Reynolds proposes mental-health overhaul and $400 million in tax cuts

Iowa Gov. Kim Reynolds announced Wednesday that she has assembled a “compromise” budget plan that will phase out Iowa’s property tax-based mental health system and provide $400 million in tax cuts for Iowans.

The proposed budget, she said, repeals the inheritance tax, expands child care and workforce housing, and creates what she called “sustainable funding for mental health services.” The proposal will result in the elimination of $100 million in property tax collections as the state takes over the funding of mental health services.

House Speaker Pat Grassley sounded a cautionary note after the governor’s announcement Wednesday, stating that just because the plan was touted as a “compromise” by the governor, neither Reynolds’ plan nor the House’s proposal had been approved by both chambers of the Iowa Legislature. “They’re not agreed-to compromises,” he said.

“Iowa has the 12th highest property taxes in the nation, and we’re the only state that levies them statewide to pay for mental health services,” Reynolds said at her press conference. “And it’s time that we changed that … The compromise proposal that I have presented would remove the mental health levy, thus cutting property taxes statewide by 100 million (dollars) and paying for mental health services from the state’s general fund, as we do with other services. This would ensure sustainable funding and create incentives for better care through performance-based contracts and will establish guardrails for regional expenditures and equity of services, ensuring statewide outcomes.”

With regard to telehealth services that many rural Iowans rely on, she said her plan requires health insurance carriers to reimburse Iowans for remotely delivered mental health services on the same basis, and at the same rate, as the carrier would for the same services if they were provided in person. The requirement, she said, will ensure that “Iowans can access the care that they need regardless of where they live.”

Peggy Huppert, executive director of NAMI Iowa, a mental-health advocacy organization, said she was surprised and enthusiastic about the governor’s proposal.

“I’m super-excited that this has happened,” she said, citing the proposed per-capita funding for mental health services and the plan’s inclusion of performance-based contracts to provide accountability. “We’re always saying it shouldn’t matter what ZIP code you live in, you have the right to the same mental-health services regardless of where you live and this is a big step toward that,” Huppert said.

Reynolds said her plan also includes “a comprehensive approach to addressing Iowa’s housing needs” that will help foster a rapid economic recovery. She said that through workforce housing tax credits and loan guarantee programs, Iowa communities will be able to offer “affordable housing options that attract workers” and boost the economy.

The governor’s office released a rough outline of her proposal that says the housing tax credits will entail $40 million set aside the fiscal year that begins July 1, and $35 million for each subsequent years, with money allocated for both urban and rural areas.

The outline indicates there will also be a “downtown loan guarantee program” to encourage reinvestment in downtowns, but it does not indicate how much money would be dedicated to that effort. The outline suggests that the state will guarantee loans of up to five years for “community catalyst or Main Street grant projects” that include a housing component.

The plan would also expand the number of Iowans who are eligible for child care tax credits, from those earning less than $45,000 annually to those earning less than $90,000 per year.

“We have significant federal dollars that are coming in that can help us really launch some of these different programs,” she said. “Projections show that even with modest revenue growth, and the implementation of this tax relief compromise, Iowa will still be in a strong fiscal position with our cash reserves full and robust ending balances.”

She said the state’s strong fiscal position, and the fact that local governments in Iowa are set to receive nearly $1.2 billion in federal American Rescue Plan funding will “ensure our readiness to overcome unforeseen circumstances just as we’ve successfully done throughout the pandemic.”

— Katie Akin and Kathie Obradovich contributed to this report.