Building blocks of inequity

it is not a Davenport issue, but an Iowa issue, and a failure of public policy.

Iowa’s school funding process is broken.

Consider:

  • The Legislature repeatedly violates the law by failing to set state aid in time for districts to adequately plan their budgets.
  • The levels of funding lawmakers set — averaging less than 2 percent growth over the last six years — are routinely below the growth in costs that schools face.

As if those two things are not bad enough, inequities grandfathered into the school funding formula have not been corrected. While the four-decades-old formula was designed to reduce inequities between districts of higher and lower property values by augmenting property tax revenues with state aid, a gap persists.

Long and short: There is a $175 range in the “cost per pupil” that school districts must use as the building block of their annual budgets. While the minimum cost for this year is set at $6,446 per student, six districts are as high as $6,621.

The inequities have been known for some time. When combined with chronic underfunding, these inequities are magnified. In one case, Davenport school officials are defying state limits on use of their own resources to make sure their students have the same opportunity as students in other districts.

For example, as school budgets are based on enrollment, a district with 1,000 students and operating at the minimum — the state cost per pupil — is losing out on $175,000 per year in comparison with a district at the maximum. In a district the size of Davenport, that’s about $2.8 million a year.

What many Iowans might not realize is that their own school district may be in a similar situation to that of Davenport.

Few districts (only six) are at the maximum per pupil cost; most districts (84 percent) are $100 or more below the maximum per pupil cost. Nearly half of all districts (164 of 336) are at the minimum.*

Basic RGB

The more you look at this, you can see it is not a Davenport issue, but an Iowa issue, and a failure of public policy.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

 

*Iowa Department of Management, www.dom.state.ia.us/local/schools/files/FY16/DistrictCostPerPupilAmountsAllFY2016.xls

Why the federal budget debate matters in the states

Want clean water? Good and safe schools and bridges? You get what you pay for.

There’s doggone near nobody who isn’t concerned about dealing with the nation’s long-term budget challenges of deficit and debt.

What not enough people will recognize, however, is the danger of diving headlong into a deficit-cutting approach that just digs a deeper hole, both for the economy and for the critical services that federal, state and local government spending supports.

Ryan budget impacts
Center on Budget and Policy Priorities

And that’s the problem with the so-called “Ryan Budget,” named for Congressman Paul Ryan. That approach, passed by the House, makes cuts to funding for state and local services that are far deeper than the cuts many expect to happen with sequestration, the automatic cut process demanded by last year’s Budget Control Act compromise.

A new report from the Center on Budget and Policy Priorities outlines the challenge for states generally with the Ryan approach:

  • Federal cuts of 34 percent by 2022 to Medicaid compared to current law, and by steadily larger amounts after that.
  • Federal cuts of 22 percent in 2014 and in later years to non-defense “discretionary” spending — which leaves Medicare and Social Security alone but hits local and state services in education, infrastructure such as roads and bridges, and public health and safety including law enforcement.

For Iowa, the non-defense “discretionary” cuts are projected at $237 million in 2014 alone, and $2.1 billion from 2013 through 2021.

Want clean water? If you live in Iowa, where the state routinely shortchanges environmental enforcement, how bad do you think things might get when the federal funds are cut as well? Concerned about the quality of your food? Or your kids’ schools? Maybe the safety of the bridge you’re approaching on the way to work?

Well, folks, you get what you pay for.

Posted by Mike Owen, Assistant Director

Unreasonable fear about ‘one-time’ money

Using stimulus funds bridged a gap in revenues and kept Iowa out of a race to the bottom.

Mike Owen
Mike Owen

You hear about it whenever some Iowa politicians get near a microphone to talk about the budget.

Heard above much wailing and gnashing of teeth is a common complaint that Iowa used “one-time money” to deal with recession-driven budget challenges.

Well, thank goodness for (1) that one-time money and (2) the willingness of state leaders at the time, including then-Governor Chet Culver, to spend it.

The Des Moines Register gets it, and isn’t afraid to say so in today’s editorial:

Yes, Iowa did it by shifting money set aside in savings accounts for other purposes, and it used one-time federal stimulus money. That was the right thing to do. The alternative would have been to lay off police officers, teachers and state workers, making the recession even worse in Iowa.

The state is in better shape financially now. It has the money to pay for essential services it has committed to provide to Iowans. The Legislature and the governor should pay to carry out those commitments.

