Iowa’s holiday from taxes — and reality

Make no mistake, Iowans are being sold a bill of goods — but at least it’s tax-free!

Mike Owen
Mike Owen

Oh, boy! It’s sales-tax holiday weekend in Iowa.

We’re talking about a “7 percent off” sale, folks — on only a limited list of items. When’s the last time that brought you into a store? At any other time of year, it would not draw customers, but guffaws. Seven percent? Really?

As IPP’s Andrew Cannon pointed out last year at this time, these gimmicks “drain revenue, and feed unfairness in a state tax system.” They are found, according to the Iowa Department of Revenue (DOR), in 17 states, and take various forms.

Of course the folks in the malls will say they’re great — anything to get someone in the door. But think about it. We’re literally talking about a few bucks off a pair of jeans, about $5 off a $70 pair of shoes. You could do a heck of a lot better on a regular sale at a store even when you’re paying sales tax.

And when you’re paying the tax, you’re not stiffing the school that your child will be attending in a few weeks in new jeans and shoes.

There is a price to public services any time we chip away at revenues. Whether the cost is around $3 million — as this gimmick appears to cost, according to a 2009 report from the DOR — or $40 million in some business tax credit program, it all adds up. Money not brought in due to exceptions in the tax code costs the bottom line every bit as much as money spent by a state agency.

Make no mistake, Iowans are being sold a bill of goods — but at least it’s tax-free!

Posted by Mike Owen, Assistant Director

Who would take Governor’s deal?

Why are state employees the Governor’s target? Revenues are up, and the Governor is happily giving away millions to companies that don’t pay income tax. Why should state workers take a $1,000 pay cut?

Mike Owen
Mike Owen

There’s a little gamesmanship about public-worker benefits this week that is avoiding a critical question: How will the state compensate workers for giving up negotiated health benefits?

Governor Branstad on Monday repeated his plans to push for a 20 percent premium contribution by state employees in the next contract, putting out a pledge to pay that amount himself right now. For the Governor it’s $224 per month.

IPP’s Andrew Cannon has done a good job of exposing the fact that public worker health benefits in Iowa, while more generous than those offered in the private sector, don’t make up for lower pay in comparable positions or positions requiring comparable qualifications/education. On balance, there is a penalty for working in the public sector.

Governor Branstad doesn’t talk about the wages/salary side. He is ignoring the fact that, unlike his pay and that of state legislators, state employees’ benefits in place are a result of bargaining — a point acknowledged far too little, but thankfully was cited this week by the Muscatine Journal’s Steve Jameson. State employees agreed on the pay levels they receive in the context of other benefitsthey al so receive.

Oddly, when the Governor says state workers should pay $1,000 toward their health insurance, he is peddling it all as savings to the state. Actually, we should expect salaries to go up to compensate for lost benefits.

Also, why are state employees the Governor’s target? Revenues are up, and the Governor is happily giving away millions to companies that don’t pay income tax, and leaving corporate tax loopholes open as well. So explain again, please: Why should state workers take a $1,000 pay cut?

Who would take that deal?

By Mike Owen, Assistant Director

The policy effects of Supreme Court ruling — beyond politics, legal arguments

The central purpose of the law should not be lost in the discussion: to expand health insurance coverage and help create a health system that works for everyone.

Andrew Cannon

While many are focusing on the political and judicial ramifications of today’s Supreme Court ruling affirming the constitutionality of the Affordable Care Act (ACA), it’s important to focus on how the law will affect health coverage.

ACA provisions at the heart of the Supreme Court decision are the personal responsibility requirement (or individual mandate) and the Medicaid expansion. Both provisions are not scheduled to take effect until January 1, 2014.

However, a number of provisions have been in effect since 2010 — shortly after the law’s passage, and have helped make insurance coverage accessible and more affordable for millions of Americans. Today’s ruling upholding the law means that millions of Americans will retain that coverage and those benefits.

