Iowans received a mixed message this month when state officials finally found middle ground on state K-12 education funding.
To put the lesson in context, we have to look back at last year’s K-12 spending debacle and Gov. Terry Branstad’s veto of a portion of the legislature’s 2015 compromise deal. The veto came just before the July 4 holiday, announced via email from the governor’s office. The legislative deal — a 1.25 percent increase with an additional $55 million in one-time funding — had been forged during a hard, six-month slog. Branstad took exception to the one-time spending and chose to use his line-item veto authority to remove it from the budget.
“Maintaining the fiscal health of Iowa over the long term is my top budgeting priority,” Branstad said then, stressing his dislike of one-time money on grounds that such deals could lead to the “across the board cuts that occurred under the previous administration.”
Lawmakers were angry with the veto and its timing. Some rallied for a special session that could be used to override the governor’s pen but, despite their espoused anger, lawmakers didn’t have the votes. The veto stood, and Iowa school districts began another year without adequate funding — and, in violation of Iowa law, continued uncertainty about the following year’s funding level.
The 2016 K-12 funding deal came hand-in-hand with a tax policy compromise — ironically served with a side of pessimism about state revenues. Branstad had previously called for lawmakers to set a 2.45 percent increase in school funding, but noted the revised revenue report had him rethinking the figure.
“I think we’ve got to be very careful and very cautious about making commitments that we cannot afford,” Branstad said during a weekly news conference, noting that the state budget was growing ever tighter.
But the revised revenue report was only part of the reason the state’s budget belt was tightened a notch.
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The legislature approved and Branstad signed House File 2433, which “coupled” state and federal income tax changes for calendar year 2015 and codified a scaled-back version of state sales tax breaks for manufacturing products.
The income tax change would allow Iowa businesses with capital investments during the 2015 calendar year to take higher federal rates, essentially “coupling” Iowa rates with those at the federal level and providing a tax break. The new sales tax exemptions are permanent.
This income tax “coupling” doesn’t allow Iowa businesses to plan purchases or other capital investments; it applies only to 2015 and what has already been spent — likely with no expectation of receiving an added Iowa tax deduction.
“I support coupling for one year and placing into Iowa Code an exemption for supplies consumed in manufacturing from the sale tax that will help Iowa taxpayers and businesses,” Branstad said of the tax bill.
As Branstad makes clear, the 2015 income tax break is one-time money, the very thing that led to his concern and veto of K-12 funding last summer.
Estimates of state revenue lost as part of the income tax portion of the tax compromise range from about $80 to $100 million, which is roughly the same amount needed to provide a 2 percent increase to Iowa schools. In other words, absent the business-centric tax breaks, there would have been room for an additional 2 percent K-12 funding increase, or 4.25 percent total.
Legislative bickering over school funding hasn’t stopped in the wake of the compromise. And, as more districts outline their plans for either revenue increases (read: property tax hikes) or spending reductions (read: layoffs and program cuts), we can expect the rhetoric to increase.
The paltry 2.25 percent increase means that many Iowa school districts with declining enrollment will receive no new money.
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Districts in predominantly urban areas that have seen an uptick will have funding increases beyond the 2.25 percent level. All districts will need to balance existing commitments against the new state assessment and summer literacy mandates that arrived without funding.
Yet, some lawmakers seem to see this as schools digging their own graves.
“‘Oh, my goodness! We’re going to have to cut teachers or programs or whatever.’ No kidding!” said Iowa Rep. Chip Baltimore, a Boone Republican, mimicking district concerns. “That’s what happens when you know what your revenue’s going to be, but you decide to spend more anyway.”
Baltimore and like-minded lawmakers have taken issue with districts who have entered into agreements with teachers and administrators that include pay increases.
Nevermind that school districts entered such negotiations blindly because state lawmakers were more than a year late in providing school funding numbers, or that lawmakers are responsible for the collective bargaining rules that generally place school districts at a disadvantage.
Unlike school district officials, state lawmakers have the power to direct and simplify the conversation. If the real debate brewing behind school funding is discontent with collective bargaining, the only reason to starve school districts is political — to achieve an ideal climate to accomplish the end goal.
It’s a shell game Iowa’s middle class families can no longer afford to play.