A poisoned process

As early as today, a bill may be debated in the Iowa Senate to drastically slash revenue for public services — phased in at a cost of over $1 billion a year, or about one-seventh of the state’s General Fund.

The Senate bill, as does any legislation with a fiscal impact, comes with a “fiscal note.” This analysis by the Legislative Services Agency, using Department of Revenue data, was made available sometime late Tuesday. The legislation itself was introduced a week ago today, and passed out of subcommittee and full committee the following day.

The legislation is so complex that it took the state’s top fiscal analysts a week to put together their summary, which includes four pages of bullet points in addition to tables of data about various impacts. The nonpartisan analysis finds that the wealthiest individuals and most powerful corporations once again are the big winners.

The timing of the official fiscal analysis was only the latest example of cynical approach to public governing that has slapped brown paper over the windows of the gold-domed sausage factory in Des Moines.

This General Assembly was elected in 2016. It is an understatement to suggest that this legislation could easily have been developed through the 2017 legislative session or the months leading up to this session. The public who will be affected, and advocates across the political spectrum, could have weighed in, and independent fiscal analysis considered.

Many have tried to educate the public about what is at stake for Iowa — including the Iowa Fiscal Partnership, which among other activities brought in experts from Kansas last year to show what has happened there with similar tax slashing. IFP also offered a reminder in October of what real tax reform could include, and later about both open government and the folly of Kansas’ course. Last week, we warned about the fiscal cliff ahead.

Everyone knew the legislative leadership and Governor wanted to do something to cut taxes, but no specifics were available, just a couple of hints with no real context. The session opened in the second week of January, and it wasn’t until most had left the building on the second-to-last day of February that a fiscal analysis magically appeared.

With a more transparent and deliberate process, everyone — including and especially the legislators who will be voting on it — would have had a chance to get full information about its impacts.

Instead, it is being rammed through. Regardless of whether the legislation itself is good or bad, the process has poisoned it. And perhaps it has poisoned governance in Iowa for years to come.

There are elements of the commentary defending and opposing this legislation that show general agreement on two key points of what meaningful, responsible tax reform would entail. On both sides, there is recognition that:

•  removing Iowa’s costly and unusual federal tax deduction would enable a reduction of top tax rates that appear higher than they really are; and

•  corporate tax credits are out of control and costing the state millions outside the budget process, while education and human services suffer.

The process, however, has shielded from public view a clear understanding of how the specifics of this legislation would affect two principles central to good tax policy: (1) the purpose of raising adequate revenues for critical services, and (2) raising those revenues in a way that reflects ability to pay — basic fairness of taxation, where Iowa (like most states) has a system that shoves greater costs on low-income than high-income taxpayers.

It also has raised to the altar of absurdity a ridiculous image of the competitiveness of Iowa taxes, which independent business consultants’ analysis has shown to be lower than half the states and in the middle of a very large pack that differs little on the state and local business taxes governed by state policy. (chart below)

Ernst&YoungFY2016

As the process moves from the Senate to the House, these concepts of good governance need to be central to timely debate, not just fodder for editorial pages afterward.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project, and project director of the Iowa Fiscal Partnership, a joint initiative of IPP and the Child & Family Policy Center in Des Moines. mikeowen@iowapolicyproject.org

 

Monopoly power without regulation

With few watching, backroom efforts produce unforeseen blows to public utility oversight

Editor’s Note: This post updates a previous post by David Osterberg, “New blows to public accountability,” about features of a proposal to weaken regulation of Iowa electric utilities.

A version of this piece appeared as a guest opinion in The Gazette, Cedar Rapids

170118_capitol_170603-4x4A bill scheduled for debate the week of February 26th in the Iowa Senate would remove the public’s principal check on monopoly power of the state’s regulated electric utilities.

Utilities are permitted monopoly status for economic efficiency. It would be difficult, and expensive, to set up two or more competing electric or gas utilities to serve one community, with separate lines connecting homes and businesses. In exchange for a monopoly presence in a given area, privately owned utilities are subject to community scrutiny and state regulation of their rates and services.

Senate File 2311 would remove a significant share of oversight from electric utilities. Presently the Iowa Utilities Board (IUB) oversees MidAmerican Energy and Alliant Energy. This protects customers, who have no choice as to which company brings them electricity.

