Fiscal Partnership, each percentage-point increase in Supplemental State Aid for schools costs about $41 million to $43 million (Iowa Association of School Boards estimate).

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What’s more, the largest claimants — 20 corporations receiving over $500,000 from this credit — took the lion’s share of the benefit with $43.9 million overall (about 88 percent).

Many millions are spent this way every year, outside the budget process. These companies don’t have to compete for what are supposedly scarce public dollars needed for critical public services such as education, health care, environmental protection and public safety. The latter types of spending must compete in the budget process.

The Research Activities Credit is only an entitlement. And except for the occasional lawmaker willing to stand up to restore some accountability, there is silence from the General Assembly.

This is perfectly legal. In fiscal policy terms, however, it’s a scandal, because it is legal. Lawmakers refuse to even consider whether to take this spending off autopilot.

When they claim the state is too strapped for money to provide more for school aid or human services, lawmakers should admit they let corporations take what they want first.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
Contact: mikeowen@iowapolicyproject.org
For more information about the Research Activities Credit, visit www.iowafiscal.org

No taxes, big checks

Iowa has choices: Keep giving millions to companies that don’t pay Iowa state income tax — OR add 1 percent in school aid.

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FOR IMMEDIATE RELEASE MONDAY, FEB. 15, 2016

Big companies erase taxes — take millions in state checks

Research Credit annual report shows big companies keep gaining

IOWA CITY, Iowa (Feb. 15, 2016) — A lucrative tax subsidy is providing as much in checks to companies that don’t pay income tax as the state could use to pay for 1 percent in state aid to schools.

A new annual report from the Department of Revenue outlines the use of the Research Activities Credit (RAC), which in 2015 provided $42.1 million — about the cost of an additional percentage point in school aid — to companies that paid no state income tax. Most of that went to very large companies.

The state report, released Monday, shows that in 2015:

  • Claims by 248 companies totaled $50.1 million for the RAC and the related supplemental RAC for which some claimants are eligible.
  • Of those, 186 (75 percent) are companies that not only owed no state corporate income tax after applying the credit, but received state checks in return.
  • Eighty-four percent of the tax credits were paid as checks to the companies.
  • Very large claimants — companies with over $500,000 in RAC claims — had at least 85 percent of those checks ($35.8 million) while paying no income tax.
  • Rockwell Collins, Dupont, Deere & Co., John Deere Construction and Monsanto were the largest corporate claimants, as they have been for the past six years. Together, those five companies have claimed nearly $218 million from the RAC program from 2010-15. (See table below.)

“This spending outside the budget process is distorting the choices now on the table as state lawmakers consider what is available for schools, clean water, human services and public safety,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project.

“Is it a better use of taxpayers’ money to send millions in checks to profitable companies to do research they would do anyway, or to make sure schools can hire enough teachers next fall? That is the question that should be raised by this automatic spending on business tax breaks. To ignore it is a fiscal scandal.”

Overall, the credit program cost $57.1 million in calendar year 2015, with $50.1 million of that in claims by corporations and the rest by individuals. The credit is refundable, which means that if a company has more tax credits available than it owes in taxes, the state makes a payment for the difference. These so-called “refunds” — not of taxes owed but of credits in excess of taxes owed — accounted for 84 percent of all of the corporate research credits in 2015, according to the new report from the Department of Revenue.

The report is available on the Department of Revenue website at https://tax.iowa.gov/sites/files/idr/RAC Annual Report 2015.pdf

The Iowa Fiscal Partnership (IFP), a joint initiative of the Iowa Policy Project and another nonpartisan organization, the Child & Family Policy Center in Des Moines, has reported on the RAC for many years.

Owen noted that Iowans have access to more information about this credit than they did years ago because of the annual report, which was ordered by the Legislature in 2009.

All of the state annual reports on the RAC are available on the Iowa Department of Revenue website at https://tax.iowa.gov/report/Reports?combine=Research%20Activities.

