A squeaky wheel is heard — but not fixed​

The weak House attempt to satisfy Davenport on school funding inequities is a sign that a squeaky wheel is being heard. But the whole statewide axle is rusty.

Davenport has been the squeaky wheel on school funding inequity in Iowa, and the Iowa House this week tried to apply a drop of oil. Problem is, the whole axle is rusty, and cracked.

By law, 164 school districts — about half of Iowa’s 330 districts — are held $175 below the maximum per-pupil spending amount used to set local school budgets. In fact, almost 84 percent of school districts in the state are $100 or more below the maximum (graph below).

Basic RGB

On Tuesday, the House passed an amendment, H8291, that dealt only with the squeakiest wheel — Davenport — and only for a one-year fix.

Davenport is not buying. In a Quad-City Times story, Davenport lawmakers were not happy. Their school superintendent, Art Tate, called it “no help at all,” and for good measure, put the focus where it needs to be.

Wrote Tate in an email to the Times: “It does not address the moral imperative to make every student worth the same in Iowa.”

The larger question, given that moral imperative, is why more districts aren’t more active on this issue. One reason could be that Iowa’s inequities, while real, do not rise to the level of what might be found in other states.

Another reason might be that just fighting for basic school funding is hard enough, when the Legislature is setting a seven-year pace of funding growth below 2 percent despite faster growth in district costs, strong state revenues and approval of more business tax breaks.

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We’re in the closing days, perhaps the closing hours, of the 2016 legislative session, with exceedingly few successes for education and working families. It’s too late in this session to expect real reform of the school funding system, pleas for which have come for many years — and focus on more than the per-pupil cost. There are other equity problems, the largest of which is in funding transportation services.

The weak House attempt at a one-year fix for Davenport, however, is a sign that the squeaky wheel is being heard. Think of what might happen if more wheels squeaked.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org

State aid up 13 percent — for business breaks

The early scorecard gives business tax breaks the big edge, a 13 percent increase to between 2 and 4 percent for schools.

What do you expect would be the outcry if Iowa’s public schools asked for 13 percent growth in state aid?

Yet few bat an eye when this happens with business tax breaks, as we can expect for FY2017.*

The early scorecard gives business tax breaks the big edge, a 13 percent increase, vs. between 2 and 4 percent for schools.

The Senate approved 4 percent for FY2017 (covering next school year), but the Iowa House on Monday approved 2 percent — even though schools have averaged less than 2 percent for six years, from FY2011-16.

In fact, the Iowa Association of School Boards this year did not even ask for a specific growth number, but rather, that it be set in a timely manner (it’s almost a year late already), and “at a rate that adequately supports local districts’ efforts to plan, create and sustain world-class schools.”

That hasn’t happened for some time. Over the last six budgets, per-pupil growth has been held to 2 percent or below in all but one year. Depending on enrollment trends, some districts even see less.

Basic RGB

Business tax breaks do not face the same budget constraints — ironic, since the cost of those breaks limits what lawmakers permit themselves to spend on services that their constituents demand, not the least of which is education. Other areas — environmental quality, child care, health care and public safety — also are constrained.

A much greater percentage increase in business tax breaks is set in place, as shown below. The total increase of $71 million from this budget year to the one lawmakers are working on now actually may be understated. The $35 million for a new sales-tax exemption for manufacturers is considered a conservative estimate. Even at $71 million overall, however, it represents a 13 percent increase.

160108-IFP-Budget-Fig2FB

Spending on business tax breaks is rarely burdened by the public scrutiny and debate that comes with spending on schools and water programs, which must be approved annually.

Most business tax breaks, once passed, are never touched again unless they are expanded. And as shown by the sales-tax break for manufacturers scheduled to begin this summer, a break may never receive legislative approval but still become law. The Governor is implementing this one on his own, with a split legislature unable to stop him.

Budget choices? Instead of that $35 million in FY2017 for the new sales-tax break, the Legislature could provide about 1 percent growth in per-pupil school funding. We can expect to find another 1 percent in what we’ll spend in checks to companies that do not pay any state income tax, but have more research tax credits than they owe in taxes.

Perhaps one day we will treat all spending the same, whether the spending comes before or after revenues reach the state treasury. Then the wealthy corporations can compete directly for their tax breaks against education for the skilled people they want to work for them.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
Mike Owen is a member of the school board in the West Branch Community School District, first elected in 2006.
* For more about Iowa tax breaks for business, see Peter Fisher’s report for the Iowa Fiscal Partnership, “Here a tax break, there a tax break, everywhere a tax break.” http://www.iowafiscal.org/here-a-tax-break-there-a-tax-break-everywhere-a-tax-break/

Reading, ’Rithmetic & Politics

Of course it’s a diversion. May future debate focus on whether the Governor’s proposed diversion is a good idea, not the fact that he has proposed it.

First, Governor Branstad challenged the bounds of basic math — miscounting jobs — and now it’s language arts.

The Governor reportedly got a little testy last week at a Des Moines Register editorial board meeting. Among his complaints: references to a “diversion” of revenue from a state sales tax for school infrastructure to support water-quality improvements. From the Register:

Branstad, in particular, took issue with the idea that his proposal diverts money away from schools.

“I can’t see how you can possibly call it a diversion when schools are going to get at least $10 million more guaranteed every year, plus a 20-year extension,” he said. “They’re sharing a small portion of the growth.”

