Will local wage laws spark state action?

The question in October is a question for January: Will local minimum wage efforts force a serious debate and action on a meaningful minimum wage for Iowa?

The pressure is building in Iowa for a minimum wage increase.

Polk County last week became the latest county to take matters into its own hands as Iowa lawmakers and Congress have left the state and national minimum wages at $7.25. Four counties have now approved minimum wage increases above $10 per hour by 2019, with one of them — in Johnson County — scheduled to be fully phased in by Jan. 1.

Within several days of that, the Iowa Legislature will convene and the ball will be in state lawmakers’ court.

In the meantime, Iowans tired of the nine-year wait for an increase may keep acting locally to boost prosperity for low-income working families — which is critical as about 1 in 5 Iowa do not earn enough for a basic-needs household budget.

Here is the current local minimum-wage lineup in Iowa:

Johnson County is currently at $9.15 in the second step of its three-step increase to $10.10 on Jan. 1, indexed to inflation after that.
Linn County has approved an increase to $10.25 by 2019 (three $1 steps, Jan. 1, 2017-19).
Wapello County will move to $10.10 by 2019 (three 95-cent steps, Jan. 1, 2017-19).
Polk County approved a wage of $10.75 by 2019 (three steps: $1.50 April 2017, $1 more in January 2018 and 2019), indexed to inflation afterward. Includes exception for workers under age 18.

There has been discussion or interest in a similar move in at least four other counties: Lee, Woodbury, Des Moines and Black Hawk. For some, this has become a county supervisor campaign issue.

The question in October is a question for January: Will the pressure of these local efforts, which are growing, be enough to force a serious debate in the Legislature on a statewide increase? And if it is, will that effort produce a wage that pushes Iowa closer to a cost of living wage? (Hint: Even $10 an hour is nowhere close.)

Stay tuned.

owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project. mikeowen@iowapolicyproject.org

Iowa plants cookies in data center megadeals

The report’s recommendation: Cap data-center subsidies at $50,000 per job and be ready to walk away from bidding wars that guarantee losses for taxpayers.

161011-gjf-datacenter5x5A new study by Good Jobs First shows Iowa has two of the 11 “megadeals” in which states have awarded a total of $2 billion to Google, Microsoft, Facebook, Apple and Amazon Web Services for data center projects.

“The average cost of their 11 ‘megadeals’ profiled here is astronomical: $1.95 million per job. At that price, taxpayers will always lose, because a worker will never pay $1.95 million more in state and local taxes than public services she and her dependents consume,” the report states.

Sound familiar? It should. Iowa has two of the cited “megadeals,” which the report describes as subsidy deals of $50 million-plus. Both Iowa deals were with Microsoft — a $107.3 million subsidy in 2014 and a $65.3 million subsidy in 2010 for its “megadeal” list. Both fell below the $2 million per job average cost, but the Microsoft megadeal costs per job were $1.28 million and $964,627, respectively. In addition, the report notes competition between Washington and Iowa in 2010 for a Microsoft center, and Nebraska and Iowa in 2013 for a Facebook project.

Good Jobs First’s recommendation to all states: Cap data-center subsidies at $50,000 per job and be ready to walk away from bidding wars that guarantee losses for taxpayers.

In the new report, “Money Lost to the Cloud,” author Kasia Tarcynzska finds that states routinely subsidize data-center projects with special tax breaks that are not central to companies’ choices on where to locate.

“Decisions on where to locate data centers — which consume large amounts of electricity but employ few workers — are primarily based on the availability of reliable, low-cost electricity,” she wrote.

“Despite their New Economy allure, internet companies have fully embraced Old Economy habits of playing states and localities against each other in bidding wars, putting public officials in a ‘prisoners’ dilemma’ and causing governments to grossly overspend for trophy deals.”

Iowa, which has made deals with the likes of Google, Microsoft and Facebook, is one of eight states with special sales and use tax exemptions on electricity purchased by data centers.

In addition, the report notes, property taxes are often the largest taxes paid by companies, and local property tax abatements can be the largest component of subsidy packages — but frequently are not disclosed.

“Data centers create very few permanent jobs, so one of the biggest benefits that a community can hope for is a stronger tax base. But that benefit fails to materialize when the major taxes such as sales, utility and property levies are abated,” the report states.