Those reports show that the number of corporate claimants has grown from 160 in 2010, the first full year covered by the annual reports, to 248 in both 2014 and 2015. The number of claimants receiving the credit as checks, rather than to only erase tax liability, rose from 133 in 2010 to 181 in 2014 and 186 in 2015.

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Basic RGBAn IFP report last month showed that Department of Revenue forecasts indicate business tax breaks will grow by 13 percent from this budget year to the next, even though the debate over school aid focuses on numbers between 2 percent and 4 percent.

According to the Iowa Association of School Boards, each percentage point increase in Supplemental State Aid (SSA), costs about $41 million to $43 million.

“There is at least a legitimate question, one that lawmakers are refusing to consider, of why large, profitable corporations do not have to defend these millions of dollars in tax breaks and subsidies, when teachers and children’s advocates are going hat in hand to the Capitol for enough to keep up with basic costs,” Owen said.

A special tax credit review panel recommended in 2010 that the state curtail some spending on business tax credits. Among its proposals were to scale back “refunds” of the research credit, and to impose a five-year sunset on all tax credits to assure that the Legislature would have to vote to continue them.

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For more information about the Research Activities Credit and other Iowa tax credit issues, see the Iowa Fiscal Partnership website at www.iowafiscal.org.

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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.

Building blocks of inequity

Posted February 10th, 2016 to Blog

Iowa’s school funding process is broken.

Consider:

  • The Legislature repeatedly violates the law by failing to set state aid in time for districts to adequately plan their budgets.
  • The levels of funding lawmakers set — averaging less than 2 percent growth over the last six years — are routinely below the growth in costs that schools face.

As if those two things are not bad enough, inequities grandfathered into the school funding formula have not been corrected. While the four-decades-old formula was designed to reduce inequities between districts of higher and lower property values by augmenting property tax revenues with state aid, a gap persists.

Long and short: There is a $175 range in the “cost per pupil” that school districts must use as the building block of their annual budgets. While the minimum cost for this year is set at $6,446 per student, six districts are as high as $6,621.

The inequities have been known for some time. When combined with chronic underfunding, these inequities are magnified. In one case, Davenport school officials are defying state limits on use of their own resources to make sure their students have the same opportunity as students in other districts.

For example, as school budgets are based on enrollment, a district with 1,000 students and operating at the minimum — the state cost per pupil — is losing out on $175,000 per year in comparison with a district at the maximum. In a district the size of Davenport, that’s about $2.8 million a year.

What many Iowans might not realize is that their own school district may be in a similar situation to that of Davenport.

Few districts (only six) are at the maximum per pupil cost; most districts (84 percent) are $100 or more below the maximum per pupil cost. Nearly half of all districts (164 of 336) are at the minimum.*

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The more you look at this, you can see it is not a Davenport issue, but an Iowa issue, and a failure of public policy.

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

 

*Iowa Department of Management, www.dom.state.ia.us/local/schools/files/FY16/DistrictCostPerPupilAmountsAllFY2016.xls

State aid up 13 percent — for business breaks

Posted January 28th, 2016 to Blog

What do you expect would be the outcry if Iowa’s public schools asked for 13 percent growth in state aid?

Yet few bat an eye when this happens with business tax breaks, as we can expect for FY2017.*

The early scorecard gives business tax breaks the big edge, a 13 percent increase, vs. between 2 and 4 percent for schools.

The Senate approved 4 percent for FY2017 (covering next school year), but the Iowa House on Monday approved 2 percent — even though schools have averaged less than 2 percent for six years, from FY2011-16.

In fact, the Iowa Association of School Boards this year did not even ask for a specific growth number, but rather, that it be set in a timely manner (it’s almost a year late already), and “at a rate that adequately supports local districts’ efforts to plan, create and sustain world-class schools.”

That hasn’t happened for some time. Over the last six budgets, per-pupil growth has been held to 2 percent or below in all but one year. Depending on enrollment trends, some districts even see less.