Among the provisions currently in effect:

  • Young adult coverage — Uninsured persons age 18 through 25 may continue to be insured as a dependent on their parents’ health coverage. This provision has extended health care coverage to an estimated 6.6 million young Americans.[1]
  • Protections against pre-existing condition exclusions for children — The ACA prevents insurers from denying coverage to sick children. In Iowa, there are up to 51,000 children who have pre-existing conditions.[2]
  • The end of lifetime and annual benefit limits — Consumers with serious health conditions and treatment expenses no longer need to worry about bumping against maximum amounts an insurer will pay.
  • The elimination of the Medicare “doughnut hole” — Under existing Medicare law, seniors with high prescription costs had to pay for prescriptions entirely out-of-pocket. The ACA gradually eliminates this “doughnut hole,” providing seniors a 50 percent discounts on name-brand drugs and a 7 percent discount on generic drugs.
  • Tax credits for small businesses — Small businesses that meet specified qualifications may presently receive a tax credit if they offer their employees coverage and cover at least half of the premium cost.[3] Estimates of the number of eligible businesses vary, from about 2.6 million to about 4 million.[4] Take-up has been limited, partially due to lack of awareness.

Provisions that will take effect in 2014:

  • Expanding Medicaid coverage — Under the ACA, uninsured individuals with earnings at or below 133 percent of the federal poverty level ($30,657 for a family of four in 2012) will qualify for enrollment in Medicaid.  If Iowa fully participates in the Medicaid expansion, as many as 114,700 Iowans may receive coverage.[5]
  • Creation of new insurance marketplaces, or “exchanges” — The ACA instructs states to construct new insurance marketplaces, accessible by Internet, in which those who don’t receive insurance through their employer may shop for insurance coverage. Individuals who don’t qualify for Medicaid coverage will receive tax credits to help them cover the cost of their heath premium. This is the group affected by the individual mandate. According to estimates, as many as 250,000 Iowans could find their health coverage through the new insurance marketplace, or exchange.[6]

While legal scholars and political pundits will undoubtedly have much to say for months on today’s decision, the central purpose of the law should not be lost in the discussion: to expand health insurance coverage and help create a health system that works for everyone.

Posted by Andrew Cannon, Research Associate


[1] Sara R. Collins, Ruth Robertson, Tracy Garber and Michelle M. Doty, “Young, Uninsured, and in Debt: Why Young Adults Lack Health Insurance and How the Affordable Care Act is Helping,” the Commonwealth Fund. June 2012. <http://www.commonwealthfund.org/~/media/Files/Publications/Issue%20Brief/2012/Jun/1604_collins_young_uninsured_in_debt_v4.pdf>.

[2] Christine Sebastian, Kim Bailey, and Kathleen Stoll, “Health Reform: A Closer Look. Help for Iowans with Pre-Existing

Conditions,” Families USA. May 2010. <http://www.familiesusa.org/assets/pdfs/health-reform/pre-existingconditions/iowa.pdf&gt;.

[3] See “Right Balance for Small Business in Health Reform,” Iowa Fiscal Partnership, July 22, 2010. <http://www.iowafiscal.org/2010docs/100722-IFP-HCR-credits.pdf>.

[4] “Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity” (GAO-12-549), Government Accountability Office, May 2012. <http://gao.gov/assets/600/590832.pdf>.

[5] John Holahan and Irene Headen, “Medicaid Coverage and Spending in Health Reform: National and State-by-State Results for Adults at or Below 133% FPL,” Kaiser Commission on Medicaid and the Uninsured, May 2010. <http://www.kff.org/healthreform/upload/medicaid-coverage-and-spending-in-health-reform-national-and-state-by-state-results-for-adults-at-or-below-133-fpl.pdf>.

[6] Matthew Buettgens, John Hollahan, and Caitlin Carroll, “Health Reform Across States: Increased Insurance Coverage and Federal Spending on the Exchanges and Medicaid,” Urban Institute, March 2012. <http://www.urban.org/uploadedpdf/412310-Health-Reform-Across-the-States.pdf>.