It is ironic that legislators would threaten a structure that works and promotes economic development. Iowa has some of the lowest energy rates in the nation (third- or fourth- lowest depending on the year). At the same time, this state has been developing one of the strongest clean energy economies. These features make Iowa a big draw for certain industries — a far more attractive reason to locate here than the tax breaks offered by so many states.

Under the proposed bill, many policies that have led to Iowa’s cost-effective clean energy leadership would disappear, especially energy efficiency programs mandated almost 30 years ago by the Iowa Legislature, which require utilities to file energy efficiency plans every five years.

Without regulation, monopolies could profit by producing more power, rather than helping customers save energy. They could unfairly treat customer-generated solar and wind energy and discriminate in favor of their own energy generation.

Left to their own preferences, monopolies might charge the smallest users more. Alliant proved this in its last rate increase filing. The Alliant plan would have increased the cost of residential electricity by about 10 percent while increasing the mandatory fixed charge just to hook up by 30 percent. The plan was designed to put more costs on those who use less, including those with low-income, essentially penalizing customers who have used the utility rebates to buy efficient appliances or those who generate solar energy.

But because Alliant needed permission from the IUB to raise rates, this rate scheme was reviewed and ultimately not allowed. Instead, the energy charge and the mandatory fixed charge were allowed to increase by roughly the same percentage.

SF2311 would reduce this longstanding oversight on all utilities, shifting costs and risks to their customers. Alliant could discriminate against solar customers by putting them in a separate rate category so they could be assessed a higher fixed charge. This could shut down solar firms and cost many of the state’s 700 solar jobs. The changes threatening the energy efficiency industry endangers even more jobs — more than 20,000.

The forces behind this bill lessen public oversight and public accountability. They would change Iowa law in ways never promoted publicly in the last legislative campaigns.

160915-59170_dox35x45David Osterberg, a former state representative (1983-95), is professor emeritus of occupational and environmental health at the University of Iowa, and co-founder of the non-partisan Iowa Policy Project.

dosterberg@iowapolicyproject.org

How to steal $110 million from Iowa workers

No artifice of “regulatory relief” or concern for untipped workers can justify this theft.

In most states, tipped workers are paid a subminimum “tipped wage.” In Iowa the tipped wage is $4.35/hr. The gap between the tipped wage and the minimum wage (in Iowa, $7.25-$4.35 or $2.90) is called the “tip credit.” Tips are first used to satisfy this credit (bringing the hourly wage to the minimum); once the credit is satisfied, tips are an uneven addition.

Our state and national labor laws have long operated under the assumption that tips earned by waitresses or bartenders or manicurists belong to the worker who earned them. In 2011, the federal Department of Labor (DOL) clarified and codified this rule, underscoring that, regardless of the jurisdiction or local wage, “a tip is the sole property of the tipped employee.”

In December of last year, the Trump Administration announced its attention to repeal this rule (after already announcing its intention to cease enforcement of the rule last July). Under the new regime, employers of tipped workers could retain any tips in excess of those needed to satisfy the tip credit. Forcing tipped workers to pool or kick back tips to the house has always been considered a form of wage theft. The new rule would make this wage theft perfectly legal.

The new rule, the brainchild of the National Restaurant Association, rests on the thin logic that employers would share tips with “back of the house” staff. But nothing in the rule requires them to do so, and research on wage theft in various jurisdictions suggests that tip stealing by management is already widespread. Indeed, the DOL punctured its own logic with an internal study finding that the rule would result in huge losses to tipped staff, and then — in defiance of any semblance of good government and transparency — buried the study.

Fortunately, the Economic Policy Institute (whose crack research staff includes the DOL’s former chief economist) has stepped in with its own look at the dismal impact of this rule. Using a combination of W-2 (tax) and industry data, EPI estimates a base of about $36.4 billion annually in tips (a conservative estimate, since a substantial share of tips go unreported as income). Since some of that $36 billion must be used to satisfy the tip credit, the share of that “at risk” is a little lower, about $26 billion.

Grade school economics, in turn, would suggest that almost all of that $26 billion would be pocketed by employers: There is no need or incentive, after all, to share tip revenues with bussers and dishwashers, whose wages (and willingness to work) are already established by local labor markets. Fortunately, many state labor laws offer further protection or regulations of tipped wages that would not be affected or pre-empted by the new federal rule. This brings the take of this heist down to just under $6 billion. In Iowa alone (where no state laws supplement federal rules and standards on tipped work), the annual loss would be about $110 million.