Basic RGB

Business tax breaks do not face the same budget constraints — ironic, since the cost of those breaks limits what lawmakers permit themselves to spend on services that their constituents demand, not the least of which is education. Other areas — environmental quality, child care, health care and public safety — also are constrained.

A much greater percentage increase in business tax breaks is set in place, as shown below. The total increase of $71 million from this budget year to the one lawmakers are working on now actually may be understated. The $35 million for a new sales-tax exemption for manufacturers is considered a conservative estimate. Even at $71 million overall, however, it represents a 13 percent increase.

160108-IFP-Budget-Fig2FB

Spending on business tax breaks is rarely burdened by the public scrutiny and debate that comes with spending on schools and water programs, which must be approved annually.

Most business tax breaks, once passed, are never touched again unless they are expanded. And as shown by the sales-tax break for manufacturers scheduled to begin this summer, a break may never receive legislative approval but still become law. The Governor is implementing this one on his own, with a split legislature unable to stop him.

Budget choices? Instead of that $35 million in FY2017 for the new sales-tax break, the Legislature could provide about 1 percent growth in per-pupil school funding. We can expect to find another 1 percent in what we’ll spend in checks to companies that do not pay any state income tax, but have more research tax credits than they owe in taxes.

Perhaps one day we will treat all spending the same, whether the spending comes before or after revenues reach the state treasury. Then the wealthy corporations can compete directly for their tax breaks against education for the skilled people they want to work for them.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
Mike Owen is a member of the school board in the West Branch Community School District, first elected in 2006.
* For more about Iowa tax breaks for business, see Peter Fisher’s report for the Iowa Fiscal Partnership, “Here a tax break, there a tax break, everywhere a tax break.” http://www.iowafiscal.org/here-a-tax-break-there-a-tax-break-everywhere-a-tax-break/

Reading, ’Rithmetic & Politics

Posted January 18th, 2016 to Blog

First, Governor Branstad challenged the bounds of basic math — miscounting jobs — and now it’s language arts.

The Governor reportedly got a little testy last week at a Des Moines Register editorial board meeting. Among his complaints: references to a “diversion” of revenue from a state sales tax for school infrastructure to support water-quality improvements. From the Register:

Branstad, in particular, took issue with the idea that his proposal diverts money away from schools.

“I can’t see how you can possibly call it a diversion when schools are going to get at least $10 million more guaranteed every year, plus a 20-year extension,” he said. “They’re sharing a small portion of the growth.”

Well, here’s how you call it a diversion:

diversion
[dih-vur-zhuh n, -shuh n, dahy-]
noun
1. the act of diverting or turning aside, as from a course or purpose: a diversion of industry into the war effort.
dictionary.com

Under the Governor’s plan, there is a “diverting or turning aside” a share of sales-tax revenues from their currently authorized “course or purpose,” school infrastructure, from FY2017 beginning July 1 this year, to FY2029. This is illustrated by Governor’s own handout on the plan. See the one-page document his office provided the media on Jan. 5.  The graph at the bottom of that page (reproduced below), shows the diversion shaded in blue, beginning with the black vertical line and running to the red dotted line.

160105-water-school-graph
Of course it’s a diversion. In fact, the diversion continues if the tax — which would not exist before or after FY2029 without voters’ intent for its use in funding school infrastructure — is extended to FY2049.

May future debate focus on whether the Governor’s proposed diversion is a good idea, not the fact that he has proposed it.

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

 

 


Privatizing Medicaid: ‘Why?’ ‘What?’ ‘How?’ not yet answered

Posted November 3rd, 2015 to Blog

060426-capitol-swwWhy do we have Medicaid? It’s a simple question with a simple answer. We have Medicaid because if we don’t, there are millions of Americans, and nearly 600,000 Iowans, who will not be able to get health care. Private industry will not provide it.

Why, we must ask, would we turn over to private industry a critical part of our public safety net to business interests that operate with a principal purpose of making money?

How do we assure that services are provided, that our responsibilities are met, if the people running the operation are not answerable to us?