The Iowa Fiscal Partnership (IFP) has pointed out that the American Recovery and Reinvestment Act, (ARRA), the economic stimulus program passed in 2009, was designed to provide targeted, timely and temporary assistance to Americans in the recession. As IPP’s Andrew Cannon noted in a recent IFP report, “Catching Up: Context for 2012 Budget Decisions in Iowa”:

Andrew Cannon
Andrew Cannon

While there is certainly merit in reducing the use of one-time money for the continuing expenses of the state, one-time-fund critics sometimes let strict adherence to that concept get the best of them. For instance, Recovery Act dollars were used precisely as intended: targeted, timely and temporary relief so that states could continue funding critical services, such as K-12 education and health services to individuals and families. State revenues declined precipitously during the worst of the recession; the Recovery Act bridged that drop-off in revenues until a time when revenues improved as the economy regained strength. The same can be said for use of $38.7 million from one of the rainy-day funds since high unemployment and reduced revenues during the year must constitute the rainy revenue day that the fund was designed to cover.

Had the Legislature and Governor Culver chosen not to use the ARRA funds, it is reasonable to assume that the holes created in recession would be left unfilled in better times. This is because one of the priority pieces of legislation passed in 2011 was the creation of a “Taxpayers Trust Fund” to pay for new tax breaks, the fund to be built from revenues coming in at a faster pace than expected. The priority was not to sustain or restore services, let alone enhance them, but to restrain use of new revenues.

Using the ARRA money when it came, for its intended purpose to bridge a revenue gap caused by recession, kept critical services in place when they were most needed, and kept us off the pace of a race to the bottom. Thank you to The Des Moines Register for reminding its readers of that smart public policy.

Posted by Mike Owen, Assistant Director

Get budget rhetoric in line with reality

In Iowa, budget rhetoric is what’s been out of control. Politicians have manufactured a crisis, when we need budget discussions to be based on logic and facts, not scare tactics.

David Osterberg
David Osterberg

Now that we have a new state budget in place that was balanced in a cuts-only approach, we at least can finally all agree that state spending in Iowa is down.

Even before the new budget was passed, the general fund budget was smaller in relation to the Iowa economy than it was when Gov. Terry Branstad was last in office in 1998.

In other words, state spending has not kept pace with the growth in wages and business profits over the past dozen years. This shifts costs to Iowa citizens.

One example is in the Regents universities. In the just-ended fiscal year, the state provided fewer dollars to the University of Iowa than it did in 1998. By not adjusting state funds for inflation, tuitions have been forced higher: 227 percent up since 1998, from $1,333 per semester to $4,357.

In Iowa, budget rhetoric is what’s been out of control. Politicians have manufactured a crisis, when we need budget discussions to be based on logic and facts, not scare tactics.

When we do that, we can see that Iowa can afford to provide preschool for every Iowa 4-year-old, because we know it improves education and economic opportunity across the board. We can hold down the rapid increases in tuition at Kirkwood and the University of Iowa. We can mow the grass in our parks, improve the low salaries of our teachers and nurses, and do much more while keeping spending at or below 1990s levels.

What we can afford to cut are the perks for the profitable. Tax cuts for big corporations that already avoid their fair share of the bill cannot be sustained if we want to provide and maintain superior state services that attract residents and a productive workforce — which, by the way, is how companies make money.

Let’s put the old budget rhetoric on the shelf and invest in Iowans as we once did, for a dynamic economy and services in line with Iowa values.

Posted by David Osterberg, Executive Director

What ‘small government’ looks like

“Well, it is like, you want smaller government, this is what it looks like.” — Rich Leopold, outgoing Iowa Natural Resources Director

Andrew Cannon, research associate
Andrew Cannon

What does “smaller government” mean?

Richard Leopold, outgoing director of the Iowa Department of Natural Resources (DNR), has a few answers in an article in today’s Des Moines Register.

State general fund allocations to DNR have dropped over the past several years, from $22.1 million in FY09 to $15.6 million in FY11.

As a result of decreased general fund support, DNR has been forced to drop a number of programs and services. Leopold said:

I have gotten I don’t know how many complaints from legislators and small business owners about, “You used to do this and now you don’t any more.” Well, it is like, you want smaller government, this is what it looks like.

In a difficult economy, Leopold sees increased use of state parks. So more people are using the bathrooms, filling the trash cans and wanting to hike in the outdoors, and DNR has less money for staff to mow the grass, clean the bathrooms, empty the trash cans and keep the trails open.

Cuts in revenues lead to cuts in services that we all use. Often, they are the services that we’re so accustomed to receiving, we don’t notice them until they are gone.

Posted by Andrew Cannon, Research Associate

Lessons from Oregon

Like Oregon voters, Iowa voters favor a balanced approach to budget challenges.