Looking at this on a smaller scale drives home the avarice and the injustice. Consider Francesca, a waitress at a mid-price, full service restaurant. Her base wage is $4.35. On a typical four-hour dinner shift, she serves eight tables. The average bill for those tables is $25.00, and the average tip is 15 percent or $3.75 — making her take home pay $47.40 ($17.40 in base wages and $30 in tips), or just under $12/hour. Under the new rule, Francesca would keep only enough of that $30 in tips to bring her wage — the base wage plus the tip credit — to the federal and Iowa minimum wage of $7.25. She takes home $29. If we follow EPI’s assumption, about half of the remaining tips would go to other employees, and about half would go in the employer’s pocket.

No artifice of “regulatory relief” or concern for untipped workers can justify this theft. The new rule, as Christine Owens of the National Employment Law Project notes, is “nothing more than robber barons masquerading as Robin Hood.”

Colin Gordon, professor of history at the University of Iowa, is senior research consultant at the nonpartisan Iowa Policy Project. He has authored or co-authored many IPP reports on jobs, wages and wage theft issues including The State of Working Iowa. cgordonipp@gmail.com

More from IPP on wage theft:
Wage Theft in Iowa by Colin Gordon, Matthew Glasson, Jennifer Sherer and Robin Clark-Bennett, August 2012
Stolen Chances: Low-Wage Work and Wage Theft in Iowa by Colin Gordon, September 2015

Cliff ahead: Learn from Kansas

Despite chronic revenue shortfalls that have forced a series of mid-year budget cuts, senators are moving a tax-cut bill forward without even an analysis of its impact.

The Iowa Senate is poised to move a massive tax cut bill out of committee today, in the belief that somehow what was a disaster in Kansas will be a big success in Iowa.

Despite chronic revenue shortfalls that have forced a series of mid-year budget cuts over the past two years, and the prospect of a tight budget for next year, Senate Republicans propose to cut $1 billion a year from the state budget. They are moving the bill forward without even an analysis of its impact.

Proponents claim this will make Iowa more competitive and boost the economy. There are two problems with this claim. First, two major accounting firms that rank states on their level of business taxation continue to put Iowa right in the middle of the pack, or even better. We are already competitive. Ernst & Young (below) ranks Iowa 29th, while Anderson Economic Group’s measure ranks Iowa 28th — in both cases, showing little difference across a broad middle range of the scale.

Second, there is good reason to expect the bill to have negative effects on the economy, not positive. When Kansas enacted major cuts to state income taxes in 2012 and 2013, the Governor and his friends at ALEC (the American Legislative Exchange Council) lauded this experiment — which five years later has proven to be a dramatic failure.

Abundant evidence shows the tax cuts failed to boost the Kansas economy. In the years since the tax cuts took effect Kansas has lagged most other states in the region and the country as a whole in terms of job growth, GDP growth, and new business formation.

When confronted with the Kansas failure, the bill’s proponents respond that the only problem in Kansas was that they failed to cut services sufficiently to balance their budget. But here’s the problem: Their constituents were up in arms over the cuts they did enact; they would not have stood for anything more drastic.

In order to bring the budget somewhat back in balance, Kansas borrowed from the future, using up reserves, postponing infrastructure projects, and missing contributions to the pension fund. Schools closed weeks early when state funding ran out. Had they cut spending further, that would have put a bigger dent in the economy, as recipients of government contracts were forced to retrench and workers laid off spent less in the local economy.

A supermajority of the Kansas Legislature voted to end the experiment last year, recognizing it as a failure and responding to the demands of Kansas citizens to restore funding to education, highways, and other state services they rely on. That decision no doubt saved the state economy from performing even worse in the years to come.

The Senate bill would harm Iowa in much the same way. Education accounts for over half of the state budget. Tax cuts of this magnitude would have very serious consequences for our public schools, and would force tuition up drastically at community colleges and regents institutions. Our court system would be forced into further personnel cuts, meaning long delays for those seeking justice. We would see more children suffer as family service workers face ever higher caseloads.

Proponents claim the Senate plan is “bold.” So is jumping off a cliff.

