Triggers to drive Iowa down

If you thought it was obvious that our state can ill afford more tax cuts, you were right.

DSCN5662-detail240200In the midst of yet another episode of mid-year budget slashing, and with the prospect of further cuts for next year, a reasonable person might conclude that the state cannot afford any more tax cutting. But that is what Governor Reynolds has proposed, in a bill that would reduce state revenues by over $1 billion over five years.

But not to worry, the governor’s press release assures us: “The plan will also include revenue targets (or “triggers”) that will act as a safeguard in the event of a downturn in the economy.”

A better description of these triggers is a set of one-way ratchets that will force revenues down and leave the state with perennial budget shortfalls on into the future.

The bill sets forth five sets of rates. Each year, the growth in revenues over the previous year is compared to a target, and if the target is met, a further set of rate cuts go into effect.

Here’s the rub: There is no trigger for the first set of rate cuts. They will go into effect for tax year 2019 regardless, and they are far and away the largest of the rate cuts.

Furthermore, the standard deduction is doubled that year. The revenue losses from these measures will be offset to an extent by a reduction in federal deductibility from 100 to 25 percent and by sales tax increases, but the net effect is still a $129 million cut in state revenues for fiscal year 2019, the budget the legislature will be enacting in the next few weeks.

After tax year 2019, further reductions in rates are tied to the attainment of revenue targets. Those targets will not be difficult to meet. Assuming the most recent revenue forecast for FY2019 (4.2 percent growth over 2018) is not too far off, revenue growth of 2.9 percent or less in the following two years, and 3.2 percent in the third, will be enough to trigger all of the remaining rate cuts by fiscal year 2022. These target revenue increases are well under the 3.6 percent per year forecast used by the department of revenue.

At that point, the state will be locked into a set of tax cuts that will drain $300 million from the state budget each year. There is no going back. Income tax revenues will be 10 percent lower than under current law. Sluggish growth, or the next recession, will leave the state once again forced to cut services already pared down drastically from the past few years of service cutting.

Consider what would happen in a recession. If we experienced a downturn in the economy next year, it is possible none of the revenue targets would be met, since they are all expressed in dollar levels of revenue, not growth rates from the previous year. A decline in revenue next year would make it harder to grow sufficiently to attain those dollar targets in future years. But the first year rate cuts, averaging well over 10 percent, already would have done damage to the ability to provide services in a downturn, when some are most needed.

Let’s remember what a real safeguard looks like. It is called a rainy day fund. When the economy is doing well, the rainy day funds are filled. When growth turns sluggish or a recession hits, the rainy day fund can be drawn down to maintain services. That is how we keep our public schools from having to cut programs and increase class sizes, how we keep the court system functioning without year-long delays in justice, how we keep our state parks open, how we keep family social service workers from becoming so burdened that children fall through the cracks.

If you thought it was obvious that our state can ill afford more tax cuts, you were right.

2010-PFw5464Peter Fisher is research director of the nonpartisan Iowa Policy Project. pfisher@iowapolicyproject.org

Getting it right on minimum wage

Editor’s Note: IPP Research Director Peter Fisher authored a guest opinion for The Gazette in Cedar Rapids (published February 4) about minimum-wage research on which Fisher and University of Iowa Economics Professor John Solow collaborated for the Johnson County minimum wage task force. In the same issue, The Gazette included a staff editorial,Local wage hike achieved its goals.” The Fisher guest opinion ran beside another guest opinion by a spokesman for the low-wage industry backed Employment Policies Institute, an incessant critic of minimum-wage laws. Below is a response from Fisher and Solow to that criticism.

Michael Saltsman’s guest opinion in the February 4 Gazette says we got it “all wrong” in our report on the effects of the minimum wage increase in Johnson County. We examined county employment, earnings, and business establishments, overall and for the two major low-wage sectors, retail and “leisure and hospitality,” as well as overall unemployment, and retail sales in eating and drinking establishments. Despite the title of his column, he apparently found nothing wrong with any of these analyses. He takes us to task only for not focusing on restaurants, a subset of leisure and hospitality.

