Legislators call governor’s agenda ‘bold’ but stop short of pledging passage

Republican leaders noncommital on sales tax increase; Democrats question offsetting tax cuts

Iowa House Speaker Pat Grassley stands and applauds during Iowa Gov. Kim Reynolds' 2020 Condition of the State address on Jan. 14. (Photo by Linh Ta/Iowa Capital Dispatch)

Gov. Kim Reynolds on Tuesday announced what may be her most ambitious agenda to date, centered around a one-cent sales tax increase that would be offset by cuts in income taxes, property taxes and other state revenue streams.

Her proposals focus significantly on workforce development, environmental challenges and mental health, but also delve into abortion and maternal health care, flood recovery and a gamut of other issues.

“These changes will make our vision a reality. It’s an investment in our future. And it’s an investment in those who are our future,” Reynolds said during her Condition of the State message.

Reynolds worked to establish a long-term vision for the state. She said Iowans can’t afford to become complacent. “That’s why this year, in 2020, we need to plan for 2030 and 2040. We need to seize the opportunities that exist so that years from now, the next generation of Iowans will inherit an Iowa whose greatness comes as no surprise to anyone, including New Yorkers,” she said.

The reference to New York came from a state promotional video featuring a fake real estate office that attempted to lure New Yorkers with Iowa’s lower cost of living and short commute times.

Republican legislative leaders said they liked her overall message but were cautious on many of the details.  “Look at the other times we’ve made tax adjustments in the state. It takes time,” House Speaker Pat Grassley, R-New Hartford, said.

Iowa Senate Majority Leader Jack Whitver, R-Ankeny

Senate Majority Leader Jack Whitver, R-Ankeny, noted the complexity of the governor’s plan. “It’s definitely a bold plan that has a lot of different moving parts. To put together the moving parts is going to be difficult, but that’s why we’re here is to solve difficult issues,” he said.

Sen. Jake Chapman, R-Adel, chairman of the tax-writing Senate Ways and Means Committee, noted that Senate Republicans in 2018 were proposing a billion-dollar tax cut.  “They want bold ideas when it comes to tax reform,” he said. “How can we transformationally change our tax climate?” He wouldn’t say whether he considers Reynolds’ proposal to be a significant tax cut, saying he needed to see more of the details.

Democratic legislative leaders acknowledged they share some of Reynolds’ goals, especially on finding money for water quality and mental health. “What I think is lacking would be a serious discussion about dealing with the health care crisis in Iowa,” House Democratic leader Todd Prichard of Charles City said. 

Senate Democratic leader Janet Petersen, Des Moines, questioned the ability to pay for priorities if GOP lawmakers cut taxes again.

Senate Minority Leader Janet Petersen is a Des Moines Democrat.

“Based on what I’ve heard Republicans say, they wanted a very big tax package and looks like she’s given them their wish,” she said. “Now it will be up to Iowans to see how is that going to impact everything we care about from our healthcare services to our education to making sure that we can actually function as a government.”

Here’s a look at some of Reynolds’ key proposals:

  • Water quality and outdoor recreation: The sales tax increase would fully fund the Natural Resources and Outdoor Recreation Trust.  Reynolds has proposed to change the formula for spending that money so that $99.5 million – roughly half the available dollars – would be committed to water quality and $52.3 million would go toward conservation and recreation.
  • Expand mental health programs:  Invest more than $80 million in state dollars toward the mental health system.  This money would be offset by reducing the share of property taxes going toward mental health.
  • Increasing state aid for preK-12 schools by $103 million, including $5.5 million for school district transportation needs.  
  • Expand workforce development programs: Two existing programs, Last Dollar Scholarship and the Employer Innovation Fund, would be increased by $2.8 million each, bringing the total investment to over $20 million. Reynolds also called for expanding registered apprenticeship programs and a $4 million increase in the Employer Innovation Fund that supports education and workforce development initiatives.
  • Increase support for child care: People who make up to $90,000 would become eligible for the existing early childhood development and child and dependent care tax credits. Currently, the income limit is $45,000. Reynolds’ plan also expands eligibility for child care assistance with a new, tiered, co-pay system for families earning from 185 percent to 225 percent of the federal poverty level. Reynolds’ plan also would increase payments to child care providers for 3-year-olds by classifying them as toddlers, and challenging employers to provide child care with help from the Employer Innovation Fund.
  • Reform Iowa’s professional licensure laws, including allowing professionals licensed in other states to practice in Iowa if certain conditions are met and creating a consistent standard of review for license applicants with criminal convictions on their records.
  • Criminal justice reform:  Reynolds is again calling on lawmakers to pass a constitutional amendment to automatically restore voting rights to people who have served their sentences on felony charges. Her proposals also include expanding treatment capacity in Iowa’s prisons and expanding support for prisoners re-entering society.
  • Health care:  Aimed mainly at addressing rural shortages of health providers, Reynolds’ program would spend $400,000 to expand OB/GYN training for physicians. She’s also proposing $5 million to help expand telehealth providers and allow schools to be recognized as a site for telehealth services. Reynolds also called on lawmakers to pass a constitutional amendment providing that there is no right to abortion in the state constitution.
  • Expanding broadband services, increasing by $10 million the existing broadband grant program.
  • Ag and rural development: Reynolds proposes a $2 million increase for the renewable fuels infrastructure program and a $500,000 increase for foreign animal disease preparedness. Reynolds also calls for increases in programs for housing and community leadership.
  • Flood recovery: Reynolds said she is budgeting $20 million for flood relief.

How’s she paying for all that? Reynolds’ budget contains a 4.4 percent spending increase in the state’s general fund, for total spending of about $8 billion in 2021.   That’s below the $8.3 billion in available general fund dollars provided under the state’s spending limitation.

The one-cent sales tax increase would raise an estimated $540 million from Iowans who would pay an extra penny on every dollar they spend. Most Iowans pay 7 percent sales tax now, including state and local-option taxes. Current law exempts food and medicine from sales tax; Reynolds’ proposal would also exempt diapers and feminine hygiene products.

“I have no interest in raising taxes, so any increase in revenue from a sales tax must be more than offset by additional tax cuts,” Reynolds said.  Her plan reduces tax revenues by a net $7.3 million, according to budget details released by the governor’s office.

Reynolds’ tax plan would:

  • Cut individual income taxes an average of 10 percent by 2021. Her plan would lower the highest tax rate from 8.5 percent to 5.5 percent by 2023.  The number of tax brackets would be reduced over time, starting at the current nine and ending up with four brackets in 2023. Income tax savings would total nearly $171 million. 
  • Reduce property taxes by lowering the county mental health levy from $47.28 per capita to $12.50.   That would reduce the maximum statewide mental health levy by $77.1 million.  
  • Eliminate the water excise tax, for a savings of $9.2 million; expands child care tax credits, $5.3 million; expands a tax credit for physicians who train other doctors, $8.1 million. The sales tax exemptions Reynolds proposed would total $4.5 million.

Reynolds’ agenda is online at https://governor.iowa.gov/vision-for-iowa

— Iowa Capital Dispatch Reporter Linh Ta contributed to this report.