Sensible context on school aid growth

If the Legislature were to curtail business tax credits even slightly, plenty of money would be available to properly fund education and other actual public priorities that are the traditional and best-focused business of state government.

There are many ways to measure Iowa’s lagging commitment to public schools. One is a comparison of growth in school aid to growth in state revenues.

As K-12 schools are a significant share of the state budget, it seems sensible that we would expect at least similar numbers of growth in one vs. the other.

Basic RGBThat is not the case.

While not a perfect comparison — there are moving parts with both figures — you can get an idea of the general trend in the accompanying graph. Net General Fund revenues have been coming in with average yearly increases around 4 percent,* while the key school-aid number, for Supplemental State Aid, has averaged about half that.**

The numbers below are taken from the latest Revenue Estimating Conference report, available here: https://dom.iowa.gov/sites/default/files/documents/2016/03/rec-projections-2016-03-16.pdf

  • The actual ending balance for FY2015 (the budget year ending last June 1) showed a net over-the-year revenue change from FY2014 of 5.1 percent. For that same period, schools had 4 percent Supplemental State Aid — the only year that high since FY2010.
  • For the current year, the most recent official revenue estimate is for a 3.3 percent state revenue increase, while schools are operating on budgets reflecting 1.25 percent per-pupil growth.
  • For FY2017, the estimate is for a 4.4 percent state revenue increase, and the deal just hatched at the Statehouse — 13 months late — is for schools to see 2.25 percent per-pupil growth.
  • For FY2018, for budgets to be approved a year from now, the state is expecting 4.1 percent revenue growth. The school aid number for FY2018 by law was to have been set a month ago so school districts could properly plan their budgets when enrollment counts are set this fall, and to negotiate staff contracts without big uncertainties. That number has not been set and apparently will not be during this legislative session, as neither the House nor the Governor is interested.

Understand, the revenue growth number is held artificially low by the growing and incessant demand for business tax breaks that undermine revenues. So the net revenue number would be much higher if legislators wanted it. Instead, they continue to give away hundreds of millions of dollars before they even reach the state treasury.

If the Legislature were to curtail business tax credits even slightly, plenty of money would be available to properly fund education and other actual public priorities that are the traditional and best-focused business of state government.

Alas, that is not the political world in which we live.

*The average growth for general fund revenues includes both actual results for FY11 through FY15, as well as projections by the Revenue Estimating Conference for FY16 and FY17.
**Supplemental State Aid — which is a percentage for per-pupil cost growth that districts must use in building an enrollment-based budget — includes the recent deal approved by the Senate and House and expected to be signed by Governor Branstad.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org
Mike Owen is a former journalist in Iowa and Pennsylvania. He covered state government for the Quad-City Times from 1980-85 and was editor and co-publisher of the West Branch Times from 1993-2001. He is serving his third term on the West Branch Board of Education, and is a member of the Professional Advisory Board of the University of Iowa School of Journalism and Mass Communications.

Finding closure on the job count

Not only are the actual job increases about half of what the Governor had hoped — but even his own “gross” counting method leaves him short, at 184,000.

For years, we had to watch Governor Branstad’s bogus job count tracked on the official nonfarm jobs spreadsheets provided by Iowa Workforce Development.

Basic RGBYou might remember: The Governor set a goal for 200,000 new jobs in five years. We didn’t come close — 104,500 net new jobs from January 2011 through January 2016. Everyone wants new jobs, but it was clear for a long time the goal was unrealistic.

And it was a distraction for those of us who work with such data carefully, as we do each month in our Iowa JobWatch report.
Nevertheless, the Governor’s people concocted a way to count jobs that no elementary arithmetic teacher would sanction — leave out the job losses. So IWD added a line to the official sheet, for “Gross Over-the-month Employment Gains.” And that way, the Governor claimed, he made it with a couple of months to spare.

In fact, at IWD’s budget hearing in November, the Governor asked IWD Director Beth Townsend to back up her slideshow to bolster the claim with the media present.