UnfIMG_3595ortunately for Mr. Saltsman’s critique, the actual story for restaurants in Johnson County is the same as the story we found for the larger hospitality sector, which includes bars, hotels and motels. Average weekly earnings in restaurants after the minimum wage increase rose at nearly three times the rate for the period preceding the wage increase, and rose at a much higher rate than in the comparison counties (Linn, Story and Black Hawk), or the state as a whole. The number of restaurant jobs continued to rise in Johnson County, and the number of restaurants or eating and drinking establishments continued to rise as well, in both cases at a faster rate than in the other counties and the state as a whole.

Our analysis relies on the best data available: the Department of Labor’s Quarterly Census of Employment and Earnings, and state sales tax data. Both come from an actual census of all private sector businesses, not a survey of a sample of businesses. To sort out the effects of the minimum wage you need to do what you can to control for other factors affecting the restaurant industry more broadly. That is why we compared the experience in Johnson County with the two other state regents’ institution counties, as well as neighboring Linn County, and the state as a whole, where the minimum wage remained unchanged.

What our analysis shows is that the average year-over-year growth rate of restaurant jobs in Johnson County fell from 3.5 percent for the four quarters prior to the wage increase, to 1.5 percent for the four quarters ending in the middle of 2017. Proof of a harmful minimum wage effect, as Mr. Saltsman would have us believe? Hardly. The growth rate in jobs in restaurants fell in the state of Iowa, and in all the comparison counties, only more so. While jobs in Iowa City restaurants grew on average at 1.5 percent per year post wage increase, they grew at only 0.3 percent in the state of Iowa and in Story County, 1.0 percent in Linn County, and fell 3.8 percent in Black Hawk. Furthermore, in all cases the growth rate was not only lower in the other areas, but fell more dramatically after 2015 than in Johnson County.

Perhaps Mr. Saltsman used a less reliable data source. Perhaps his math was wrong. Perhaps he did not choose to look at trends in restaurant jobs elsewhere, because that would have undercut his point. At any rate, it looks like we got it all right.

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For more information about the minimum wage and local minimum wages in Iowa, see previous reports on IPP’s website.

 

New blows to public accountability

curtains-tighterCompanion bills in the Iowa House and Senate move Iowa closer to making true monopolies out of the state’s regulated electric utilities.

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

These new bills would remove a significant share of regulation, and the bills are moving quickly with little scrutiny — while high-profile legislation from school funding to budget cuts captures more attention.

But the utility bills demand attention, just as utility bills do every month in your household budget. Presently the Iowa Utilities Board oversees MidAmerican Energy and Alliant Energy. This oversight 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 (3rd or 4th lowest depending on the year). At the same time, this state has developed one of the strongest clean energy economies. These make Iowa a big draw for certain industry — a far greater reason to locate here than tax breaks that any state can offer.

Under legislation being proposed (SSB3093 and HSB595), many policies that have led to Iowa’s cost-effective clean energy leadership could not have been implemented, especially energy efficiency programs mandated almost 30 years ago by the Iowa Legislature.

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

In fact, the pending bills would let them cut back substantially on the energy efficiency plans they are required to file each five years.

Left to their own preferences, monopolies would charge the smallest users more. Alliant proved this in its last rate filing. The Alliant plan would increase the cost of electricity by about 10 percent and increase the mandatory charge just to hook up by 30 percent. The plan was designed to put more costs on those who use less, because they are low-income or because they have used the utility rebates to buy more insulation or buy more efficient appliances.

But because Alliant needed permission to raise rates, this rate scheme was not allowed.

The bills in the Legislature would encourage this behavior. And few have been at the table. A subcommittee last week met in a room so small that video indicated most of those present were standing, and the discussion was cut off to move the bill on to a full committee more quickly.

The strategy with the corporate-friendly SSB3093 and HSB595 is the same that we saw in 2017 on collective bargaining and workers compensation. These forces are still at work, to lessen public oversight and public accountability, with changes in law that were not promoted publicly in the last legislative campaigns, and have been developed behind closed doors.