As the legislative Health Policy Oversight Committee meets today about the Governor’s privatization edict on Medicaid, we need to remind ourselves of these basic questions.

When the Governor cannot detail the purported savings and our common sense tells us otherwise, we need an assurance that data will be available — and publicly available — to monitor what is happening with a service that has been accountable and efficient in expanding health-care access to Iowans who need it. We need to know Iowa is not setting itself to repeat problems that have been demonstrated in other states.

What will pass for public oversight after we’ve turned over the keys to private industry?

Over three dozen people and organizations filed comments (available here) with the oversight committee for today’s meeting at the Statehouse. Many have a firsthand understanding of the purpose and practice of Medicaid as we know it, and serious questions of their own about the uncertain world where the Governor is taking us, on his own.

Clearly, many fundamental questions have not been fully vetted through the legislative process, nor given a hearing before the decision was made within the Governor’s Office.

How we assure health care access to low-income Iowans needs to be the central issue here, not an afterthought.

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

New rule! Governor wants to make laws himself

Posted October 14th, 2015 to Blog

We all know the drill: The Legislature passes bills and the Governor signs or vetoes them, whereupon they become either laws, or nothing.

Not anymore, apparently.

The move by the Branstad administration to implement a new sales tax break worth an estimated $40 million a year — possibly more — is taking place outside the legislative session. If it succeeds, we have entered a new world of executive authority in Iowa.

Business lobbyists wanted the change, it could not pass the Legislature, and the administration thinks it has found a short cut: Change the longstanding interpretation of the existing law. Presto, tens of millions of dollars will be available for manufacturers. And those same tens of millions of dollars will not be available for schools.*

Consider a Des Moines Register guest opinion by Mike Ralston of the Iowa Association of Business and Industry, a lobbying group representing manufacturers who would benefit from the change:

Part of the change affects Iowa’s existing sales and use tax exemption for machinery and equipment used in the manufacturing process.  The change is sound policy.

If that’s the case Mr. Ralston wants to make, let him make it during the legislative session. This rules change skirts the legislative process, and Iowans are noticing. Jon Muller writes in an insightful piece on the Bleeding Heartland blog:

It’s easy to look at political discourse today and conclude everything is a battle between Democrats and Republicans, the left and the right, liberals and conservatives. But far more is going on with this issue. … A Democrat will surely be Governor again someday, and it would be a mistake to set a precedent that allows the Executive Branch to so drastically change the tax climate. If Republicans in the Legislature do not stand up against this unprecedented over-reach of power, they will almost certainly live to regret it.

James Larew, an Iowa City attorney who was general counsel to former Governor Chet Culver, served for four years as Culver’s appointee on the Administrative Rules Review Committee, a panel of legislators who have the authority to delay the rule change from taking effect. He advised the panel: “This is new territory. What is sauce for the goose eventually becomes sauce for the gander, too.” Larew went on:

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 government — is more serious and more lasting.

Broad interpretive powers given up by the Legislature, in one moment of time, concerning one issue, are not easily, later recovered.

As the Cedar Rapids Gazette opined in an editorial, the change “breaks the rules of good government.” The Gazette wrote:

The Branstad administration should drop its rule change bid and make its case to the General Assembly, which is elected to craft a budget and write tax policy. If it’s truly a great idea that will create jobs, as the department contends, surely the sales job won’t be that difficult.

Many businesses, we often note at IPP and the Iowa Fiscal Partnership, already pay no income tax in Iowa, and they just had their property taxes slashed. The corporate appetite for tax cuts is insatiable. Guess who pays?

*  Note: The Department of Revenue estimate of the cost of this tax break to both the state and local governments is over $40 million for each of the first four full years of implementation, according to a document provided the Administrative Rules Review Committee. The Legislative Services Agency has told ARRC that it does not have enough information to determine the accuracy of that estimate. We have revised the initial version of this blog post to reflect this uncertainty, until state officials agree on an estimate.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project