House and Senate still far apart on mental health property tax, inheritance tax timeline

By: - May 5, 2021 5:02 pm

Domes at the Iowa Capitol. (Photo by Kathie Obradovich/Iowa Capital Dispatch)

Gov. Kim Reynolds and Senate Republicans are in agreement on a tax proposal that would shift mental health funding to the state, accelerate income tax cuts and eliminate the inheritance tax. But House leadership is holding back, arguing that more planning is necessary for some major tax changes.

Reynolds rolled out her “compromise” proposal at a news conference Wednesday.

The central sticking point is a proposal to cut the mental health property tax. Currently, Iowa’s mental health system is funded through $100 million of regional property taxes. Reynolds proposes phasing out those property taxes, instead funding mental health services through state allocations.

There would be “guardrails” to ensure that services across the state remain equal under the new funding system, Reynolds said.

“We do that with the managed care providers: If they’re not meeting certain benchmarks or certain expectations, then we can withhold funding … It actually brings equity to the services,” she said.

Senate Republicans support Reynolds’ proposal. Majority Leader Jack Whitver, R-Ankeny, called it a “thoughtful, pro-growth compromise.”

The House disagreed. House Speaker Pat Grassley, R-New Hartford, told reporters Wednesday lawmakers had not yet taken the necessary time to plan the administration of mental health programs and safeguards.

“With where we are in session, and (with) as little conversation that happened within the last four months, I’m not convinced that we can get there and do it properly … if we’re going to take on another social program at the state level, we have to do it right,” he said.

Reynolds and Senate Republicans are also in agreement on the inheritance tax, which they plan to phase out entirely by 2024. The House proposed a slower approach, phasing it out over nine years. 

“We have always taken the most conservative approach. I don’t mean that as ‘we’re the most conservative’ … but we’ve always been cautious in our approaches,” Grassley said.

Reynolds and Republican leaders in both chambers are in agreement, however, on income tax cuts. Both proposals would repeal triggers enacted in 2018 that would allow the cuts to take effect only if the state reaches a certain revenue threshold. 

The Senate passed a proposal to eliminate the triggers in March. The House was slower to sign on. Grassley said Wednesday there was a new willingness to consider removing the triggers, though they had taken a “cautious approach” during the session so far.

“We’ve worked through session, got ourselves in a position where we felt that that could be part of a compromise, knowing how important that is to the Senate and the governor,” he said. 

The two proposals also included additional child care and housing tax cuts, although some funding numbers differed between Reynolds and the House.

Lawmakers must pass a state budget before they adjourn. Wednesday’s proposals focused primarily on tax policy — neither included specifics about budget discrepancies between the House and Senate, including several million dollar gaps on funding for the justice system and Regents universities.

What about the federal COVID-19 funds?

Iowa will receive billions through the American Rescue Plan, a federal stimulus package. But the legislation specifies that states may not use federal funds to either “directly or indirectly offset a reduction in the net tax revenue” in the state.

That could present a problem as Iowa lawmakers make tax cuts this year while the funding rolls in.

Grassley said Wednesday that, while there were many unanswered questions on the use of the federal funds, lawmakers would not be using the COVID-19 money to “offset any decisions that we would make” on tax policy.

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Katie Akin
Katie Akin

Katie Akin is a former Iowa Capital Dispatch reporter. Katie began her career as an intern at PolitiFact, debunking viral fake news and fact-checking state and national politicians. She moved to Iowa in 2019 for a politics internship at the Des Moines Register, where she assisted with Iowa Caucus coverage, multimedia projects and the Register’s Iowa Poll. She became the Register’s retail reporter in early 2020, chronicling the impact of the COVID-19 pandemic on Central Iowa’s restaurants and retailers.