IOWA LEGISLATURE

Governor Reynolds' tax plan lacks excitement, momentum

But key players say process needs more time

Iowa Gov. Kim Reynolds looks at a teleprompter as she delivers the Condition of the State speech at the Iowa Statehouse
Iowa Gov. Kim Reynolds looks at a teleprompter as she delivers the Condition of the State speech at the Iowa Statehouse in Des Moines, Iowa, on Tuesday, Jan. 14, 2020. (Jim Slosiarek/The Gazette)

DES MOINES — After spending 40 days clearing away legislative underbrush, majority Republicans are finding the path ahead still isn’t very clear as they wrestle with an approaching decision whether to raise the state’s sales tax.

GOP leaders say their priority issues are progressing in the 2020 session’s winnowing process, but they are still working to build consensus on Gov. Kim Reynolds’ multipronged Invest in Iowa initiative that seeks a penny sales tax increase while cutting income taxes, funding water quality and easing property taxes by shifting mental-health costs to the state.

The governor has embarked on a statewide tour to build public support for her plan to revamp Iowa’s tax code and provide a reliable, sustainable funding source for mental-health services and quality-of-life improvements, but her toughest sales pitch will be at the Statehouse.

“I’m going to work on it but I think Iowans are going to ultimately be the ones to convince them to do it,” Reynolds told an Iowa PBS “Iowa Press” audience Friday. “We’re traveling the state holding town halls and we are receiving just phenomenal support and excitement about the Invest in Iowa Act.

“It’s an overall tax reduction and I want to make sure that that’s clear. I had no interest in raising taxes,” she added. “So I said from the get go, if we’re going to take a look at finally funding the trust, then it has to be an overall net tax reduction and the bill does that.”

Legislators say they like pieces of the complex package with multiple moving parts and are keeping an open mind, but carrying the entire plan across the finish line in the remaining two months of the 2020 session may be too heavy of a lift before they hit the election-year campaign trail.

“My sense is there’s not a lot of excitement about it, but I have a rather limited focus,” said Sen. Ken Rozenboom, an Oskaloosa Republican who has been working on the funding formula that would be used to distribute part of the sales tax proceeds to environmental, natural resources and outdoor recreation projects.

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“A bill like this, there’s a process that people have to understand and learn and react to and question,” Rozenboom noted. “It seems like a lot of things have to happen for it to move forward. From my perspective, I’m not hearing a groundswell of support at this point.” But he added “I’m not ready to bury this thing by any means, either.”

House Speaker Pat Grassley, R-New Hartford, said it’s still relatively early in the process and there is much more in-depth analysis that is going to be needed to understand the interplay of the various elements of the plan and to bolster lawmakers’ comfort levels.

“It’s a very difficult process to work through,” said Grassley. “Is there a willingness to raise the sales tax? That’s where it starts and then, if you do, what do you do with it? It’s a big piece of legislation.”

Senate Majority Leader Jack Whitver, R-Ankeny, said there is interest within his GOP caucus, which holds a 32-18 majority, to address the mental-health piece, to revamp and accelerate the “triggers” in the 2018 tax reform efforts to make tax cuts faster, and to further slash income and property taxes.

Whether that’s accomplished using the Invest in Iowa framework or some other approach remains to be seen and likely will take the entire schedule 100-day session to play itself out, he noted.

“It’s going to be a heavy lift, we all knew that,” said Sen. Tim Kapucian, R-Keystone. “That whole bill needs a funnel date to narrow our focus.”

Under Reynolds’ plan, legislators are being asked to approve a one-cent sales tax increase with a share going to fulfill a 2010 constitutional amendment to the Iowa Water and Land Legacy (IWILL) trust fund.

Part of the $540 million raised annually by going to an 8 percent tax of each dollar of eligible sales would fund water quality, conservation and outdoor recreation programs using a formula revised from what was established by the Legislature in 2010, when voters approved a referendum to create the trust.

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The rest of the sales tax increase would go reduce income tax rates and brackets, and establish a new permanent state funding mechanism for mental health services currently paid for by county property tax levies.

Rep. John Wills, a Spirit Lake Republican who is the third-highest leader in the Iowa House, said the governor has offered a “bold” plan but indicated it may not stay intact as it works its way through the legislative process.

