Lawmakers Working on “Painful” 12-Percent Cut to State Government Print
Commentary/Politics - Iowa Politics
Written by Lynn Campbell   
Friday, 27 March 2009 14:51

Mike GronstalThe Iowa legislature's budget subcommittees worked this week to craft budgets for various areas of state government that would cut an average of 12 percent after state revenue estimates were lowered by $269.9 million next fiscal year, making layoffs almost a certainty.

Iowa Senate Majority Leader Mike Gronstal called the decline in state revenues "the worst I've ever seen" in 27 years in the legislature and said everything is at risk of being cut.

"I wouldn't say there's anything off the table," said Gronstal (D-Council Bluffs). "These are incredibly challenging times. ... We will do, probably in some cases, across-the-board stuff. We will also make selective cuts."

Nineteen full-time positions would be eliminated from the Department of Commerce under a budget bill approved Thursday by the legislature's administration and regulation budget subcommittee. The Department of Revenue would also lose about nine employees, and the governor's office would lose two.

"We know that what we're doing today is affecting programs, affecting state employees and affecting the state of Iowa," said Representative Bruce Hunter (D-Des Moines), the committee's chair. "But we also know that under the situation we find ourselves in, we're doing the fiscally sound thing."

The bill would reduce general funds for the state auditor's office by 26.6 percent and for the governor's office by 24.9 percent. However, the auditor's office only gets about 11 percent of its money from the general fund, and cuts to the governor's office include moving two full-time positions from his office to the Rebuild Iowa Office. The Office of Drug Control Policy would see 83.3 percent less funding, but that will be replaced with federal dollars.

Meanwhile, nonviolent Iowa criminals might be given a way to shorten their sentences under one of the budget-cutting proposals being considered by members of the legislature's justice-system budget subcommittee.

And Department of Cultural Affairs Director Cyndi Pederson said the department would likely have to cut 25 seasonal employees. That would lead some Iowa landmarks to close, such as the site of the 1857 Spirit Lake Massacre and the Clermont home of Iowa's 12th governor, William Larrabee.

"It's going to be difficult and it's going to be painful," Gronstal said. "I think people will see some pain that goes along with this. I think people will see things that don't get done that they'd like to get done."

As for the current fiscal year that ends June 30, revenue estimates have been lowered by $129.7 million, but a portion of Iowa's $1.9-billion share of federal economic stimulus money will likely be used to prevent another across-the-board budget cut, House Majority Leader Kevin McCarthy said.


Democrats Unveil Tax Plan; Opposition Mounts Campaign

In a battle that's been 30 years in the making, Iowans for Tax Relief is launching a massive television, radio, and direct-mail campaign to fight an elimination of federal deductibility that's poised to begin moving through the Democrat-controlled legislature next week.

"I don't believe there will be a Republican vote for it, and we're going to make it real hard for them to have 51 votes to pass it," said Ed Failor Jr., president of Iowans for Tax Relief. "It's such a simple thing to explain. That money that's taken out of your paycheck, the state of Iowa wants to make you pay a tax on that, that you never get to spend. I can infuriate almost anybody with that immediately."

The Muscatine-based group will spend "hundreds of thousands of dollars" on its ad campaign, which it expects will last three weeks or until the end of the legislative session. The TV ads were designed in December and January in anticipation of Democrats trying to eliminate federal deductibility this year. Hundreds of thousands of direct mail pieces will also be sent out.

Iowa is one of only three states with federal deductibility, along with Louisiana and Alabama. Governor Chet Culver, Senate President Jack Kibbie, and House Speaker Pat Murphy have all voiced support for eliminating federal deductibility this year.

Democratic legislative leaders on Thursday unveiled a plan that would generate $595 million by eliminating the ability of Iowa taxpayers to deduct their federal tax liability on their state income-tax returns. It would then take all of that money to reduce Iowa's tax rates and increase tax credits for families, the elderly, and the blind, so the state won't take in more money.

"The proposal would provide a middle-class tax cut, make our income-tax system more fair, simpler, and more competitive, especially as we look at addressing this deepening recession," said Senator Joe Bolkcom (D-Iowa City), chair of the Senate Ways & Means Committee.

Representative Paul Shomshor (D-Council Bluffs), a certified public accountant who's chair of the House Ways & Means Committee, said the change will improve Iowa's business climate by making the state's tax rate closer to that of Nebraska, Kansas, and other Midwestern states with a simpler tax structure and similar rates.

"Iowa looks like under the current tax system that they have an artificially high income tax rate at 8.98 percent," Shomshor said. "We're compared to the other four highest states - California, Vermont, Rhode Island, and Oregon. I don't think we want to be compared to those other four states."

