Branstad signs supplemental spending bill, vetoes tax breaks for business and working poor

DES MOINES – Gov. Terry Branstad on Thursday approved $46.7 million in supplemental spending to pay past-due bills for indigent defense services and fund other state operations through June 30, but he struck down tax breaks for businesses and lower-income Iowans while accepting a GOP-pushed taxpayers' trust fund.

The governor said he used his item-veto authority to insist on broad tax relief, vowing to work with both parties in both chambers to build a tax relief package that promotes economic growth in Iowa.

“I am pleased to sign Senate File 209 to provide indigent defense funding, funding for the Department of Public Safety, Department of Human Services and Department of Corrections,” said Branstad. “I commend the House and Senate for making these supplemental appropriations in areas where the cuts would have adversely affected the health and safety of Iowans.”

Legislative Republicans applauded the governor's decision to accept the special taxpayer relief fund while Democrats criticized him for “blind-siding” working families with his veto pen.

“I don't how the governor can sleep tonight after vetoing a bi-partisan tax cut that would have helped 240,000 working Iowa families making less than $45,000 a year. He is thumbing his nose at his own party and at middle-class Iowans struggling to recover from the national recession,” said Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee and a co-leader of the House-Senate conference committee that negotiated the S.F. 209 compromise.

Without dissent, the House and Senate this week sent the governor supplemental funding that included $18.6 million to pay unmet obligations for state's indigent defense and public defender programs, $14.2 million for the state Department of Corrections, $5.9 million for community colleges, nearly $3 million to restore cuts to the Iowa State Patrol and public safety functions, $1.2 million for public health, and more than $2.6 million for mental health institutions with the state Department of Human Services for the current fiscal year that ends June 30.

The bipartisan measure also created a taxpayers' trust fund – a special account that would capture up to $60 million annually from the state's general fund ending balance to be available for providing tax relief effective in the fiscal year that begins July 1, 2012 – as part of the overall $141 million worth of tax relief included in the S.F. 209 compromise.

On Thursday, Branstad kept the special taxpayers' account but struck the other tax-related issues. Earlier this week he told reporters he did not propose the taxpayers' relief fund but it was something he could “live with.” He said other tax-related policy changes should be geared toward job-creation efforts and be addressed as part of a comprehensive reform package.

The provisions Branstad struck from the measure would have increased the earned income tax credit from 7 percent to 10 percent for about 240,000 working families making up to $45,000 annually, and would have provided bonus depreciation tax briefs for businesses that make equipment and machinery purchases.

“I'm pleased the governor signed the taxpayers' trust fund, giving Iowa taxpayers a seat at the table,” said House Speaker Kraig Paulsen, R-Hiawatha. “Obviously, I'm disappointed that he chose to veto portions of the bill. House Republicans will continue to fight for tax relief for Iowans.”

Branstad said Wednesday he believed it would be better to address all outstanding tax-related issues in a comprehensive way that would improve the economic climate while reducing tax and regulatory barriers to businesses that create jobs.

“With our limited budget, that is best accomplished by reducing our commercial property taxes which are second highest in the country and our marginal corporate tax rate which is the highest in the nation,” the governor said in his veto message that accompanied S.F. 209. “As earlier indicated, it is my desire to approach tax policy in a comprehensive and holistic manner. As such, I urge members of the House and Senate to continue to work with my office on an overall tax reduction package that both fits within our sound budgeting principles while reducing those taxes that are impeding our state's ability to compete for new business and jobs.”

Speaking with reporters earlier Thursday, Senate Majority Leader Mike Gronstal, D-Council Bluffs, said the governor and his key aides had worked to mediate much of the S.F. 209 compromise and it “would be a horrible mistake” for him to turn around and veto some items. “I don't really call that an honest effort at being a broker mediating the differences between the House and the Senate,” he said.

Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee and a conference member, said the governor's item vetoes could have a negative impact on efforts to negotiate a budget agreement as the 2011 session shuts down.

“The bipartisan compromise passed unanimously by the House and Senate earlier this week will help small businesses and 240,000 working families,” said Rep. Tyler Olson, D-Cedar Rapids, a conference committee member.

“Unfortunately, Governor Branstad's reckless action today unravels the compromise. His insistence on rewarding special interests and big corporations at the expense of small businesses and middle class families is bad for Iowa and a serious blow to bipartisanship.”

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