Branstad signs tax-policy compromise

Governor warns that declining revenue makes school funding 'sensitive issue'

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DES MOINES — Gov. Terry Branstad signed a tax coupling compromise Monday designed to ease some Iowans’ 2015 income tax burdens, but noted slippage in available state revenue will make funding schools “a sensitive issue” within the proposed $7.35 billion fiscal 2017 state budget that is being crafted.

“The budget is extremely tight,” Branstad told his weekly news conference, more so than when he submitted a budget proposal in January that sought an increase of 2.45 percent in state aid to K-12 school districts next fiscal year. He said a revised revenue report last week that lowered collections by $46 million made budget negotiations “a challenge for everybody.”

“I think we’ve got to be very careful and very cautious about making commitments that we cannot afford,” the GOP governor said as the split-control Legislature moves into a critical budget-making period with about one month left in the 2016 session.

At the forefront of budget talks is an effort to set next year’s school aid level — with Branstad’s proposed increase at 2.45 percent, House Republicans favoring 2 percent and Senate Democrats advocating 4 percent.

A House-Senate conference committee was scheduled to reconvene Tuesday after legislators met privately to discuss a state aid compromise that several said was in the 2.25 percent range, but top leaders declined to confirm any numbers.

“This is a very sensitive issue and it’s one that we want to try to work with them,” Branstad said of a school-funding issue that likely will get resolved this week with a compromise spending level beginning July 1. “We want to try to work out something that will be a consensus recognizing that nobody likes the (revenue) reduction, but it is something that we have a responsibility to live with.”

The tighter state budget was due to a combination of the bipartisan tax compromise and a change in the March state revenue projection. House File 2433, which Branstad signed Monday, would “couple” state and federal income tax changes for calendar year 2015, resulting in roughly $98 million in tax relief that would reduce this year’s projected ending balances with some previously expected revenue going uncollected. The measure also would write into law a scaled-back version of the state sales tax applied to purchases of certain manufacturing products.

“I’m pleased that the Legislature was able to come together and reach a consensus on this bill,” Branstad said in a statement. “I support coupling for one year and placing into Iowa Code an exemption for supplies consumed in manufacturing from the sales tax that will help Iowa taxpayers and businesses.”

Signing H.F. 2433 will affect the state’s ledger along with an expected supplemental spending bill in the neighborhood of $70 million that leaders of the Legislature are formulating to cover a projected Medicaid shortfall and issues related to the fiscal year that ends June 30.

Top House and Senate leaders met last week to discuss budget topics including a school-funding compromise and were awaiting financial runs on various spending scenarios that would form the basis of further discussions, said Senate Majority Leader Mike Gronstal, D-Council Bluffs.

“I think within the near future we will have an agreement worked out with the House and the Senate,” Branstad told reporters.

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