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

Quality of life — the path to good jobs and schools

A whopping 63 percent of Iowans voted in 2010 for a constitutional amendment that would dedicate funding to improve Iowa’s waters and land. Now, that is a mandate.

Will Hoyer
Will Hoyer


Governor Branstad wants Iowans to focus “like a laser beam” on jobs and education. If we are to do so, he must get us to examine how we’re managing our precious land and water. He cannot expect to achieve his job goals without those important parts of the picture.

What happens when people don’t want the jobs that are available because the air is so dirty that people get sick? What happens when well-educated, highly qualified job candidates pass up Iowa for another state that demonstrates a commitment to clean water and air? A variety of aspects make Iowa a desirable place to bring a business or a family. Most focus on quality of life.

If our children are educated in world-class schools they will have job opportunities everywhere. Companies across the country and across the world will be clamoring to hire hard-working, well-educated Iowa kids and those kids will have choices. Will they want to live in a state that demonstrates a commitment to clean air and clean water? Will they want a place that invests in parks and recreational opportunities? Absolutely.

As The Des Moines Register has pointed out, Iowa consistently ranks near the bottom in per-capita spending on recreation and conservation.

Politicians often talk of a “mandate” when they win an election with 52 or 53 percent of the vote. Why, then, can they not look back on the November 2010 election and recognize that a whopping 63 percent of Iowans voted for an amendment that would dedicate funding to improve Iowa’s waters and land? Now, that is a mandate.

Nobody will argue against creating jobs or improving education. It is a mistake to assume we can do either without other things that attract new people to Iowa and keep them here.

We educate smart people. If a smart Iowa-educated college grad can choose between a job in an Iowa town where the smell of a large hog confinement or industrial grain processor pollutes the air, or where nobody feels safe getting in the river water that runs through downtown, and a comparable job outside Iowa where clean air and water are the norm, we know what the choice will be.

We must invest in children’s education here in this state but we also must invest in protecting the environment so those children grow up healthy. We must invest in creating good jobs where people can work eight hours a day but we must also invest in protecting the environment where those workers live 24 hours a day.

Posted by Will Hoyer, Research Associate

Achievement and resources — finding the balance

Governor Branstad’s recent education summit drew over 1,600 people, and prominent speakers including the U.S. Secretary of Education, Arne Duncan, former North Carolina Governor James Hunt and New Jersey Governor Chris Christie. The forum tapped widespread concern about student achievement in Iowa and the United States. While the summit stressed the importance of teacher excellence, accountability and innovation for Iowa, most speakers stated this will not be achieved without new investments in education. What are those trends in Iowa?

The widening interest in student achievement has coincided with a decrease in overall state education funding over the past 13 years. The graph above illustrates the steadily declining levels of state education funding. As a share of the economy, overall state funding for education has declined by 17 percent since Fiscal Year 1998. Funding for higher education — both at community colleges and Board of Regents universities — has borne the brunt of that reduction.

Long, Steady Decline in Overall State Education Funding
education spending graph

One point also noteworthy about the graph is the impact of federal “stimulus” funding through the American Recovery and Reinvestment Act (ARRA). Frequently a target of political spin, the ARRA funding is demonstrated in this chart and other research to have made an important difference in saving education funding from severe cuts, particularly in 2010, the year Iowa faced a 10 percent across-the-board budget cut. ARRA bridged a gap to hold education funding relatively constant, though still far lower than its levels in the 1990s.

See World Class on a Shoestring Budget? at http://www.IowaPolicyProject.org for more information.

Posted by Andrew Cannon, Research Associate

Folly of the sales-tax holiday

“How many stores promote a ‘7 Percent Off’ sale?”

Andrew Cannon photo
Andrew Cannon

The Institute on Taxation and Economic Policy (ITEP) hits the nail on the head with a two-page policy brief about sales-tax holidays. Typically scheduled for back-to-school shopping and used in 17 states, they drain revenue, and feed unfairness in a state tax system.

In “Sales Tax Holidays: A Boondoggle,” ITEP notes sales tax holidays “are costly. Revenue lost through sales tax holidays will ultimately have to be made up somewhere else, either through painful spending cuts or increasing other taxes.”

Iowa’s tax holiday is Friday and Saturday of this week. The timing for the holiday couldn’t be worse, as it comes right before the start of the first school year in which state lawmakers have frozen school districts’ per-pupil spending. Giving up that revenue for a “back to school” sales gimmick is ridiculous.

ITEP identifies the problems with all such “holidays,” including the Iowa break:
— they do not target sales-tax relief to low-income families that are most affected by sales taxes, but offer it to the wealthiest families as well;
— they do nothing to stimulate local economies, because the purchases would be made anyway; and
— for the other 363 days of the year, they leave a state tax system unchanged in its favoritism toward the wealthy.