The report concludes with a “larger question,” one that should be asked of any subsidy at any time when state and local officials try to attract development from big, stable companies. Why, Tarcynzska asks, “should communities use their limited financial resources to subsidize such self-sufficient companies to build something the companies must have?”

See the report here and the news release here from Good Jobs First.

Posted by Mike Owen, executive director of the Iowa Policy Project


‘Nothing to see here, folks,’ 2017 edition

What really drives state growth is the rate of new business formation. And what matters most for entrepreneurial vibrancy is the education level of the state’s residents.

slide_taxfoundation-cropBasic flaws remain in Tax Foundation business index

The Tax Foundation released the 14th edition of its State Business Tax Climate Index (SBTCI) today (Sept. 28). The basic flaws that have rendered it of little use as a guide to state economic policy remain. While a few methodological tweaks have been made, it is still a hodge-podge of over 100 different features of state tax law, mashed together into an index number. The components are weighted illogically, and the result is a ranking that bears little or no relation to the taxes businesses actually pay in one state versus another.

The Tax Foundation acknowledges that they are not measuring actual tax levels on business, but rather the states’ tax structure. But they provide no evidence that tax structure influences business decisions. If you were a business, what would you care more about: the bottom line amount you will pay, or whether there were three tax brackets or five tax brackets involved in the calculation that got you there? The Tax Foundation would have you count brackets, and ignore the dollars.

The SBTCI has separate components for the corporate income tax, the individual income tax, property taxes, etc. So let’s consider the corporate tax component. Even as a measure of “structure” somehow, it falls short because it leaves out two major determinants of corporate income tax liabilities — federal deductibility and the apportionment rule — while including numerous minor features. As a result, the corporate tax index is a meaningless number.

Furthermore, the corporate income tax is much less important than the property tax, for most businesses. According to the Council on State Taxation, the property tax accounted for 43 percent of all business taxes, the corporate income tax just 11 percent, in 2014. Yet in coming up with the overall state rankings, the latest Tax Foundation index weights the property tax 14.9 percent, the corporate income tax 19.7 percent. That makes states with high property taxes and low corporate income taxes look much better on the index than they really are, and penalizes the states with a robust corporate income tax, a high state share of education funding, and low property taxes.

To make matters worse, the index weights change every year. This makes it impossible to know if a change in a state’s rank from one year to the next is due to a change in tax law, or just a change in the weights.

More importantly, the whole focus on business tax competitiveness is misplaced. State and local taxes are a very small share of overall business costs. What really drives state growth is the rate of new business formation. And what matters most for entrepreneurial vibrancy is the education level of the state’s residents.

2010-PFw5464Editor’s Note: Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP), wrote this blog for GradingStates.org, IPP’s separate website devoted to promoting a better understanding of various state business climate rankings. For a look at components of state policies that can promote prosperity, see this page on the GradingStates.org site.

A new baseline: Drop in number of uninsured Iowans

The new census numbers set a baseline to evaluate the effects of Iowa’s move this year to privatize Medicaid. After sharp declines in Iowa’s uninsured population, it will be interesting to see if declines continue.

Nineteen out of 20 Iowans are now covered by health insurance, thanks in large part to the Affordable Care Act and Iowa’s Medicaid expansion. The latest census data, released today, show that the percent of Iowans who were uninsured dropped from 8.1 percent in 2013 to just 5.0 percent in 2015. While 248,000 Iowans were without insurance in 2013, by 2015 the number had dropped to 155,000.

Only four states have a lower percent of the population without health insurance: Massachusetts, Hawaii, Minnesota and Vermont, plus the District of Columbia.

Across the country, the gap has widened between states that expanded Medicaid and those that did not, as shown below. Twenty-eight states, including Iowa, chose to expand Medicaid eligibility in 2014 or 2015 to families with income up to 138 percent of the poverty level. The uninsured population has declined faster in the last two years in the states that chose to expand.

In Iowa, the 2015 census numbers establish a baseline for evaluating the effects of Iowa’s Medicaid privatization, which took place early this year. It will be interesting to see if the uninsured population continues to decline in 2016.

2010-PFw5464Posted by Peter Fisher, Research Director


For more on this issue, see:
Census Data Show States Not Expanding Medicaid Falling Further Behind, by Matt Broaddus, Center on Budget and Policy Priorities

On Labor Day, don’t forget single workers

Hundreds of single workers — and millions nationally — are taxed into poverty because they do not have kids and do not qualify for the EITC. And problems with child care assistance are being used to oppose a minimum-wage increase, even though the vast majority of affected workers do not have children. On Labor Day, let’s not forget the needs of single workers.

