Statehouse Republicans reach agreement on Iowa tax cuts, mental health funding

The Iowa Capitol domes (The Gazette)

DES MOINES — A significant overhaul of state tax policy and mental health funding is in the works, as Republicans in control of the state lawmaking process appear to have finally reached agreement on myriad funding streams and policies.

The agreement that has proved elusive for weeks at the Iowa Capitol surfaced late Monday, when Republicans announced a compromise that signals the end of the 2021 legislative session is near.

The Iowa Senate moved quickly, debating and passing the sweeping legislation Monday evening, mere hours after it was introduced.

Senate File 619 passed the Senate on a 29-17 vote, with Democrats Tony Bisignano and Kevin Kinney joining all Republicans in support of the measure. It now moves to the House for consideration there.

“Not only is this something big and something bold, this is something we can take back to our constituents and say we did something fair, something right, something good,” Sen. Dan Dawson, R-Council Bluffs said during debate.

Sen. Dan Dawson, R-Council Bluffs

Democrats in the Senate said they support many measures in the bill, but they argued for keeping the “backfill” funding to cities, counties and schools.

Eliminating that funding from the state, they argued, will force local governments to raise property taxes or reduce services in order to maintain their budgets, so either way, it increases the burden on Iowa taxpayers.

“You (Senate Republicans) are voting to raise property taxes across our state. It’s that simple,” Sen. Zach Wahls, D-Coralville, said during debate.

Sen. Zach Wahls, D-Coralville

Dawson argued that local revenue growth since the backfill was created, plus recent federal pandemic relief funding for cities and counties, should enable local governments to keep their budgets whole while the backfill is phased out.

What bill does

The bill’s significant provisions include:

Removing state revenue “triggers,” which were put in place in 2018 to ensure state revenues reached a certain level before additional tax cute were implemented. Removal of the triggers would ensure the tax cuts go into effect in 2023.

Shifting the funding for mental health care services from local property tax revenue to the state’s general fund. Providers would be paid the same for services whether provided in-person or virtually.

Phasing out the state’s $152 million “backfill” to cities, counties and schools that was part of a 2013 compromise to replace local revenue lost when lawmakers cut commercial and industrial property tax rates by 10 percent.

Doubling the income threshold — from $45,000 a year to $90,000 — where families can claim child care tax credits.

Phasing out the state’s inheritance tax over five years.

Exempting from state income tax any COVID-19 grant money and federal pandemic relief loans awarded to businesses.

House action

Earlier Monday, Democrats on the House budget committee gave “conditional” support to House File 893, the House version of the compromise.

Rep. Chris Hall, D-Sioux City, said there are parts of the bill “that give my members pause” as well as other pieces they have supported, such as child care measures and telehealth parity.

Democrats’ support was based, in part, on their hope the Senate didn’t make major changes.

“At this point in the session,” House Ways and Means Chairman Gary Mohr, R-Bettendorf, said, “I can’t take that to the bank.”

Despite unified control of state government, Iowa Republicans in the House, Senate and governor’s office spent weeks negotiating some of those provisions.

“Because of the disciplined budgeting practices of Iowa House Republicans over the last decade, Iowa is in a strong fiscal position to further reduce the tax burden on Iowans,” Iowa House Speaker Pat Grassley, R-New Hartford, said in a statement.

Rep. Pat Grassley, R-New Hartford

“I’m proud of the role House Republicans played in making this bill the best possible outcome for Iowans.”

Comments: (563) 333-2659; erin.murphy@lee.net

James Q. Lynch of The Gazette contributed.