New Tax-Relief Fund Will Receive $60 Million; Questions Surround Use of Fund Print
Commentary/Politics - Iowa Politics
Written by Lynn Campbell   
Friday, 06 April 2012 12:46

Uncertainty surrounding a newly created $60-million tax-relief fund and few safeguards on how the state taxpayer dollars will be used opens up the potential for misuse, state lawmakers say.

House Ways & Means Chair Tom Sands (R-Wapello) told last month that among 100 Iowa House members, 50 Iowa Senate members and the governor, there are probably 151 different ideas on how to use the $60 million that will go into the Taxpayers Trust Fund this year.

“Whenever you try to put something in any type of ‘lockbox,’ you have to remember, there’s 151 keys,” Sands said. “So there’s always potential for abuse, but that certainly isn’t our intent for this. ... It is to be used for the taxpayer – not be spent on their behalf, but returned to them in one way or the other.”

Money will be deposited in the new Taxpayers Trust Fund for the first time this fall, after the books close on Fiscal Year 2012, which ends June 30. The fund, created last year by lawmakers, captures money from unexpected revenue growth after the state’s cash reserves and economic-emergency funds – also known as “rainy-day funds” – are full.

Previous estimates showed the tax-relief fund would receive $46.2 million this year.

But the three-member Revenue Estimating Conference, which makes the state’s official revenue estimates, in late March increased state revenue projections by $50.9 million in Fiscal Year 2012 and $29 million in 2013.

That means the Taxpayers Trust Fund will get the full $60 million allowed under state law. The excess money traditionally would have been considered a surplus at the end of the fiscal year, and would have been available for spending the next year.

“By law, the increase in revenue projected today will not be used to increase spending,” House Appropriations Chair Scott Raecker (R-Urbandale) said last month. “In fact, this projected increase should be returned to the taxpayers of Iowa in the form of tax relief.”

But no one yet knows how the money will be used.

Some Capitol analysts interpret the law as meaning that the tax-relief fund cannot be spent on education. But the 2011 state law provides few safeguards on how “tax relief” should be defined. Iowa Code Section 8.57E only says: “Moneys in the taxpayers trust fund shall only be used pursuant to appropriations made by the general assembly for tax relief.”

Dave Roederer, director of the Iowa Department of Management, said the purpose of the fund is loosely defined. For example, funding for education is a combination of state taxpayer dollars and local property-tax dollars. The more the state chips in, the less property owners have to pay.

The same is true for services to Iowans who are mentally ill or developmentally disabled. If the state pays a greater share into the $1.3-billion mental-health system, that could mean property-tax relief for county taxpayers.

“Tax relief is school aid,” Roederer said. “I mean, that’s the biggest tax-relief thing. So that’s tax relief.”

Asked whether the loose definition of the fund sets it up for potential misuse, Roederer said: “It’s not going to be that big of an issue. It’s such a small part of the overall budget.” The $60 million that will flow into the Taxpayers Trust Fund represents about 1 percent of the state’s $6-billion budget.

Senate Ways & Means Chair Joe Bolkcom (D-Iowa City) in March told that the money should be used to increase the Earned Income Tax Credit, a state income-tax break for working families earning $45,000 a year or less.

“All the special-interest groups have lobbyists,” Bolkcom said. “There’s a long line of them waiting for their tax cuts. The people that are going to get the Earned Income Tax cut, they don’t have a lobbyist. They’re out working two or three jobs to put food on the table. If we’re going to use this Taxpayers Trust Fund to give tax relief, it ought to start with the people working the hardest to make ends meet.”

State law does not require that the money in the tax-relief fund be used right away. That means that if there is no agreement among the House, Senate, and governor on the use of the money, it will remain in the trust fund until there is agreement.

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