“Regrettably,” ITEP states, “these holidays may lull lawmakers into believing that they have resolved the unfairness of sales taxes.”

Finally, beyond these standard tax-policy concerns, the sales-tax holiday raises consumer protection issues. It actually provides an incentive to businesses to charge customers more than they would have without the break.

Think about it. The holiday saves Iowans 7 percent on a sale of a clothing item. How many stores promote a “7 Percent Off” sale? But a “no tax” sale — watch the ads this week. Why offer 15 percent off, or 20 percent off, or half off, or 2 for 1, when the state is handing you this promotion?

A “holiday” should be something to celebrate. Fixing problems with Iowa’s sales-tax law could be accomplished in better ways than a two-day boondoggle.

Posted by Andrew Cannon, Research Associate

The reality of Recovery Act funds: They helped!

More teachers will be on the job in Iowa in the coming month and class sizes will be more manageable because Recovery Act funding saved positions in recent years.

Mike Owen
Mike Owen

A new report offers one illustration of the value of funds provided to the states under the American Recovery and Reinvestment Act (ARRA) — also known as the “stimulus” bill.

Aside from political arguments about ARRA, one thing that is undeniable is that it helped Iowa lawmakers get funds to Iowa schools at a time state revenues were coming in short.

IPP Research Associate Andrew Cannon’s report on education in funding in Iowa, “World-Class on a Shoestring Budget?” notes that a decade-long decline in K-12 funding has reversed course (measured in inflation-adjusted dollars), beginning in 2009, the first of three years of the temporary ARRA help. As his report notes:

The American Recovery and Reinvestment Act (ARRA) allowed Iowa, during the leanest years of the recession, to continue funding education at levels comparable to and even higher than prior years. As those Recovery Act funds expired at the end of June, the end of the state’s fiscal year, Iowa lawmakers chose to provide state funds to replace Recovery Act funds.

While it might be expedient to complain about “one-time funds” being used for ongoing expenses in the state budget, that is precisely how ARRA funds were designed to be used. Effective stimulus policy, as the Iowa Fiscal Partnership and others have noted, is supposed to be temporary, timely and targeted. State fiscal relief in times of revenues shortfalls is one of those approaches, and in this case, education funding in Iowa was sustained at more traditional levels than otherwise would have happened. More teachers will be on the job in Iowa in the coming month and class sizes will be more manageable because that funding saved positions in the last few years.

Cannon’s full report — six pages, plus a four-page appendix of data tables on education funding — may be found here.

Part of making Iowa students educational achievers is to encourage critical thinking skills — the skills that will teach them to check the facts about programs such as ARRA before listening to the political talking points.

Posted by Mike Owen, Assistant Director

But what have you done for me lately?

An astounding number of people have no idea what their government does for them — even as they benefit from government programs.

Source: Suzanne Mettler, "Reconstituting the Submerged State: The Challenges of Social Policy Reform in the Obama Era," via Sara Robinson, Campaign for America's Future

This NYTimes blog post is interesting enough, but what really caught my attention was a table from a recent academic political science paper that has made its way from liberal bloggers to a former Reagan economic advisor.

An astounding number of people have no idea what their government does for them, even as they benefit from government programs.

 

Posted by Andrew Cannon, Research Associate

What? Services attract businesses?

What is clear is that you cannot have tax cuts and have the services, too.

Mike Owen
Mike Owen

Why is it that the mantra in real estate is “location, location, location,” and the political mantra in economic growth is “taxes, taxes, taxes”?

The political mantra, which crumbles regularly when put to serious analysis, also takes hits when the benefits of Iowa’s “location, location, location” are seriously put in jeopardy. Case in point: the drive to gut Iowa’s universal voluntary preschool program.

On Monday in the Iowa Senate Education Committee, Elliott Smith of the Iowa Business Council told lawmakers that the preschool program helps attract companies and employees, and will pay off in increased productivity by students.

Now, no one is under any illusions here. The business lobby will also keep pushing for tax cuts. Its influence is the fundamental reason corporate tax giveaways are out of control. The Legislature has not cracked down on them, and has rejected serious attempts to do so, cheered on by the business lobby. This fiscal negligence is costing Iowa tens of millions of dollars every year, shaking the foundations of  critical public structures such as education that support economic growth and opportunity for all Iowans.

What is clear, however, is that you cannot have tax cuts and have the services, too. And if research, and common sense — as illustrated by Mr. Smith’s support of Iowa’s preschool program — make a clear case for services, then tax cuts should simply be off the table. We cannot afford new tax cuts, let alone the gigantic giveaways already in place, and they don’t really improve the Iowa economy even if we could.

Posted by Mike Owen, Assistant Director