Gov. Kim Reynolds on Thursday said she is “pausing” one of her centerpiece proposals on mental health and environmental programs because of COVID-19’s effect on the economy.
Reynolds had originally shelved the Invest in Iowa Act late last session when the economic disruption of the coronavirus pandemic had made a proposed 1-cent sales tax increase to pay for programs ill-advised in her view.
Now, she is setting the plan aside again due to concerns about the pandemic and its affect on employment and the economy.
“We’re not through COVID yet and we’re still not sure of the impact that will have on our economy moving forward, so at this point I’m going to pause the Invest in Iowa initiative,” Reynolds told reporters at a meeting arranged by the Iowa Capitol Press Association.
Previously, she had indicated she would lay out her plans during her Condition of the State address next week.
Reynolds said she is more interested in following up on tax cuts made in 2018. “We are always looking for ways that we can help hard-working Iowans keep more of their hard-earned money,” Reynolds said.
The Iowa Capital Dispatch recently reported that lawmakers from both parties continued to oppose the sales tax plan, making it appear the Invest in Iowa Act would stall without major revisions. Some Republican leaders said they would look to adjusting tax breaks, which might free money for some of the work envisioned in the act.
Invest in Iowa would have funded the states’ decade-old but penniless Natural Resources and Outdoor Recreation Trust Fund, and an improved set of mental health programs. The sales tax increase would have been offset by reductions in property and income taxes in Reynolds’ plan.
Iowa voters in 2010 overwhelmingly approved the constitutionally protected trust fund, in large part to address water quality issues caused by farm runoff and other pollution. The fund was designed to be filled with the proceeds from a sales tax increase that lawmakers have declined to debate on the floor of the chambers.
Reynolds’ envisioned $171 million a year for water quality projects, outdoor recreation and conservation projects on farms and other land. At the same time, counties would be able to shift mental health expenses from local property taxes to the sales tax.
Reynolds said she is looking for sustainable funding for mental health services, beyond using some of the CARES Act funding. She did not address water quality funding during Thursday’s session.
In a separate meeting Thursday afternoon, legislative leaders said they will continue to look for tax cuts to add to the packages in the 2018 bill.
“Iowa has had an uncompetitive tax climate for a long time, and it was because a political leaders for the last two decades didn’t have the courage to actually address the issue, which was our taxes were too high,” said Senate Majority Leader Jack Whitver, R-Ankeny. “What they would do is they would come to the Capitol, they’d see where the pressure was, and they’d give a tax credit or a tax exemption to relieve that pressure, instead of doing broad-based tax reform that helps every single time.”
Whitver said the 2018 bill was meant to be the beginning of broad-based tax reform. “We’re proud of the progress we’ve made on our tax climate, but we also understand that our tax climate is not where it needs to be in the long run,” Whitver said. “So long as I’m the majority leader and so long as we’re in the majority, we’re going to continue to lower tax rates.”
Said House Speaker Pat Grassley, R-New Hartford: “Obviously we’ve made a lot of strong decisions with our budget to leave us in a position where we have the ability to make further reductions on the tax burden of Iowans. That’s part of a big tax conversation that has to happen.”
House Minority Leader Todd Prichard, D-Charles City, said Democrats may consider supporting further tax cuts, under certain circumstances. “Possibly so,” Prichard said. “The state has weathered the pandemic, as far as (revenue) numbers are concerned, relatively well.”
But Democrats have concerns about who benefits from the tax cuts. “What we’re really talking about is in 2018, those tax cuts really disproportionately went to the wealthy and big business,” Prichard said. “If you’re talking about tax cuts for working Iowans to make housing more affordable, daycare more affordable, to help with health care and education costs, then we want to be part of that conversation.”
Iowa business organizations have consistently mentioned Iowa’s relatively high corporate taxes as a major barrier to development.