Small boost in funding masks long-term reductions in state services

Small increases in some budgets should not distract from big cuts in higher education and water quality over time. There is more work to do.

David Osterberg
David Osterberg

July 1 begins the new fiscal year for the state of Iowa so this is a good time for IPP staffers to update reports released during the legislative session.

Two areas of funding that generally get lip service support from our elected officials are higher education funding and funding for water quality programs. In both areas there was some increase over the very low levels of funding from the previous year. Yet the long-term erosion of funding in these areas of state services was not improved a great deal.

While funding for ISU, UNI and the University of Iowa was increased this year by about $20 million, funding for these institutions still remains about 40 percent below what it was in fiscal year 2000 when inflation is taken into account. Andrew Cannon’s earlier report showed that long term underfunding is the reason that tuition has increased so much over the last decade. Community colleges seem to have fared better with only a 15 percent reduction in funding in real terms over the same period but enrollment has increased, so actual support for students is lower than that.

Water quality received some funding increases in two of the eight individual programs reviewed by Will Hoyer in his March 2012 report. However, overall funding for this group of water quality programs has fallen from what it was 10 years ago.

Lower funding in areas Iowans strongly support are the consequence of continual tax cuts that reduce the size of the state budget in relation to the size of the Iowa economy.

Posted by David Osterberg, Executive Director

Look at more than public employees’ health benefits

A comprehensive and holistic look at public employee compensation reveals that the political talk driving some public policy proposals is mere myth.

Andrew Cannon

It will not be surprising, in the post-Wisconsin-recall world, if policymakers feel emboldened to challenge public employee compensation. Governor Branstad has already signaled that some of his policy initiatives in the coming years will bear the stamp of Wisconsin. In a June 12, 2012, meeting with Des Moines Register reporters and editors, the Governor said he intends to require public employees to contribute 20 percent of the cost of their health insurance.

If that sounds reasonable — considering that private-sector workers contribute, on average, more than 20 percent of their health insurance premiums — it misses the realities of overall public employee compensation.

While it is true that public employees contribute less on average to their health insurance plans than private-sector workers, they have negotiated the benefit as part of overall compensation packages that, all political hyperbole and “conventional wisdom” aside, typically leave public employees behind their private-sector counterparts. As IPP research has demonstrated, public workers tend to be paid considerably less than similarly educated workers in the private sector. Generally better health insurance benefits do not compensate for the deficiency, so a gap remains.

After controlling for experience, education, and other demographic factors, public-sector employees still receive 6 percent to 8 percent lower overall compensation — that is, pay, health, dental, life and disability insurance, and retirement benefits — than private workers.

A comprehensive and holistic look at public employee compensation reveals that the political talk driving some public policy proposals is mere myth.

Requiring an employee contribution of 20 percent of health insurance premiums is a disguised cut in compensation and amounts to a repudiation of contracts that have been negotiated in good faith between public employees and the state. Furthermore, it would widen the gap between public and private sector pay.

Posted by Andrew Cannon, Research Associate

Budgeting in context

The budgeting decisions of last year ought to be viewed in context.

Andrew Cannon
Andrew Cannon

Following last year’s prolonged legislative session, legislators and the governor congratulated themselves for a budget that fully funded programs and reduced reliance on what they called “one-time funds.”

It is true that state services, systems and structures were funded to a large degree through a stable source, the General Fund (where income and sales taxes are pooled). And funding levels increased generally, especially in comparison to the recession-affected budgets of FY10 and FY11, when many state services and programs took severe cuts.

But the budgeting decisions of last year ought to be viewed in context, as we do in a new report.

First, the use of “one-time funds” proved to be the right choice at the time. Because of the recession, state revenues declined precipitously, which led to a 10 percent across-the-board budget cut. One-time funds now derided by some were used precisely as intended. State “rainy day” funds, reserved for economic emergencies, and the federal Recovery Act (ARRA) combined to fill budget gaps and save services. ARRA provided billions of dollars to Iowa to finance K-12 education, higher education, and health care programs for children, the elderly, Iowans with disabilities and low-income Iowans who had no other access to health insurance.

