Staff Editorial

Gov. Reynolds' tax plan hits education, other services

Iowa Gov. Kim Reynolds at the Iowa Statehouse in Des Moines, Iowa, on Tuesday, Jan. 14, 2020. (Jim Slosiarek/The Gazette
Iowa Gov. Kim Reynolds at the Iowa Statehouse in Des Moines, Iowa, on Tuesday, Jan. 14, 2020. (Jim Slosiarek/The Gazette)

Education and other programs will take a big hit if the Governor’s tax bill becomes law. That bill would increase sales taxes, cut income and property taxes, and partially fund the Natural Resources and Outdoor Recreation Trust Fund.

The governor has acknowledged that a large share of the funding she proposes for the Trust Fund would simply replace existing funds. This is contrary to state law, which requires that all of the three-eighths of a cent be new money, and it is contrary to the voters’ understanding when the constitutional amendment was passed in 2010.

Less widely understood is the impact of this bill on funding for education, health, infrastructure, public safety and other programs in the state’s general fund. The impact in fiscal years 2022 and beyond is large: about $175 million less every year available in the general fund.

The latest analyses from the Legislative Service Agency show a net loss of $110 million to the general fund in Fiscal Year 2022, the first full year under the new tax regime proposed by the governor. But that is the loss before the $77 million that the bill would divert from the general fund to pay for property tax cuts.

The bill proposes new state funding of regional mental health services to substitute for property tax funding. That $77 million cost for additional tax cuts would thus drive the general fund loss to $187 million every year, offset slightly by shifting about $12 million in natural resource programs out of the general fund. Net effect: $175 million less for everything else.

This large reduction in the general fund is due to the governor’s insistence that the net effect of her bill be a reduction in tax revenue. Cutting taxes while providing some new money for natural resources and recreation produces a loss in funding for everything else.

Since education — pre-K through 12, community colleges, the state universities — accounts for 53 percent of state general fund spending, the result is unavoidably less money for education.

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To put that in perspective, state funding of preK-12 education has been held to an average growth of 1.8 percent over the past 10 years. An additional 1 percent growth, to bring funding back near the 3.1 percent average annual growth during the first decade of this century, would cost about $40 million. In fact, growth was 4 percent in six of the 10 years from 2002 through 2011. Bringing state funding for preK-12 to that level would cost more like $80 million.

What Iowans were saying when they voted 10 years ago was quite simple: Please raise our sales tax by three-eighths of a cent and use all the additional money for new recreation and natural resources programs.

That would indeed fulfill the governor’s words when she asks lawmakers to “Invest in Iowa.” Instead we have a bill that gives us less than half of what Iowans overwhelmingly voted for and, to add insult to injury, forces cuts in the other real investments Iowans want: in our health, education and safety.

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. He received his Ph.D. in economics at the University of Wisconsin and is professor emeritus of Urban and Regional Planning at the University of Iowa. Comments: pfisher@iowapolicyproject.org.

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