Our focus at the Iowa Policy Project frequently emphasizes the impact of public policy on working families.

But the demand of meeting a household budget is faced by more than parents, whether in single- or married-couple families. Single workers without children also need to get by.

So, on Labor Day weekend, let’s make sure the spotlight hits those folks as well. Here are three areas:

•    the Earned Income Tax Credit (EITC);
•    the Cost of Living in Iowa; and
•    the minimum wage.

chuck_marr-5464A new report from the Center on Budget and Policy Priorities (CBPP) focuses on single working people who do not raise children and thus do not benefit from the Earned Income Tax Credit (EITC). Childless workers under age 25 are ineligible for that benefit, notes CBPP’s Chuck Marr, who states:

On Labor Day, many of these low-wage workers will be serving meals in restaurants, ringing up back-to-school supplies at the mall, or driving a truck down the highway. They deserve a decent day’s pay for a hard day’s work, but many of their paychecks are too small to make ends meet. An expanded EITC that targets this group would do more to help deliver a decent day’s pay.

There are bipartisan proposals on the table in Washington to extend the EITC to these workers, 7.5 million of whom are now “taxed into poverty,” Marr notes. The table below shows the Iowa impacts of these proposals.

Iowa Workers helped under Obama, Ryan plans Workers helped under Brown, Neal plans
Cooks  6,000  6,000
Cashiers  5,000  6,000
Waiters and waitresses  5,000  5,000
Retail salespersons  4,000  5,000
Custodians and building cleaners  4,000  4,000
Laborers and freight, stock, and material movers  4,000  4,000
Truck drivers  4,000  4,000
Nursing, psychiatric, and home health aides  3,000  4,000
Maids and housekeeping cleaners  3,000  3,000
Stock clerks and order fillers  2,000  3,000
Child care workers  2,000  2,000
Construction laborers  2,000  2,000
Food preparation workers  2,000  2,000
Grounds maintenance workers  2,000  2,000
Personal and home care aides  2,000  2,000

Source: Chuck Marr blog, Center on Budget and Policy Priorities

CBPP has done much work on this issue. See this earlier report and another report by Marr and his colleagues at CBPP.

Cost of Living in Iowa
2010-PFw5464As IPP’s Peter Fisher shows in Part 2 of our “Cost of Living in Iowa” report for 2016, more than a quarter of working single persons statewide (27.5 percent) do not make enough at work to meet a basic-needs household budget. In fact, for those workers who fall short, they fall more than $10,000 short, on average. It is worth noting that this basic needs gap is even more severe for single parents, who fall almost $23,000 short, on average.

Minimum Wage
One of the efforts being used to stop or hold down local minimum wage increases in Iowa is the issue of “cliff effects” in work support programs — particularly Child Care Assistance — in which benefits abruptly drop for a worker if he/she gets slightly higher pay.

This is a very real issue for some workers, but not for the vast majority of workers who would benefit from a minimum wage increase statewide to $12 (phased in over five years), because they do not have children.

It makes no sense to block a wage increase for the three-fourths or more of workers who are not affected by the child care issue.

Rather, Iowa could raise the minimum wage and, separately, improve access to its Child Care Assistance program so that the cliff effects are eased or erased. There are ways to do so. See Fisher’s report with Lily French from 2014, Reducing Cliff Effects in Iowa Child Care Assistance.

owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project


Fix both ‘cliff effect’ and low minimum wage

Past failures to improve both the minimum wage and child care eligibility should not end up as an excuse to fix neither.

As the debate over a Polk County minimum wage continues, the so-called “cliff effect” is being cited as a reason to limit the increase in the wage. This is unfortunate. Capping the wage at a low level would hurt thousands of families, including many with burdensome child care costs.

cliffs3The “cliff effect” results from the design of Iowa’s Child Care Assistance program (CCA), which pays a portion of the cost of care for low-income families. Iowa has one of the lowest eligibility ceilings in the country: 145 percent of poverty. When a family’s income hits that level ($29,120 for a single mother with two children), benefits disappear.

While most work support programs, such as food assistance, taper off gradually, with CCA you just fall off a financial cliff — the “cliff effect.”