David OsterbergDavid Osterberg, who served six terms in the Iowa House of Representatives, is former director of the nonpartisan Iowa Policy Project and is IPP’s lead researcher on environmental and energy policy. dosterberg@iowapolicyproject.org

Hear Osterberg’s Feb. 8 interview with KVFD-AM radio host Michael Devine about this issue at this link.

Imagine a funded Leopold Center

Farmers, students and former students at Iowa State University, researchers and advocates for a sustainable agriculture in this state are gathering at 10 a.m. on Tuesday, Feb. 6, in the Wallace Building auditorium northwest of the Iowa State Capitol.

The Iowa Sustainable Agriculture coalition are gathering to call for a re-funded, re-staffed, and re-imagined Leopold Center.

Last year the Iowa Legislature stripped all funding from this ISU center. They also tried to expunge the whole idea of sustainable agriculture by taking the Center out of the Iowa Code. Governor Branstad, who 30 years before signed legislation that created the center, vetoed the part of legislation ending it. He did not restore the funding, however.

The Leopold Center-sponsored research is not something corporations such as Monsanto promote, because sustainable farming often uses fewer of its chemicals. Leopold research is not what the owners of huge factory hog farms promote, either. The center pushes alternative animal farms that are smaller and use less energy. They create the type of manure that is a good soil amendment — not a slurry that often runs off into our rivers and streams.

Agribusiness is not interested in the Leopold Center. That is why the leaders in the Iowa Legislature took its funding away. Many farmers and regular Iowa citizens want that research. We will see if their voices overcome the wishes of industry.

For more information about the Feb. 6 event, visit Iowa Sustainable Agriculture.

David Osterberg

David Osterberg is co-founder and former director of the nonpartisan Iowa Policy Project and remains IPP’s lead environmental researcher. As a state legislator from Mount Vernon for six terms in the 1980s and 1990s, serving part of that time as chair of the House Agriculture Committee. He was involved with legislation creating the Leopold Center.

Get school funding numbers right

A good report by the Center on Budget and Policy Priorities (CBPP) shows states generally have done an exceedingly poor job in restoring education funding in the wake of the Great Recession. Unfortuntately in Iowa, this report is being characterized inaccurately by some at the Statehouse, including Governor Reynolds.

A two-page IFP backgrounder on this issue published Jan. 8 offers a summary of how to look at Iowa education funding in the full context of state education funding policy, which governs both state and local funding of education.

Here is a link to view the IFP piece online.

And here is a link to the PDF file.

Governor Reynolds is cherry-picking one figure in the report that looks exclusively at the state share. That figure misses how some education funding has been shifted from local to state responsibility without significantly increasing actual total funding per pupil for Iowa’s K-12 schools.

Instead of the graph (Figure 3) she is using to paint a rosy picture of Iowa’s performance on school funding, anyone serious about using the CBPP analysis to see what has happened in Iowa should look at Figure 8 of the report, reproduced below.

11-29-17sfp-f8

As you can see from the graph — which, again, is in the same report that Governor Reynolds and others have been citing — Iowa “ranks” 13th, if the ranking matters. More importantly, Iowa has increased state and local funding per student from 2008-15 by only 4.9 percent, far less than the figure quoted by Governor Reynolds in choosing only to look at the state funding number. That works out to seven-tenths of 1 percent per year for seven years.
At IFP, we continue to suggest that the only fair way to look at education funding in Iowa over time is to consider both state and local funding, as both are governed by what the Legislature and Governor permit. The best way to make that comparison is to look at the SSA (State Supplemental Aid) number, which governs the per-pupil building block for setting a school budget. Over the last eight years, this has been below 1.8 percent on average (see the IFP backgrounder linked above).

 

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

Tax bill: Not just a 2017 story

It would be so easy to close the book on the 2017 tax bill, to allow our attention to be diverted to the next issue or threat, because there are so many.

