DES MOINES — The Iowa Senate on Tuesday evening passed a massive overhaul of Iowa’s mental-health services delivery system that is currently funded by local property taxes.
Senators voted 30-17 along party lines to revamp mental-health financing by shifting the cost of regional services from Iowa’s 99 counties to the state and phasing out the $152 million “backfill&” to cities, counties and schools that was part of a 2013 compromise to replace local revenue they lost when commercial and industrial property tax rates were cut by 10 percent.
“We were elected here to do bold changes, bring big ideas and make the state of Iowa a better place. This bill today accomplishes some of those goals,” said Sen. Dan Dawson, a Council Bluffs Republican who managed Senate File 587.
The measure now goes to the Iowa House, where its outlook is uncertain.
With property assessments and valuations rising, Dawson, chairman of the Senate Ways and Means Committee, said “people need property tax relief. People also come forward year after year and say we need a better way to fund mental health. We do that in this bill right here.”
Senate File 587 would eliminate the mental health property tax levy over a two-year period, with county levies reduced to no more than $21.14 per capita for fiscal 2022 and reduced to zero beginning in fiscal 2023.
To replace the mental health levy, the state would provide for per-capita appropriations to counties ranging from $15.86 for fiscal 2022 to $42 by fiscal 2025. Beginning in fiscal 2026 and beyond, the previous year’s appropriation is multiplied by a growth factor indexed to sales tax growth for the preceding fiscal year — not to exceed 1.5 percent.
“The math works,” said Dawson, who noted the state investment for year two is $120 million. Proponents estimated the property tax relief impact of the bill at about $100 million.
“First and foremost, it reforms our mental health funding,” said Dawson, who pointed to disparities among the current 14 regions that make up the mental-health system in Iowa.
“This wipes away the property tax levy and treats all Iowans equally on a per-person distribution basis across the state,” he said. “So no matter where you are in Iowa, you will receive the same quality mental-health funding as any other place in the state and care.”
However, minority Democrats said the planned state takeover of mental-health costs was a rushed proposal that has not been properly vetted.
Sen. Joe Bolkcom, D-Iowa City, said the bill was the product of private discussions that did not include a full public airing from county and other local officials and the mental-health experts who will be directly impacted by the major overhaul.
Democrats have charged the legislation is a political favor for the Iowa Farm Bureau Federation and other conservative interests that helped deliver all but six — mostly rural — counties for Republicans during the 2020 election.
“This bill is a shell game,” Bolkcom told his Senate colleagues. “It starts by breaking a promise that will result in a property tax increase and cuts in local essential services. It also makes a new promise that will be broken as sure as I am standing here today.
“The Des Moines takeover of our locally controlled mental health and disability services will hurt and destabilize the entire regional system that we’ve worked so hard to build and grow.”
However, Sen. Roby Smith, R-Davenport, pointed to past “doom and gloom, Chicken Little the sky is falling” predictions by Bolkcom that have not materialized in a state with a budget surplus even during a COVID-19 pandemic.
“Your track record is zero,” Smith told Bolkcom. “Over and over again, you’re wrong.”
Sen. Jackie Smith, D-Sioux City, a former county supervisor, said she is concerned what impact the change will have on the regional service delivery that is working and will merely shift burdens among taxpayers.
The bill would amend provisions related to county fund balances by requiring all county fund balances to be pooled by the region.
Other elements would phase out the commercial and industrial property tax replacement funding for local governments while adjusting the school foundation percentage to account for lost revenue from the backfill.
The bill would eliminate the public education and recreation levy for school districts; establish an additional elderly property tax credit for those above the age of 70 who qualify; remove the 2018 income-tax “triggers” already included in a previously passed Senate bill; repeal the charitable conservation contribution income tax credit; and require the state to certify the management of property enrolled in the forest and fruit tree reservation property tax exemption program and renew the exemption every five years.
Dawson said there’s general agreement the current capped property tax funding system for mental-health services in not sustainable.
Senate Republicans have come up with a new stream of funding that will mean more money and a “growth factor” for the future with a per-capita distribution model that will eliminate current disparities among varying county property tax levies, he said.
The bill would provide a state appropriation of $60 million in fiscal 2022 — $50 million goes directly to the regions on a per-capita basis and $10 million goes to a mental health risk pool fund. State funds will be distributed to the regions on a quarterly basis starting July 1.
In fiscal 2023, the bill provides an additional $65.4 million in state general-fund appropriations for a total of $125.4 million — the year that the mental health property tax levy is completely eliminated. About $120.3 million will be distributed to the regions and an additional $5.1 million will go to the risk pool.
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