A few months later, it looks like we should back up that slideshow once again. The jobs data have now gone through their regular annual review, and the numbers show something different.

Not only are the actual job increases about half of what the Governor had hoped — but even his own “gross” counting method leaves him short, at 184,000.

Yes, we all want more jobs in Iowa, better jobs, more sustained job growth. But we also want the facts treated properly. Is it too much to ask for the Governor or IWD to acknowledge publicly that the “mission accomplished” claims were wrong?

When we see the news release, we’ll be sure to pass it along.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

School money: Big deal (not really)

Finally, after these many months — 13 months past the legal deadline — Iowa lawmakers have decided what schools are going to receive for the next budget year.

A Des Moines Register story on the deal included this:

House Speaker Linda Upmeyer, R-Clear Lake, added this will be the sixth year in a row that schools have received an increase in funding.

Big deal. As if there’s any question that there should be an increase every year. As if any increase, no matter how small, is something schools should celebrate. Especially when you recognize that not all schools receive an increase.

This deal leaves Iowa at around 2 percent per-pupil spending growth, on average, for the last seven years. Understand that a 2.25 percent “Supplemental State Aid” number does not mean all schools get even that meager amount of growth.

For many districts that have declining enrollment, the increase will not keep their budgets where they stood for this year. That means property tax increases. This, from the folks who tell you throughout their legislative campaigns and at Saturday morning coffees that the sun rises and sets on the idea that we have to cut property taxes. These very same legislators are forcing property tax increases for dozens of school districts.

Education is underfunded in Iowa. Education is not the priority, even if it is the greatest share of spending, because it is not funded in a way that reflects any strategic thinking.

If it were, education funding would be the first item determined in the legislative session — for the following budget year, as the law requires.

As it stands, the new number is coming less than one month before school districts certify their own budgets (they don’t get a pass on their April 15 deadline). And the number for FY2018, which was supposed to have been set a month ago, remains an open question and may well not be determined during this legislative session.

Once again Iowa lawmakers have decided that the first priority that needs their attention is figuring out who gets tax breaks. Education then has to fight for what is left over.

It’s not enough to keep up with the bills, and it’s not enough to make sure that we are paying what is necessary to assure we can keep great teachers in the profession, and attract potentially great teachers to the profession.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org
Mike Owen is a former journalist in Iowa and Pennsylvania. He has been a member of the West Branch Community School Board since 2006.
What it looked like last year:

Budgeting in the dark — April 13, 2015

Uncertain wage, certain messages

“If you work here I’m afraid you’re going to have to get along with less.”

 

Last fall the Johnson County supervisors gave the county’s low-wage workers a raise, and come May 1 they will get another one. The county raised the minimum wage from $7.25, where it has stagnated for eight years due to national and state inaction, to $8.20 November 1 in the first of three steps. The county minimum wage is scheduled to rise to $9.15 on May 1 and to $10.10 in January 2017.

It is worth recalling why this landmark legislation was needed.  While American workers are far more productive than they were 40 or 50 years ago, their pay has not risen accordingly. After accounting for inflation, the average wage earner is not much better off now than in the 1960s or 1970s.

Even at $10.10, the minimum wage will not be enough to support even a single person, or two adults with no children both working full time, at a basic, bare-bones standard of living in Johnson County. For families with children, that wage is even further from a self-supporting one. Yet, contrary to some perceptions that minimum wage workers are just teen-agers working part time, over 40 percent of the workers in Johnson County currently making less than $10.10 work full time, almost 80 percent are over age 20, and over one in five are parents.

Some have tried to argue that localities shouldn’t set minimum wages because it is a statewide issue, while others seem to think it is just an Iowa City problem (and some, paradoxically, argue both points). Let’s be clear: Johnson County is all one labor market. People who live in Iowa City or Coralville or North Liberty or Solon work in all those places as well; city boundaries have little to do with commuting patterns. At the same time, only about 6 percent of low-wage workers in Johnson County commute from outside the county.