We owe it to ourselves and future generations not to fall for what happened in 2017 on the tax bill in Congress, sold on hyperbole and defended on ideological sand that will give way this spring to damaging cuts to health care and nutrition to those who need it most.

Our senators should have warned us. Instead, they sold only cherry-picked data molded into a messy ball of spin and trickle-down economics, bereft of full context or history.

Senator Joni Ernst did it here: https://outreach.senate.gov/iqextranet/view_newsletter.aspx?id=104023&c=JErnst

Senator Chuck Grassley did it here: https://www.grassley.senate.gov/news/news-releases/grassley-statement-president-trump-signing-historic-tax-reform-legislation-law

Just stick to the facts, and you can see that the expensive tax bill that will give us — conservatively — $1.5 trillion in deficit spending, also provides:
 
Basic RGB•     Breaks that provide meager help to low- and middle-income Iowans expire under this bill, including the Child Tax Credit expansion that the Senator notes in the linked piece, but does not note its emphasis to help the wealthy most, nor the expiration date in 2026.
As a result, as this table shows, the bottom 60 percent of Iowa taxpayers will, on average, see tax increases in 2027 when they are being told they will receive a “tax cut.”
 
•    A lessened value of the Earned Income Tax Credit for low-income working families because it holds down the formula to account for inflation.
•    New threats to the safety net as massive deficits caused by this legislation are used as an excuse to cut critical services that benefit the poor, the disabled, and low-income working families.
 
•     Permanent breaks that only reach the extremely wealthy and large corporations — permanent, at least until a future Congress has the courage to take on the interests that have successfully promoted them.
 
We need to do better in helping Iowans and all Americans understand the impact of major decisions that will affect the health and economic opportunity for themselves and their families.
In the coming months, the Iowa Policy Project will be examining these impacts further and in addition to reports, we will host public forums that expand on that understanding. It would be great to include either or both of our U.S. senators in any of these sessions, in a respectful and engaging environment, in a year when neither senator is on the ballot, so they can more fully discuss the impacts of  the bill that their initial statements did not cover.
 
The timing is important, with so many decisions coming for the Iowa General Assembly that may be affected by the just-passed tax bill in Congress, and responsibilities pushed to the states by Washington.
2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

‘Toto, we’re not in Kansas — yet’

curtains-tighter

The unmitigated disaster of tax-cutting in Kansas — which we have noted here, and here, and here, and here — and others have noted as well, is threatened for a curtain call just up the road in Iowa.

Those links might help Representative Guy Vander Linden, who is chair of the House Ways and Means Committee and says in the Cedar Rapids Gazette today that he doesn’t know what happened in Kansas.

Governor Kim Reynolds has indicated since before she took office in May that taxes are on her agenda, and she’s been spreading bad information about our current system when she could be promoting it.

We find out now that the Governor wants to wait until January to tell people what she wants to do. Likewise, details are few from the legislative side. We saw this play out scandously last session, as backroom deals were shoved through the process and signed into law with limited debate and no deliberative, open process that involved the public.

Targets in 2017 were collective bargaining, workers’ compensation, and voting rights. Targets in 2018 are new tax cuts for high-income individuals and the wealthy, undermining public education, and — though they may be seeing they can’t get away with this onepublic-sector pensions that already are stable and taxpayer friendly.

Behind a lot of these moves: The Koch-funded Americans for Prosperity (AFP). Guess who showed up in today’s Cedar Rapids Gazette story? AFP’s Drew Klein, peddling utter nonsense to The Gazette about what happened in Kansas — nonsense not worth repeating here for fear it will spread.

Be very clear about what happened in Kansas: They cut taxes and budgets severely, and forced themselves this year with painful steps to start climbing out of the hole. Ask ’em. They’ll tell you. Oh, wait, they have:

“Business tax cuts were supposed to be magic, they were supposed to spur job growth — and they didn’t,” said Duane Goossen, a former Republican state legislator and state budget director under three governors, in a meeting at the Iowa State Capitol last February.

So, again paraphrasing from The Wizard of Oz”: “Pay lots of attention to the people behind the curtain.”

 

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