DES MOINES — The 2018 legislative session is headed for overtime.
Republicans who control both chambers of the 87th General Assembly and GOP Gov. Kim Reynolds are going to need more than the 100 scheduled days to get their work done with the two biggest hurdles to adjournment — state income tax cuts and a fiscal 2019 state budget — still standing in the way.
GOP leaders last week moved closer to resolving differences between the House and Senate over the size and scope of the tax cuts they contemplate by starting to move their competing plans through committees, with the ultimate goal of reaching a compromise in negotiations.
A factor prodding legislators to bring this year’s session to a close is that their daily expense money runs out after Tuesday.
“We’re still having conversations with the House and the governor to hopefully come to agreement on that tax plan. Once that’s done, then we can start working on the budgets and hopefully wrap up,” said Senate Majority Leader Jack Whitver, R-Ankeny.
“Having both plans out there moves us a step closer to finding some agreement on that and so the fact that both are moving through committee I think is a good sign,” he added. “Here in the Senate, we’re interested in putting the taxpayer first. We want to know what that tax plan looks like before we start working on the budget. Once we have the tax plan done, the budgets are pretty close to agreement so it shouldn’t take long after that.”
On the House side, Speaker Linda Upmeyer, R-Clear Lake, said majority Republicans are looking at a plan that would provide relief to taxpayers but within a “responsible, stable” approach that won’t “break the bank, so to speak” — maintaining government obligations to education, Medicaid and other priorities without undercutting the revenue needed to pay for them.
They do so by offering a plan to cut state personal income taxes by $1.3 billion over five years while protecting budget sustainability in future years, she said.
The House plan does not eliminate the ability of filers to deduct federal tax liability from state taxes, and does not change the current corporate tax rates. But it would provide state tax cuts to individuals totaling $140 million in 2019 and $300 million in 2020.
“The projections show that returning these dollars still allow us the room to fulfill the obligations and responsibilities and expectations of Iowans,” said Upmeyer, noting the projected impact on the general fund would be $99 million in fiscal 2019 and $197 million in fiscal 2020.
Plans offered by Senate Republicans and the governor do seek to eliminate federal deductibility, and the Senate approach envisions cutting state corporate income tax rates after 2021.
Reynolds’ tax reform package sought to cut individual income tax rates by 23 percent, resulting in $1.7 billion accumulated relief, by 2023. The governor also recommended triggers that would slow implementation based upon economic conditions and state revenue growth.
Senate Republicans up the ante, starting with an 8 percent across-the-board cut in personal income taxes in tax year 2019 that grows to overall relief of nearly $2 billion in five years if certain economic bench marks are met. It also includes triggers and a plan to eliminate federal deductibility, cut rates more, compress brackets, reduce the corporate tax rate and make other changes.
Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee, said the “bold but prudent” changes slated to take effect beginning in January would allow taxpayers to pay $733 million less in state income taxes in the first two years of implementation.
After that, if Iowa’s economy produces more than 3.6 percent in revenue growth a year, the excess money would flow into a trust account until it hits $200 million. At that time, the money would be used to buy down rates, eliminate federal deductibility and begin lowering corporate income taxes in 2021.
“I think there is a lot of common ground. I think the House and the governor’s office, we all believe that we have to do something significant with tax reform so now it’s just a matter of the minutiae of how we get there,” Feenstra said.
When fully implemented, the Senate GOP plan would reduce Iowa’s top personal income tax rate from 8.9 percent to just under 6 percent, compress nine tax brackets into four and lower the corporate tax rate from 12 percent now to about 7 percent, he said.
At the same time, GOP senators still expect to provide about $200 million in new spending next fiscal year and $235 million for fiscal 2020, after closing fiscal 2019 with a budget cushion of about $136 million on June 30, 2019.
Rep. Guy Vander Linden, R-Oskaloosa, chairman of the House Ways and Means Committee, said he likes the cautious course House Republican have chosen and wants more details about those numbers for new spending under the “bold but prudent” Senate plan.
“In my aviation background, we used to say that there are old pilots and bold pilots, but no old, bold pilots,” said Vander Linden, a former Marine officer and helicopter pilot. “And I think that may apply to tax relief as well.”
Legislative Democrats question whether the state can afford any aggressive tax cuts at a time they say the budget is in crisis due to Republican mismanagement.
This is the second year in a row of midyear budget cuts brought on because tax collections haven’t kept up with expectations. They doubt already-strained government programs and services can be maintained with adequate resources while significantly reducing the tax revenue needed to support a general fund hovering around $7.2 billion.
Rep. Dave Jacoby, a Coralville Democrat who is ranking member on the House Ways and Means Committee, said Democrats are interested in smart tax policy, too, but the “math just doesn’t add up.”
Jacoby said his household might receive a tax break of a couple hundred dollars under a GOP tax cut. But he asked reporters, “What the heck good is that going to do when the tuition for both of my daughters is going up $800 a kid? That doesn’t help if we’re not funding education. Again, it’s a budget mess.”
After seeing state funds rolled back again in this budget year, the Iowa Board of Regents last week began discussions aimed at raising tuition for students attending the University of Iowa, Iowa State University and the University of Northern Iowa.
Proposed base tuition increases for resident undergraduates at the UI and ISU are 3.8 percent, while UNI is asking for a 2.8 percent increase. With mandatory fees, which also are increasing, along with room and board and other costs, the average estimated cost for a resident undergrad next academic year is about $21,369 — or $533 more than this year.
“The proposed tax cuts in this difficult agricultural time is more like a ruse to somehow make the election candidates look good,” said Regent Larry McKibben, a Marshalltown Republican who previously served in the Iowa Senate.
The governor and GOP leaders in the House and Senate said they are attempting to balance needs of the state with the desire to make sure federal tax cuts estimated to be at least $1.8 billion for Iowans make their way into taxpayers’ pockets, rather that create a windfall only for the state government.
Iowans likely will get a better picture of those taxing and spending issues this week when negotiators start piecing together the final version of a tax-cut package, and once the budget subcommittees get fiscal 2019 spending targets.
“We always get these things worked out, and we will,” said Vander Linden. “As to the mechanism, I hope it can be done quietly in conversations without having to go to a conference committee, but if that’s what it takes then that’s the way we will do it.”
So far, the only fiscal 2019 budget work lawmakers have done was passing a 1 percent increase, or $32 million, in supplemental state aid for K-12 public schools. That was less than the 1.5 percent the governor had wanted.
At that time, Reynolds proposed a $7.447 billion general fund spending plan that would have been a 2.7 percent increase. Then last month, legislators erased a projected general-fund shortfall still this year by cutting $25 million in funding to state agencies and repurposing $10 million in uncommitted revenues to go into the general fund account.
That action was intended to leave the state with a projected ending balance of $31.9 million on June 30.
Iowa has a law limiting spending to 99 percent of the budget, but GOP leaders have indicated they expect to spend less than that when they release their fiscal 2019 targets.
Also still unresolved as legislators march toward adjournment are the issues of banning or regulating traffic-enforcement cameras, toughening abortion restrictions, providing state money to parents who want to send their children to private schools, revamping energy efficiency and utilities regulations, addressing Iowa’s opioid epidemic and fledgling medical cannabis program, and legalizing sports betting.