So having a single minimum wage throughout the Johnson County labor market makes good sense. Certainly it would be best if the state Legislature acted on a statewide minimum wage increase, but its failure to do so should not be an excuse for localities in Johnson County to drop below the county minimum. And it certainly makes no sense to complain that a county minimum creates a patchwork across the state, which is not a single labor market, and then to create an actual patchwork within the county by local ordinance.

Raising the wages of low wage workers to something closer to a self-sustaining wage is good for the local economy. Higher wages boost spending power, driving up sales at local retail and service businesses. Businesses find that higher wages can be offset through increased productivity, lower turnover, and slight increases in prices. Study after study has shown that local minimum wage ordinances have no discernible net effect on employment.

Johnson County residents should be proud to join the 28 other cities and counties across the country that have taken action to boost the wages of low-wage workers. Consider the message of localities choosing to deprive their workers of a long-overdue raise.

Does North Liberty or Tiffin really want to say to residents: “If you work in Iowa City or Coralville, we’re glad you’re going to get a raise, but if you work here I’m afraid you’re going to have to get along with less; oh, and please don’t take it out on our local businesses by shopping elsewhere.”

2010-PFw5464Posted by Peter Fisher, research director of the nonpartisan Iowa Policy Project.
pfisher@iowapolicyproject.org

Coupling — singling out the winners

And guess who they are? Not schools

We always seem to have money for a business tax break, but not for schools. Last year legislators approved just a 1.25 percent increase for schools, a move made a little more responsible by the addition of $56 million in one-time money for this fiscal year. But the Governor vetoed the $56 million because it was one-time money.

Fast forward to this week: the Legislature just approved $98 million in retroactive tax breaks, most of it for businesses, coming out of this year’s budget surplus — the same source of one-time money that the Governor claimed couldn’t be used for schools. The Governor has said he agrees with the tax breaks.

The $98 million would be the cost of “coupling,” which means the state would go along with selected changes in the federal tax code. It would do some sensible things, but others — not so much, and not for the reasons being promoted.

In the end, this is just one more giveaway to business. Cynically, one legislator pronounced this as a move for “fair tax policy.”

In fact, coupling was agreed to as a condition to set school funding already 13 months past the legal deadline. Those talks may now resume.

There has not been a move to enhance fairness for working families in the Iowa tax code since passage of an expanded Earned Income Tax Credit in 2013, and all general changes in Iowa’s income-tax structure over the last 20 years have been heavily weighted toward the wealthiest.

As to the merits of the “tax coupling” legislation, the spin runs very hot and heavy.

One senator claimed this bill is designed to let taxpayers “make the decision on where to best invest their dollars.” No, it’s not.

Businesses already made their decisions last year on where best to invest their dollars, without benefit of the tax break. All the bill does is give them a subsidy after the fact for decisions already made on their own merits, rather than for tax reasons.

We know this because the federal changes, on which the new state breaks are based, were not approved until December of 2015. If any small business made a decision to buy a big piece of equipment in, say, April or October of last year, they could not have assumed they would have a state tax break for it. The funds for the state break were not budgeted. Governor Branstad didn’t plan on it last year, and neither did the House or Senate.

Perhaps the most disingenuous defense of the coupling bill is that it is needed to help thousands of public school teachers who have to purchase their own supplies. The most any teacher could get out of this bill is $22. Is there any teacher in Iowa who would prefer $22 to adequate funding of schools?

We elect a Legislature to make choices with public money about spending on public priorities. It’s part of being a statewide community.

Now it’s $98 million for “coupling.” It’s not hard to see that education could have had this funding all along as part of the regular budget formula. And $98 million is equivalent to about 2 percent in supplemental state aid for schools, which has been held below 2 percent on average over the last six years.

Once again, we see the ascendancy of business tax breaks above what has long received lip service as the first priority of state government: education.

Posted by Mike Owen and Peter Fisher

Owen-2013-57Mike Owen is executive director of the Iowa Policy Project. A former journalist, he has been a member of the West Branch Board of Education since 2006. mikeowen@iowapolicyproject.org

2010-PFw5464Peter Fisher is research director of the Iowa Policy Project. He is professor emeritus in the University of Iowa School of Urban and Regional Planning. pfisher@iowapolicyproject.org

State policies should focus on homegrown jobs

Researchers argue that many public policies on economic development need rethinking to reflect the fact that most jobs come from in-state, growing firms.

