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Policy Points from Iowa Fiscal Partners

Posts tagged Mike Owen

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.

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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

 


On big issues, Iowa leaders emerging locally

Posted July 23rd, 2015 to Blog

If state leaders won’t lead, local leaders in Iowa are showing they will take up the job.

On three big issues in the last several months, we have seen this:

I don’t know about you, but I’m beginning to see a trend.

Public policy matters in Iowans’ lives, in critical ways. We elect people who can take care of it in a way that works for all Iowans, but not enough who will. In the absence of state-level leadership, it’s inevitable, perhaps, that local officials who also are hired to work for their constituents will find a way to help them.

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

Big ‘Oops’ for tax-cutters in school vetoes

Posted July 15th, 2015 to Blog

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

And they should.

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

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

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

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

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

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

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

Veto words ‘ring hollow’

‘Governor Branstad’s words ring hollow in his decisions to cut education funding and to prevent greater access to child care assistance.’

IOWA CITY, Iowa (July 2, 2015) — The Iowa Fiscal Partnership released this statement from Mike Owen, executive director of the nonpartisan Iowa Policy Project, about actions taken late today by Governor Branstad on school funding and legislation that would have expanded eligibility for child care assistance:

 
Governor Branstad’s words ring hollow in his decisions to cut education funding and to prevent greater access to child care assistance.
 
First, the Governor is whacking $55.7 million in one-time funding for local schools and area education agencies from a budget compromise reached over many months by legislators. To defend this and other vetoes, the Governor speaks of concern about across-the-board cuts, when there is no threat of that possibility. These one-time funds for education were designated for one-time uses — in deference to the Governor’s previously stated concerns. The veto leaves schools with only 1.25 percent growth in the cost per pupil for the new fiscal year, well below schools’ actual costs — a legislative decision that will drive up property taxes for many districts. Neither the Governor nor the Legislature can claim accurately that they have provided sufficient funds for Iowa’s public schools, and the conclusion to this question comes 16 months past the legal deadline.
 
Second, low- and moderate-income Iowans face severe “cliff effects” — a sharp loss of resources — when their income rises enough to end their eligibility for child care assistance. A vetoed provision of SF505 would have lessened this effect for an estimated 200 families and nearly 600 children each month. These families, whose incomes are just below 150 percent of the federal poverty level (about $36,400 for a family of four), would have become eligible for child care assistance. This would have been a small but significant first step toward reducing the cliff effect. The Governor talks about increased incomes, but his veto means families will not be able to accept or seek small pay increases if it means they could no longer afford child care. The Governor’s claim that an improvement would “perpetuate” the cliff effect is to totally misunderstand the impact of this important benefit for low-income working families. Child care costs are not going down, and incomes are not rising fast enough for families to recover.
 
These issues are only two pieces of the package of decisions announced at the end of the day by the Governor’s Office. There will be more for Iowans to consider as the Governor’s decisions are reviewed more fully.

 

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. For more on the issues raised in this statement, see the IFP website at www.iowafiscal.org.

Budgeting in the dark

Posted April 13th, 2015 to Blog

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

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

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

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

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

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

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

How, then, do districts respond?

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

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

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

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

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

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

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