The Real Story Behind Iowa’s Budget Problems

Iowans can be forgiven for not recognizing the dramatic change occurring in how our state operates. After all, no one stood up and announced officials were embarking on this change.

But it is time for the people of Iowa speak up and make their views known about the direction we are headed. Otherwise, we may not like the destination that awaits us.

During this year’s session of the Legislature — and during recent sessions, too — there have been signs showing the route Iowa is following.

Two signs this session involved the Legislature’s decision to grant a puny 1.1 percent increase in state aid to Iowa’s K-12 public schools and another decision to require the three state universities, 15 community colleges and other state agencies to cut their spending by about $100 million between now and June 30.

The reason given by Gov. Terry Branstad and legislative leaders isn’t complicated: The state’s revenues are not keeping up with state government spending. More about this later.

There isn’t anything state and local government do that is more important than educating our children. For much of Iowa’s history, the state has done an outstanding job. That has paid dividends for Iowa — creating jobs, providing appealing places for people to raise families, and luring out-of-state businesses and people to move here.

But Iowa has been coasting for too long, in spite of Branstad’s pledge to make Iowa’s schools world-class institutions. Our schools are not keeping pace with the improvements other states have made — and Iowa isn’t going to keep pace with a 1.1 percent increase in state aid.

To understand just how small an increase that represents, consider: For a family with a household income of $50,000, that 1.1 percent provides $550 to cover all the higher costs for next year.

For a school, that 1.1 percent needs to cover the rising cost of fuel for buses, the higher cost for textbooks, price increases for food for lunchrooms, and a modest increase in salaries for teachers, custodians and secretaries.

Back to why tax revenues and state government spending are out of sync:

Legislative leaders and the governor would have you think that government spending is simply growing too fast to keep up with state tax collections. But that’s not a completely honest description.

In reality, the Legislature and governor have been giving away a growing portion of state tax revenues to certain businesses and various special interests. A study in 2010 by the Iowa Department of Revenue and Finance put the cost of those tax cuts, exemptions and tax credits at $12 billion per year, compared to the state general fund that stands at $7 billion per year.

Those giveaways have caught up with the state.

There once was a substantial budget surplus that lawmakers pointed to as justification that various tax cuts, exemptions and credits wouldn’t really cost the state anything. That surplus is gone and state officials now have to reduce spending to offset the giveaways.

Some of those tax breaks have been around for decades and Iowans support them. A good example: Most food bought at supermarkets is exempt from the state sales tax. That saves consumers about $435 million annually.

There are others that are more challenging to justify:

One is a research tax credit. The state now provides certain businesses with tax credits to help offset the cost of their research activities in Iowa.

But here’s an important wrinkle: If the state income tax bill of John Deere or Rockwell Collins, for example, is less than the value of their research tax credits, the state sends them a check to cover the unused credits.

Even with lawmakers wrestling with how to balance the state budget this year, they are still working to get new tax giveaways approved.

The Cedar Rapids Gazette recently took note of the wide array of proposals that would make the gap between state revenue and spending even larger. The state is on track to soon be giving away $2 in potential tax revenue for every $1 it collects.

The latest proposals would include phasing out the state inheritance tax (costing the state $195 million per year), phasing out the income tax on retirement income (costing $340 million annually), exempting limousine services from the state sales tax, allowing purchases of European honey bees to be excused from the sales tax, letting paper recycling mills skip having to pay sales tax on their sewer bills, and exempting nonprofit blood centers from paying the sales tax on supplies they buy.

There may be good arguments for each of these. But Iowans need to decide whether they want tax giveaways to force government to operate with fewer and fewer state troopers, with trash pickup and maintenance occurring less often in our state parks, with larger class sizes in our K-12 schools, with fewer state highway maintenance garages, and in countless other ways in which smaller taxpayer support shapes the services government can provide.

Remember, it’s difficult to cut your way to prosperity.

by Randy Evans
Reprint from Bloomfield Democrat
Posted 3/21/17