Christine Ralston
Christine Ralston

Iowa could learn something from Oregon voters about taking a balanced approach to budget challenges.

In a victory for fiscal prudence, Oregon voters recently passed two initiatives — Measures 66 and 67 — that upheld their legislature’s decision to use a balanced approach to their budget shortfall.

In Oregon’s case, lawmakers last session made cuts to the budget and raised income tax for the top 3 percent of filers. They also raised the corporate minimum tax from $10 and increased the corporate income tax rate for businesses netting over $10 million a year, and temporarily for most other businesses. As the Legislature already voted last session to use a balanced approach that included trimming the budget and raising revenue, this vote saves Oregonians from further cuts in important services. This is notable for two reasons:

■     Oregon is known for its opposition to raising taxes, having last voted to raise taxes about 80 years ago when it added a state income tax.
•     It is one of five states that does not have a state sales tax.*
•     It also has a statewide cap on property tax.
•     It has a “kicker” law that automatically sends money back to residents when revenues exceed forecasts. Oregon has no rainy day fund.
■    Given the opportunity for a direct vote, Oregon voters chose to retain a balanced approach and raise taxes on themselves rather than make additional cuts that would decrease funding for education, health care and other essential services.

Oregon’s voters truly understand the importance of a balance during difficult economic times.

So, what does this mean for Iowa? For one, the Oregon vote remarkably reflects the results of a survey of Iowa voters last fall.

That survey for the Iowa Fiscal Partnership found that Iowa voters favor a balanced approach to addressing further budget problems:

■     Six in 10 favor some increase in taxes and fees rather than making cuts alone.
■     By the same ratio, Iowa voters believe the wealthiest Iowans — those earning over $250,000 per year — and big corporations pay less than they should in taxes.

The situation is complicated, and Iowa voters recognize that using budget cuts or tax increases alone will not solve our balance problem.

Oregon’s unemployment rate is 11 percent, compared to Iowa’s 6.6 percent. Oregonians understand that a budget has two sides, and a balanced approach to spending and revenue assures a responsible way to protect critical services in difficult economic times.

Posted by Christine Ralston, Research Associate


* Federation of Tax Administrators website, http://www.taxadmin.org/fta/rate/sales.html (accessed on January 29, 2010). The other states are Alaska, Delaware, Montana and New Hampshire.

Still good advice — accountability and balance

All tax credits, not just the film credit, demand scrutiny heretofore ignored.

It’s good to see more and more acceptance of the idea of accountability and balance to meet Iowa’s needs.

Everything must be on the table in budget decision-making, as Governor Culver insisted in his Condition of the State message earlier this year, and we have seen signs that this sensible, balanced approach could be taking hold in the Statehouse.

For many years, the budget hawks at the Iowa Fiscal Partnership have been making the pitch. One such report, in 2006, “Looking Behind the Curtain,” challenged Iowans to consider how to review the giant — and often secret — business subsidies that were draining the state of revenues needed to meet Iowans’ needs.

As noted then by the Des Moines Register, in a December 22, 2006, editorial:

Public dollars are the public’s business and should come with public accountability. Lawmakers should ensure that. They can get ideas about how to start by picking up a copy of the Iowa Fiscal Partnership report. [Click here for the executive summary of the report.

Late in the 2009 legislative session, lawmakers passed a measure to permit limited

Mike Owen
Mike Owen

public scrutiny of Iowa’s generous research subsidies that have allowed some of Iowa’s largest corporate operators not only to avoid income tax, but to receive state checks in the millions while school districts are facing cuts.

The scandal around the state’s film-credit program has contributed to the recognition by the Governor, legislative leaders and many in the media that all tax credits, not just the film credit, demand scrutiny heretofore ignored.

This has extended as well to business advocates. In fact, an economist for the business-oriented Tax Foundation succinctly made the point in a Register story on Sunday, that “the bottom line” is that these subsidies cost money.

“The big problem is that politicians and taxpayers tend to see them as a tax cut, but the correct way to look at them is that they are really government spending through the tax code.”

If a rose is a rose by any other name, a tax credit is spending whatever you call it. Like any spending, there should be a good reason for it, and with tax credits, it is not a given that they can be defended. It is long past time for review and reform.

The Governor has set up hearings for Tuesday in Cedar Rapids and Wednesday in Urbandale for advocates and experts to weigh in on the value — or lack of same — of many such subsidies. Click here for the agenda, time and location of each meeting.

Posted by Mike Owen, Assistant Director