“I have no idea where we’re at on that,” said Rep. Rob Bacon, R-Maxwell, one of the House GOP’s 53-member majority who noted his constituents’ views have ranged from full speed ahead on the governor’s plan to opposition to raising the sales tax. “It’s taken 10 years just to get it this far. There are 53 in our caucus and 53 ideas.”

Sen. Michael Breitbach, R-Strawberry Point, said his experience with complex legislation or big programs is that there are a lot of details that get hammered out but with the Invest in Iowa package “I don’t see the necessary things happening for me to feel confident that the bill is going to move forward.

“I just don’t think there’s enough people on treadmills getting it going,” he said.

And even though the entire plan is being packaged as a net tax decrease, Breitbach added, “people are still going to see it as a tax increase, I think.

“I just don’t think there’s been enough conversation that I could see this large of a bill move. I think it’s going to be a multiyear thing,” he said.

Rep. Lee Hein, a Monticello Republican who chairs the House Ways & Means Committee, said even though the 2020 session just cleared the first “funnel” deadline that pares down legislators’ workload, the clock is ticking on a major legislative initiative with many unanswered questions.

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“It’s just a matter of are we going to move the whole package, are we going to move part of the package or are we going to sit back and go out and talk about it on the campaign trail and then come back after giving it a good, thorough vetting with the public? I mean there’s lot of options,” he said.

“We are fast approaching the point where we need to decide are we going to do it all, are we going to do parts of it or are we going to sit back — what’s the best option for the people of Iowa?” he added. “That’s a decision that each one of us has to make.”

Across the Capitol rotunda, Hein’s counterpart, Sen. Jake Chapman, chairman of the Senate Ways & Means Committee, said the focus of Senate Republicans is making significant tax cuts. He said the governor has spelled out some bold, ambitious goals but there is concern whether those cuts should be coupled with a sales tax increase and how that would play in border communities competing with other states.

“The conversation as to whether it’s appropriate to increase the sales tax to reduce income taxes — for us that would have to be a pretty substantial cut before we have those serious conversations as to whether or not we would increase the sales tax,” he said. Right now, Chapman said, the overall projected net tax reduction of about $7 million “is not enough for me to be excited about.”

“This is a caucus that put out a billion-dollar tax cut” in 2018, Chapman noted. He said the governor’s call for a 10 percent across-the-board income tax cut is a bold proposal but he added “personally, I just don’t think it’s deep enough. We’re going to look at ways to cut taxes even deeper.”

Chapman said “everything is on the table at this point” but he added he did not campaign to make Iowa’s sales tax one of the higher rates in the nation. “That, in my opinion, is not a winning message. I did not run on that. I ran on smaller, efficient government that puts more money back into the pockets of Iowans.”

Even though there’s a net tax reduction associated with the governor’s plan, said Kapucian, “somebody’s going to end up paying more. That’s just the way those things work out.”

Some legislators have expressed concern that the trust fund proceeds from the sales tax increase would be used to supplant existing state revenue without necessarily increasing the overall commitment and would hurt elderly and poorer Iowans who would not benefit from income tax cuts but would pay more in sales tax. Most notably food and prescription medications are exempt for taxation in Iowa.

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“I think the proposal has too many moving parts and has too many bad things connected to it. That’s my impression but we’ll see,” said Sen. Rob Hogg, D-Cedar Rapids. “I don’t see how parts of it move because they’re all interconnected in the governor’s proposed budget. I just think it’s got too many negative features to it to get the support of a majority in both chambers.

“I think it really is hard to put all that into something that can pass,” he said.

Ultimately, what legislators settle on will have implications for the fiscal 2021 state budget that is under construction, said Breitbach, chairman of the Senate Appropriations Committee.

He said majority Republicans in the House and Senate won’t be able to set their spending targets for various budget functions until the two chambers can reach agreement on how much to increase supplemental state aid to K-12 schools — a decision that has gone past the self-imposed Feb. 13 deadline.

Breitbach said Senate Republicans have set an overall spending level of just under $7.999 billion and have about $235 million in new dollars to work with and a good share of that will go to K-12 schools given that House Republicans want to boost spending by about $108 million while GOP senators are about $15 million below them.

Grassley told reporters last week that he remains optimistic a deal can be reached so school administrators can plan heading into next month’s deadline to certify their budgets for the upcoming school year.

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

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