Peter Fisher is research director of the nonpartisan Iowa Policy Project. pfisher@iowapolicyproject.org

 

Related from Peter Fisher:

The Lessons of Kansas

The Problem with Tax Cutting as Economic Policy

SNAP decision could be backward

Clear progress in access to fresh, nutritious foods for children and the disabled in Iowa are at stake in the White House plan for SNAP.

The Trump administration has proposed a 2019 budget with deep cuts and fundamental changes in the Supplemental Nutrition Assistance Program (SNAP). Formerly known as Food Stamps, SNAP every month assures access to food for more than 350,000 Iowans and pumps more than $38 million into the state economy.[1]

The White House proposal would cut of about $213 billion from SNAP over the next decade. About 40 percent of benefits issued to SNAP recipients would be held back by the USDA. Some cuts would go to fund non-perishable food boxes. Other cuts would just reduce access to food for citizens.[2] The budget also would kick some recipients off the program.

Now adults who are not raising children or are disabled have just three-month of food aid over three years. The change raises the age for those who can get food under that provision to age 62. It was formerly 49. The younger adults would get nothing. Also the White House proposal eliminates the minimum benefit, and caps assistance to any household at six people.

These changes would have unfortunate effects on already high levels of food insecurity in Iowa.

An estimated 10.7 percent of Iowans are considered food insecure, meaning they lack consistent access to affordable, nutritious food.[3] SNAP assisted one in eight Iowans in fiscal year 2016. Of those families receiving SNAP benefits, 69 percent have children, and more than 25 percent of benefits go to households with family members who are elderly or disabled. The benefits are not overly generous. In December 2017, Iowa SNAP recipients received just $1.15 per meal.[4]

Food insecurity is correlated with obesity and chronic disease with adults[5] and poses serious threats to child development and school performance.[6] Research has shown that “every $5 in new SNAP benefits generates as much as $9 of economic activity by adults in families to receive benefits.” [7] SNAP spending contributes to local spending and cuts would hurt small grocers in rural Iowa.

Instead of an opportunity to choose nutritious food in the current debit card system, the administration would offer delivered boxes of foods such as canned meats, cereal and shelf-stable milk. The alleged savings from the change ignores the cost of delivery.

There has been clear progress in getting SNAP to provide access to fresh, nutritious foods for children and the disabled in Iowa. For instance, some Iowa communities have piloted a program called Double Up Food Bucks that doubles the value of food dollars up to $10 to purchase fresh produce at farmers markets in order to incentivize healthy eating.[8] Food boxes are a poor substitute for that kind of initiative.

The White House proposal takes Iowa backward on health and food access.

Posted by Natalie Veldhouse, research associate at the nonpartisan Iowa Policy Project. nveldhouse@iowapolicyproject.org

 

 [1] Iowa Department of Human Services, F-1 Food Assistance Program State Summary — January 2018. http://publications.iowa.gov/26363/
 [2] Center on Budget and Policy Priorities, “President’s Budget Would Cut and Radically Restructure SNAP Food Benefits,” February 2018. https://www.cbpp.org/blog/presidents-budget-would-cut-and-radically-restructure-snap-food-benefits
 [3] U.S. Department of Agriculture, “Household Food Security in the United States in 2016,” September 2017. Table 4: Prevalence of household-level food insecurity and very low food security, average 2014-2016. https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx
 [4] Ibid, Iowa Department of Human Services.
 [5] Food Research & Action Center, “The Impact of Poverty, Food Insecurity, and Poor Nutrition on Health and Well-Being,” December 2017. http://frac.org/wp-content/uploads/hunger-health-impact-poverty-food-insecurity-health-well-being.pdf
 [6] Food Research & Action Center, “The Connections Between Food Insecurity, the Federal Nutrition Programs, and Student Behavior,” 2018. http://frac.org/wp-content/uploads/breakfast-for-behavior.pdf
 [7] U.S. Department of Agriculture, The Food Assistance National Input-Output Multiplier (FANIOM) Model and Stimulus Effects of SNAP. October 2010. https://www.ers.usda.gov/webdocs/publications/44748/7996_err103_1_.pdf?v=41056
 [8] Iowa Healthiest State Initiative, “Iowa Healthiest State Initiative Expands Double Up Food Bucks Program in Iowa,” May 2017. http://www.iowahealthieststate.com/blog/press-room/iowa-healthiest-state-initiative-expands-double-up-food-bucks-program-in-iowa/

Putting the U.S. Constitution up for grabs

 

 

 

In a republic we have rules — laws — framed by a Constitution that sets limits on how far they go, and on who can exercise them, while assuring that we can change them as needed, in an orderly process that protects the rights of all.