Second, consider how funding for state services and programs compares to pre-recession funding levels. Even as revenues have bounced back, and funding for many services has stabilized, it is unclear if present levels are adequate to met needs. For instance, state funding for community colleges in FY12 will reach about $164 million, up from FY10 and FY11 levels, but still remain below pre-recession levels. At the same time, community colleges are serving more Iowans than ever, with enrollment reaching 106,000 in FY11, up from 88,000 students in FY08.

Iowa’s other public higher education system, the Board of Regents, this year is working under a 3 percent reduction in funding from FY11. Even with the governor’s proposed FY13 increase, Regents funding would still be below recession levels, to say nothing of pre-recession levels. Students pay the price, with continually increasing tuition costs.

Other programs, such as the Early Childhood Iowa initiative, which provides preschool tuition subsidies and parental education; Child Care Assistance, which helps low-income working parents cover the cost of child care; and the Family Investment Program, which helps the lowest-income families meet basic needs and prepare for employment, all have seen large cuts in funding since before the recession. Even into economic recovery, some programs are still being reduced.

Improving upon last year or the year before is good, but the long-term question asks if we are adequately funding programs to meet Iowans’ needs and to adequately invest in Iowa’s future. Judicious use of public funds is not as simple as cutting services to bring down expenses, but taking a balanced approach that assures adequate funding for services that position Iowa for the future.

Posted by Andrew Cannon, Research Associate

Iowa leads the way to kids’ health coverage

Two recent reports highlight Iowa’s success in extending health insurance coverage to children.

Andrew Cannon
Andrew Cannon

Two recent reports highlight Iowa’s success in extending health insurance coverage to children. Both reports are the work of the Kaiser Family Foundation (KFF), a nonprofit private operating foundation, based in Menlo Park, Calif., dedicated to producing and communicating the best possible information, research and analysis on health issues.

The first report — “Performance Under Pressure: Annual Findings of a 50-State Survey of Eligibility, Enrollment, Renewal, and Cost-Sharing Policies in Medicaid and CHIP, 2011-2012” — demonstrates the steps that all states are taking to cover children. For instance, hawk-i, Iowa’s version of the Children’s Health Insurance Program (CHIP), has expansive income eligibility guidelines, allowing children from families with income up to 300 percent of the federal poverty level ($67,050 for a family of four) to enroll in the program. Only two states (New York and New Jersey) have broader eligibility guidelines.

Iowa has enacted other policies that make enrolling in public programs less cumbersome, less costly, and more consistent with the goal of getting kids covered.

KFF’s second report highlights Iowa — along with Alabama, Massachusetts and Oregon — among states leading the way in children’s health coverage. “Secrets to Success: An Analysis of Four States at the Forefront of the Nation’s Gains in Children’s Health Coverage” notes that Iowa has experienced, thanks to its use of CHIP in policies including hawk-i, a nearly 20 percent decrease in the number of uninsured kids. Efforts to expand and simplify the eligibility and enrollment process are key to Iowa’s success in covering kids.

As we noted last month, Iowa’s efforts to cover kid not only help the kids and their families, but also help the state. The U.S. Department of Health and Human Services awarded Iowa with a $9.5 million Children’s Health Insurance Program Reauthorization Act bonus payment in late December, in reward for the state’s efforts to expand children’s health insurance coverage.

Though Iowa has implemented some of the policies that led to success in kids’ coverage in the adult health coverage program, Medicaid, additional policy changes could further reduce the overall rate of uninsurance in the state. For instance, Iowa’s Medicaid eligibility thresholds are Iowa are quite low, especially in comparison to hawk-i eligibility levels

Both Kaiser reports note that Iowa, like every state, will face challenges to maintain and further improve its health insurance coverage. Budgetary pressures, burgeoning caseloads and a growing strain on information technology systems make it difficult. However, both articles illustrate a number of policies Iowa could pursue to continue to be a leader in kids’ health coverage.

Posted by Andrew Cannon, Research Associate