Under the Democrats' plan:

  • The state's top personal-income tax rate would be lowered from 8.98 percent to 6.98 percent, and all other rates would be adjusted downward as well.
  • The elderly/blind personal credit would increase from $20 to $40
  • The Earned Income Tax Credit would increase from 7 to 8 percent
  • The child and dependent tax credit would increase by 5 percentage points and would be extended to those making between $45,000 and $49,999

An Iowa household earning between $30,001 and $40,000 would see their taxes go down by $35.28, while those who make between $80,001 and $90,000 would lower their tax liability by about $62.66. On the flip side, a family earning between $125,001 and $150,000 would pay $45.55 more and a household making $250,001 or more would pay $1,377.28 more in taxes, according to estimates by the Legislative Services Agency.

"Every income class below $125,000 sees a tax cut or no change," Gronstal said. "We want to put money in the hands of middle-class taxpayers. So obviously, you've got to take that from somewhere."

Bolkcom maintained that the plan is "revenue neutral": "At this time, given the economy, given the recession we're in, it wasn't appropriate to ask Iowans for more," he said. "This proposal is about providing relief to middle-class taxpayers, not adding to their burden."

But House Minority Leader Kraig Paulsen (R-Hiawatha) immediately threw water on the proposal and said he didn't predict any Republican votes on the Democratic tax proposal.

"I've got a problem eliminating Iowans' largest tax deduction on their income-tax form," Paulsen said. "Make no mistake, it's about raising revenue. And even if it's not about raising revenue in the first year, it's gonna be about raising revenue in the second year when the federal income-tax rates go up and Iowans don't get to take advantage of that tax deduction."

Senate Minority Leader Paul McKinley (R-Chariton) pointed to how the proposal would increase taxes on those who make $125,000 or more, which he said includes small businesses.

"Anytime we can reduce taxes, that is a good thing," McKinley said. "However, when you look at where the engine for growth in this state resides, it is in small business. This will be a tax increase. ... If we're raising taxes on those earning above $125,000, I would suggest that a large number of those are small businesses."

Driving the need for the change this year is information from the Iowa Department of Revenue that expiration of the Bush tax cuts will cause a $150-million to $200-million hole in the Fiscal Year 2011 state budget because Iowans will have more tax to deduct on their state income taxes. Eliminating federal deductibility will help fill that projected shortfall, Senate President Jack Kibbie (D-Emmetsburg) said.

Culver and Lieutenant Governor Patty Judge have said they are open to the idea of eliminating federal deductibility if it is revenue-neutral. Spokesperson Phil Roeder said Thursday that while the governor's office is reviewing the legislature's proposal, "an initiative that is not only revenue-neutral but would mean a tax cut for the majority of Iowa's working families is a step in the right direction, especially during the current economic recession."

To see how Scott County legislators feel about federal deductibility, click here.


Legislature Pushes Toward Adjournment

Standing committees of the legislature held their final meetings of the year as Democratic leaders this week pushed toward adjournment, perhaps in two weeks.

One committee chair said the goal for adjournment is April 9 or 10 - right before Easter. Adjourning early would save taxpayers money because lawmakers are paid per diem for each day they are at the Capitol.

The Iowa House and Senate agreed to a shortened debate calendar and enforced a funnel deadline of this Friday, instead of April 10, to get the other chamber's bills out of committee. Those that had not cleared a committee on the other side would be considered dead for the remainder of the session.

A bill about government transparency, proposed by Iowans for Tax Relief and Republicans and considered one of the most bipartisan bills of the session, died Thursday in the legislative funnel.

The Senate State Government Committee on Thursday evening declined to take up House File 801, which would have established a searchable budget database Web site for the public to look up their tax rate and how their taxpayer dollars are being spent. The failure to pass the bill came just two days after it was approved 96-3 in the Iowa House.

A bill that would have required Iowa health clubs to have defibrillators and one employee during regular business hours trained in CPR and the use of the defibrillator caused a firestorm of controversy Wednesday night, eventually leading the House Human Resources Committee to indefinitely table it.

Senate File 443 would have cost each health club $1,500 to $3,000 for a defibrillator and $35 for CPR training by the American Red Cross. But both Democrats and Republicans on the committee questioned the impact the bill would have on 24/7 health clubs that aren't always staffed.

Meanwhile, a bill aimed at making Iowa's roads friendlier to bicyclists also died this week. Senate File 117 would have prohibited motorists from depriving a bicyclist full use of a lane, and said drivers shall pass to the left at a safe distance, must maintain a distance of at least five fee,t and are prohibited from following a bicycle more closely than is reasonable and prudent.

House Democratic leaders had reassigned the bill from transportation to the Human Resources Committee in a last-ditch attempt to save it, but chair Mark Smith declined to take up the bill Wednesday night in the committee's final meeting.


Iowa Unemployment Grows to 4.9 Percent in February

Iowa's statewide estimate of those unemployed increased to 82,500 in February from 80,000 in January, Iowa Workforce Development said this week. One year ago, the number of unemployed state residents was 65,500.