We do need to fix that program. But the failure of state lawmakers and the governor to address the CCA cliff effect is not a good reason to forgo needed wage increases for thousands of working families. An estimated 60,000 workers would benefit from an increase to $12 an hour in Polk County; 88,000 by an increase to $15 (phased in over several years).

Of those who would benefit from a higher minimum, 36 to 38 percent are in families with children. To put the CCA cliff in context, recognize:

•     Thousands have high child care costs and incomes below 145 percent of poverty but do not receive CCA. A 2007 study estimated that only about 1 in 3 Iowa families eligible for CCA were actually receiving it. The two-thirds with low wages but without assistance still need higher wages.

•     Second, a low wage cap would not help many families barely above 145 percent of poverty, but still facing child care costs of $4,000 to $5,000 a year per child. These families, in many cases married couples with one or both working at a low wage, can’t make ends meet.

•     Third, the other 62 to 64 percent of low-wage workers do not have children, and many families whose children are older do not need child care. A cap on the minimum wage hurts all of them.

Moreover, we need to keep in mind that the cliff is not as sudden as it appears. Because Iowa moved to one-year eligibility, a family whose income rises enough to push them above 145 percent of poverty can continue to receive assistance for another year. In that time, they may find ways to adjust, such as quitting the second or third job or reducing hours or overtime, to stay eligible for CCA but have more time with their children. This is surely a benefit from a higher minimum wage.

Policies that move families toward self-sufficiency are widely supported. We want workers to increase their earnings by furthering their education, finding higher paying jobs, gaining experience that earns them promotions — and have time to care for their families.

Yes, we should fix our child care assistance program, which can penalize all of those efforts. But we should also fix a minimum wage stuck at a level well below what even a single person needs to get by. Past failures to fix one problem should not end up as an excuse to fix neither.

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project



“Reducing Cliff Effects in Child Care Assistance,” Peter Fisher and Lily French, Iowa Policy Project, March 2014, PDF

Ignore ideologues — IPERS sound, stronger

Time seems to be running out on those who do not want a stable, secure and sustainable retirement program for public employees. IPERS, the Iowa Public Employment Retirement System, is well on the way to recovery before its opponents can kill it. But they’re still trying.

The criticism this time comes in a Des Moines Register opinion piece, from a familiar source, the Public Interest Institute (PII) in Mount Pleasant.

In its latest ideological attack on IPERS, PII offers no data — not a single financial indicator — to demonstrate a problem. In fact, IPERS is rebounding from troubles brought on by the Great Recession and inadequate state contributions in the latter half of the last decade.

According to the latest IPERS annual report, IPERS’s ratio of funded actuarial assets to liabilities — which had dropped from 89.1 percent in FY2008 to a low of 79.9 percent in FY2011 — has continued to rebound, rising in FY2015 from 82.7 percent to 83.7 percent.

In an Iowa Policy Project report in late 2013, Imran Farooqi, Peter Fisher and David Osterberg showed that contrary to high-profile examples of public pension problems with the city of Detroit and the state of Illinois, the public employee pension systems in Iowa and most states were generally healthy and well-managed for the long term.

“Iowa’s public pension plans have sufficient assets to pay benefits now and well into the future. And recent improvement in the plans’ designs have already enabled them to begin recouping losses incurred during the recessionary stock market decline,” they wrote. Now, 2 1/2 years later, there is no indication of a change in that positive trend.

That report did recommend ways to strengthen IPERS and other public employee retirement plans in Iowa, such as increasing contributions and meeting actuarial recommendations for those contributions.

What we need to remember is that the purpose of IPERS is not to see how little we can pay public employees, but to attract good employees partly with a promise of a secure retirement. It is to “improve public employment within the state, reduce excessive personnel turnover, and offer suitable attraction to high-grade men and women to enter public service in the state.” This is the stated purpose of the law, Chapter 97B.2.

The biggest problem for PII is that IPERS may fully recover before PII gets the law changed to a less secure “defined contribution” system. A defined benefit system provides financial security by pooling risk in the group — more efficient than having everyone on their own based on defined contributions that they might outlive.

So let’s be clear: Shifting from a defined benefit plan like IPERS to a defined contribution plan, such as a 401(k), is a way to cut benefits and reduce retirement security.

We can spend our time better addressing real concerns to assure our public employees can deliver on public education, overseeing human services, policing our streets and guarding prisoners — and making sure they can retire securely when they are done working for us.

owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project