CORONAVIRUS

Coronavirus may derail Iowa Gov. Kim Reynolds' tax-swap plan

She is revising budget, may ax her Invest in Iowa proposal

Iowa Gov. Kim Reynolds speaks at her daily news briefing April 15 at the State Emergency Operations Center in Johnston.
Iowa Gov. Kim Reynolds speaks at her daily news briefing April 15 at the State Emergency Operations Center in Johnston. Reynolds on Tuesday said she is revising the fiscal 2021 budget she has presented to lawmakers and that her tax-swap Invest in Iowa plan may be set aside. (Brian Powers/Des Moines Register)

JOHNSTON — Another possible casualty of the coronavirus emerged Tuesday — Gov. Kim Reynolds’ proposed Invest in Iowa Act.

During Tuesday’s briefing with reporters, Reynolds said she and her budget team this week will revise the fiscal 2021 budget to present to state legislators when they return to work in May.

She noted the proposal likely won’t include her centerpiece tax-swap plan to fund water quality, mental health, income tax relief and other initiatives that she envisioned in January.

“I’m seeing some sad faces from my team that have worked so hard on Invest in Iowa,” the GOP governor said during the briefing at the state’s emergency operations center.

“In light of everything that we’re facing right now, it’s really too early to see the impact of COVID-19, so we’re monitoring that very closely,” she said.

“Iowa is very fortunate that our cash reserves are strong, that we have strong fiscal health going into COVID-19, but it’s going to require all of us to revisit our budget,” she said. “... That probably means that Invest in Iowa is going to have to be put on hold.”

The governor’s multipronged Invest in Iowa Act, unveiled in January, sought a 1 percent sales tax increase while cutting income taxes by 10 percent, funding water quality and easing property taxes by shifting mental-health costs to the state and phasing down property tax levies.

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The plan — which she said amounted to an overall tax reduction — would generate about $540 million a year.

Of that, $172 million would go to natural resources, conservation, outdoor recreation and water quality.

More than $80 million a year would be earmarked for mental health.

In a recent interview, House Speaker Pat Grassley, R-New Hartford, said GOP majority leaders and the Republican governor have not discussed tax-policy changes or proposals since lawmakers suspended their 2020 session in March. The Legislative Council is slated to meet Wednesday to pass a resolution further extending the session pause to at least May 15.

“I think there is a realization that there is going to be a focus on making sure that we can fund the things that we have to fund, and as we build the budget making sure that we can fulfill those commitments,” Grassley said.

Sen. Jake Chapman, chairman of the Senate Ways and Means Committee, said the coronavirus pandemic has changed the budget and tax policy outlooks significantly from when the 2020 legislative session started in January.

“Realistically, it certainly puts a different light on that agenda, but I still think it’s important that we find ways to find (tax) relief, particularly in difficult times,” Chapman said in an interview.

“To the extent that there could be support for those types of measures, I would say they’re still on the table, but it would be very difficult given the current circumstances,” he added.

Chapman said he wants legislation drafted to clarify that federal stimulus checks of up to $1,200 that individual Iowans received and that paycheck protection program (PPP) grants to small businesses will not be taxed as income.

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“The whole purpose of those is to provide relief, and I think it would be counterproductive for us to say we’re going to take a portion of that from you through income taxes,” he said.

Chapman also said he did not want to see employers get hit with higher rates if funds being depleted from the state’s unemployment insurance trust fund trigger an increase “when they’re already reeling.”

He said lawmakers are going to have to be “very cautious” when budgeting and “looking at worst-case scenarios” as they try to assess the ongoing impact on state tax collections due to the pandemic.

Comments: (515) 243-7220; rod.boshart@thegazette.com

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