That puts Iowa's seasonally adjusted unemployment rate at 4.9 percent in February, up from 4.8 in January. Job losses for February were heavily concentrated in manufacturing, which was down 8,400 jobs from the prior month. Professional and business services declined by 1,500 in February, while the financial sector was down 1,100.

Principal Financial Group announced it was cutting pay for workers, management, and its board of directors and taking other steps to control costs. The insurance, retirement, and financial-services company said pay would be cut from 2 to 10 percent depending on pay level.

Meanwhile, employees at The Des Moines Register were notified this week by parent company Gannett that wages will be frozen for one year and employees will be furloughed for another week in the second quarter of 2009 as a way to avoid more layoffs. There are about 1,000 employees at The Des Moines Register, the Iowa City Press-Citizen, and the Register's weekly papers.

The news comes after Gannett laid off more than 2,000 employees last year, and after employees were already forced to take a one-week furlough in the first quarter this year.

"Although Iowa remains in a better position than most states to weather the current recession, job losses have deepened over the past six months," said Elisabeth Buck, director of Iowa Workforce Development. "Iowa employers continue to trim their payrolls in response to declining sales and profits."

The U.S. unemployment rate for February increased by one-half of a percentage point to 8.1 percent, the highest level since 1983. The U.S. unemployment rate stood at 4.8 percent one year ago.


Labor-Bill Floor Manager Remains Hopeful

While the focus of state lawmakers has turned toward the budget and adjournment, the legislator who's been at the heart of the legislature's labor debates this year remains hopeful about the fate of four bills dealing with choice of doctor, prevailing wage, fair share, and collective bargaining.

"I think that we will pass at least one if not two of those labor bills this session," said Representative Rick Olson, a Des Moines attorney who's chair of the House Labor Committee and has been the floor manager of labor bills brought before the Iowa House this year.

Olson didn't indicate which ones he thought would pass. House File 333, the prevailing-wage bill that would require contractors to pay workers the same hourly wages and benefits on public projects as they would on private-sector projects in the area, is the only bill taken up by the full House so far, and it fell one vote short of passage.

"I thought I had 52 votes on prevailing wage, so there are interesting things that happen after people make commitments to you. On occasion, handshakes don't mean anything up here," Olson said. "We're working towards a different prevailing-wage bill that is a little bit different and hopes to capture another vote or two."

As for the bill that would allow injured workers rather than their employers to choose their doctor under the state's worker-compensation laws, the bill has cleared committee, and House Democrats have caucused on it but haven't done a hard vote count.

"The choice of doctor bill, it can be massaged a little bit," Olson said. "We have 49 other states plus the District of Columbia that all have a choice-of-doctor bill. The majority of them allow the employee to chose that doctor. We're in the minority. We could still see some movement."

And then, Olson said, there's still the bill that would require nonunion workers to pay their fair share for union services and the Chapter 20 bill that would expand the scope of collective bargaining. The latter was approved by the legislature last year but vetoed by Culver, who has this year stepped up his support for all four labor bills.

"The Chapter 20 bill, you'd think that would be a likely suspect; it passed the House and the Senate last year, vetoed by the governor. Why would it not pass this year?" Olson asked. When questioned if an agreement with Culver was close to happening, he responded: "I think it is."

Ken Sagar, president of the Iowa Federation of Labor AFL-CIO, had difficulty explaining at a forum on labor issues Thursday why both a legislature and governor's office controlled by Democrats have so far failed to pass any of the four labor bills under consideration this legislative session.

"I don't really have a good explanation on why we haven't been able to move forward on these issues and we are a little bit disappointed about that," Sagar said. "Iowa is a fairly conservative state, so when we use labels of 'Democrat' and 'Republican,' maybe they don't apply to the extent they do out in Washington or California or New York. Sometimes what we see are folks who are in relative terms Democrats and Republicans, but we're all still pretty moderate."

Sagar appeared at the IowaPolitics.com forum held at Drake University on labor and employment issues along with Nate Boulton, attorney at Hedberg Law Firm PC, which represents several unions; John Gilliland, senior vice president of the Iowa Association of Business & Industry; and Russ Samson, a law partner at Dickinson, Mackaman, Tyler & Hagen, PC.

Gilliland gave the legislature a "D" letter grade for its failure to stimulate Iowa's economy. "Does this bill do anything to put the 85,000 Iowans back to work?" Gilliland asked. "Quite frankly, we haven't had any of those."

Meanwhile, Sagar and Boulton both gave the legislature an "incomplete" grade so far this session, with none of the four bills pushed by labor having been approved yet this session.

This weekly summary comes from IowaPolitics.com, an online government and politics news service. IowaPolitics.com staff contributed to this report.


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