2-3-16sfp-f1A recent report by Michael Mazerov and Michael Leachman finds that the vast majority of new jobs in a state are homegrown: They are created by start-ups and by firms already in the state who are expanding. Only 13 percent of new jobs come from new branch plants of out-of-state companies, or  actual plant relocations to a state. They argue that public policies need rethinking as a result:

“State economic development policies that ignore these fundamental realities about job creation are bound to fail. A good example is the deep income tax cuts many states have enacted or are proposing. Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income. And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require. Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.”

Michael Mazerov and Michael Leachman. State Job Creation Strategies Often Off Base. Center on Budget and Policy Priorities, February 3, 2016. http://www.cbpp.org/research/state-budget-and-tax/state-job-creation-strategies-often-off-base#_ftn23

2010-PFw5464Posted by Peter Fisher, IPP Research Director

 

Editor’s Note: This also ran on IPP’s “Grading the States” website — gradingstates.org

To fund water solutions, why not the obvious? Tax pollutants

Why not the obvious solution? Tax the chemicals that pollute Iowa waters.

Note: A version of this piece ran as a guest opinion in the Sunday, March 6, 2016, Cedar Rapids Gazette.

———

One answer to the issue of funding water-quality solutions is right in front of us: Tax the pollutants.

The pollutants are Nitrogen (N) and Phosphorus (P). This is well established by the Iowa Nutrient Reduction Strategy (NRS) that Governor Terry Branstad and the farm industry support. The NRS blames N and P for the pollution that harms Iowa waters and causes the hypoxic or dead zone at the bottom of the Mississippi River.

More than 90 percent of N and two-thirds of the P come from non-point sources, almost all agriculture, according to Iowa State University.

And there is a lot of it. The U.S. Department of Agriculture’s latest Census of Agriculture, for 2012, shows about $2.6 billion was spent on “commercial fertilizer, lime and soil conditioners” in that year in Iowa.

Yet, while debate proceeds on how to deal with the pollution caused by those chemicals, it is worth noting that normal Iowa sales tax does not apply to the N or P used in agriculture.

I stopped by my local hardware store to ask if I, a non-farmer, would pay tax on the standard Scotts 10-10-10 garden fertilizer they sell. I would. But farmers do not pay sales tax for theirs. (There is a small fee on chemicals, including N and P for groundwater protection programs, but no general sales tax.)

Since the debate about how to pay for cleaning our waters is in full swing it is time to propose the obvious. Since N and P are the culprits, let’s tax them at the same rate as, say, pickup trucks.

Farmers pay a 5 percent tax on the pickups they use on the farm and off, to pay for their impact on the roads we all use. Since their fertilizer is used on the farm but also flows into the rivers and streams and lakes we all use, costing us all, a similar tax on fertilizer makes sense.

A 5 percent tax on the $2.6 billion in annual farm fertilizer sales in Iowa would bring in roughly $129 million a year, close to the numbers being thrown about to address water quality in the state. It is roughly comparable to what would come from three-eighths of a cent on the general sales tax for the Natural Resource and Outdoor Recreation Trust Fund that Iowa taxpayers approved — but which legislators have refused to fund. Over the next 30 years the fertilizer fee would bring in something close to what the Governor wants to take from a tax designed for school infrastructure.

Why not the obvious solution? Tax the chemicals that pollute Iowa waters.

IPP-osterberg-75Posted by David Osterberg

David Osterberg co-founded the Iowa Policy Project in 2001 and was director of the organization for 12 years. He continues to lead IPP research on environmental and energy policy for IPP and is a professor in the Department of Occupational and Environmental Health at the University of Iowa. He served six terms as a member of the Iowa House of Representatives, and served as chair of the House Agriculture Committee. Contact: dosterberg@iowapolicyproject.org.