Imagine these rules were gone, that they all changed, that a minority could routinely stop the majority from moving forward, that individual liberties could vanish.

Imagine the squabbling members of Congress you see every night on television setting themselves up as modern-day George Washingtons, James Madisons and Ben Franklins, and flipping everything on its head. A bill calling for a U.S. Constitutional Convention — approved last year by the Iowa Senate State Government Committee and moving again this year — could do just that.

The bill, Senate Joint Resolution 8, or SJR8, would put the State of Iowa on record calling for a constitutional convention, which could easily become a free-wheeling assault on our constitution, following whatever process it chooses, with no review by any existing court or legislative body.

While the resolution asserts that such a convention would be limited, the scope of issues is so broad as to effectively erase limitations: “to impose fiscal restraints, and limit the power and jurisdiction of the federal government.” Even then, it is not clear that states have the authority to limit the scope of a convention at all. According to constitutional scholars, the delegates would likely be free to define any limits as broadly as they wish, or to ignore them.

Why now? In some states, such as Iowa, far-right organizations including the Convention of States project and the American Legislative Exchange Council (ALEC) now have enough supporters in key positions to push for such changes even though none of this has been the focus — perhaps not raised at all — in Iowa election campaigns.

Supreme Court Justices ranging from the liberal Earl Warren to the conservative Antonin Scalia have warned against the dangers of opening up the constitution to radical change. If 34 states pass such a resolution, Congress will call a constitutional convention. One group counts 28 states that have already signed on.[1] It is conceivable that the threshold could be reached.

The Constitution contains very little guidance on the procedures for, or scope of, such a convention. The only precedent we have to go on is the constitutional convention of 1787, at which the existing document, the Articles of Confederation, was scrapped and an entirely new constitution, our present one, was created. That convention even changed the rules for ratification.

The delegates to a constitutional convention could set a rule that all decisions would require approval only by a simple majority of the states, with each state given one vote. That would allow the 26 least populous states, which contain less than 18 percent of the U.S. population, to rewrite the constitution.

The Constitution provides no guidance as to whether such a procedure is permissible. And even if Congress were to establish rules for the convention, there is no mechanism to force the convention to follow those rules.

Constitutional scholars say that under a convention now, the entire U.S. Constitution is up for grabs. It could quickly become a contentious and chaotic free-for-all, with moneyed interests free to lobby and purchase support however they chose.

[1] Iowa is shown as already on the approval list because of a resolution passed in 1979, but groups are pushing for a new one for fear that the age of that resolution will disqualify it, and because the wording of the 1979 version is different from the current one.

 

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City.

 

Rest/best/worst of the story

redink-capitol

Senator Joni Ernst is using Facebook to gin up support for the new tax bill. It is a one-sided picture, to say the least.

So, what does it really mean for Iowans that the tax bill is law?

  • Middle and low-income Iowans will see temporary ​tax cuts in the short term that are ​drastically smaller​​ than those high-income taxpayers will see — and these will be taken away or turned into tax increases by 2027 to help pay for permanent tax cuts for corporations.
  • Millions of people nationwide will lose health insurance coverage as elimination of the individual mandate drives up costs for all.
  • The wealthy will keep more millions of dollars that have never been taxed due to further exemptions in the estate tax.
  • The Child Tax Credit will be extended to affluent families who do not need assistance, while 86,000 children in working families in Iowa receive a token increase of $75 or less — both expansions to evaporate after 2025.
  • Businesses will get enormous, permanent tax breaks with no requirements to create jobs.

Some might recall a longtime radio commentator, Paul Harvey, and his “Rest of the Story” pieces. The points above are the “rest of the story” that you might not hear from backers of the latest tax giveaway in Congress. You might be OK with them and call them the “best of the story.”

Or, you might be concerned about the impact they will have on U.S. and Iowa families, on national debt and new challenges they bring to the safety net, and call them the “worst of the story.”

But they are the real story, and they should not be forgotten as the spin continues.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org