Well, here’s how you call it a diversion:

diversion
[dih-vur-zhuh n, -shuh n, dahy-]
noun
1. the act of diverting or turning aside, as from a course or purpose: a diversion of industry into the war effort.
dictionary.com

Under the Governor’s plan, there is a “diverting or turning aside” a share of sales-tax revenues from their currently authorized “course or purpose,” school infrastructure, from FY2017 beginning July 1 this year, to FY2029. This is illustrated by Governor’s own handout on the plan. See the one-page document his office provided the media on Jan. 5.  The graph at the bottom of that page (reproduced below), shows the diversion shaded in blue, beginning with the black vertical line and running to the red dotted line.

160105-water-school-graph
Of course it’s a diversion. In fact, the diversion continues if the tax — which would not exist before or after FY2029 without voters’ intent for its use in funding school infrastructure — is extended to FY2049.

May future debate focus on whether the Governor’s proposed diversion is a good idea, not the fact that he has proposed it.

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

 

 

Don’t compound Iowa tax inequity

The big winners would be those with the highest incomes.

060426-capitol-FB377

The first report by a self-proclaimed conservative think tank in Iowa is getting some attention today, and reviving dubious ideas about taxes.

First, we applaud the recognition from Engage Iowa that our state’s various tax rates are not as high as they appear at first blush, because of federal deductibility — which permits tax filers to reduce their state taxable income for federal taxes paid. Ending federal deductibility, which Engage Iowa proposes, is something Iowa should consider. That would allow lowering the top rate to around 7 percent and eliminate the perception problem the group is so concerned about.

Unfortunately, however, this is not a well-thought-out plan to improve fairness and simplicity in Iowa taxes, or to assure adequate revenues for schools and other critical services, which are the best way to promote economic growth.

It compounds the overall regressive nature of Iowa taxes — and does nothing to help low- to moderate-income working families. In fact, for many families it would destroy the most important recent advance — the Earned Income Tax Credit. Some 147,000 recipients making over $10,000 — 70 percent of all EITC recipients — would lose the EITC.

While raising low-income Iowans’ taxes, the plan would buy down income-tax rates for higher-income Iowans with a sales tax increase. This would compound existing inequities in Iowa’s state and local tax system, which taxes the bottom 80 percent of taxpayers at about 10 percent, and the highest earners only 6 percent. The big winners would be those with the highest incomes.

The report’s claims about taxes and migration fly in the face of much published academic research showing that in fact taxes have very little influence on interstate migration. The claims that the flat tax would result in substantial economic gains to the state are highly suspect.

Finally, the group’s argument rests on discredited assumptions about Iowa’s so-called “business climate” and ignores the fact that Iowa already is very — perhaps overly — friendly to business. The plan places a great deal of weight on the Tax Foundation rankings, which have been thoroughly debunked. The author could have consulted more credible rankings of business climate, such as the Anderson Economic Group (which places Iowa 20th best, with below-average business taxes) or Ernst and Young, which has Iowa 28th, with an effective rate equal to the national average.

In short, the plan focuses mostly on a perception about Iowa taxes, a perception that is inaccurate but is cultivated by anti-tax forces, rather than ways to improve the stability and sustainability of funding for the critical public services on which all Iowans depend.

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project

 

New rule! Governor wants to make laws himself

We have entered a new world of executive authority in Iowa.

We all know the drill: The Legislature passes bills and the Governor signs or vetoes them, whereupon they become either laws, or nothing.

Not anymore, apparently.

The move by the Branstad administration to implement a new sales tax break worth an estimated $40 million a year — possibly more — is taking place outside the legislative session. If it succeeds, we have entered a new world of executive authority in Iowa.

Business lobbyists wanted the change, it could not pass the Legislature, and the administration thinks it has found a short cut: Change the longstanding interpretation of the existing law. Presto, tens of millions of dollars will be available for manufacturers. And those same tens of millions of dollars will not be available for schools.*

Consider a Des Moines Register guest opinion by Mike Ralston of the Iowa Association of Business and Industry, a lobbying group representing manufacturers who would benefit from the change:

Part of the change affects Iowa’s existing sales and use tax exemption for machinery and equipment used in the manufacturing process.  The change is sound policy.

If that’s the case Mr. Ralston wants to make, let him make it during the legislative session. This rules change skirts the legislative process, and Iowans are noticing. Jon Muller writes in an insightful piece on the Bleeding Heartland blog:

It’s easy to look at political discourse today and conclude everything is a battle between Democrats and Republicans, the left and the right, liberals and conservatives. But far more is going on with this issue. … A Democrat will surely be Governor again someday, and it would be a mistake to set a precedent that allows the Executive Branch to so drastically change the tax climate. If Republicans in the Legislature do not stand up against this unprecedented over-reach of power, they will almost certainly live to regret it.

James Larew, an Iowa City attorney who was general counsel to former Governor Chet Culver, served for four years as Culver’s appointee on the Administrative Rules Review Committee, a panel of legislators who have the authority to delay the rule change from taking effect. He advised the panel: “This is new territory. What is sauce for the goose eventually becomes sauce for the gander, too.” Larew went on:

The balance of political power changes from one election to the next.

The balance of constitutional power — the relationship between the Iowa General Assembly and executive departments of government — is more serious and more lasting.

Broad interpretive powers given up by the Legislature, in one moment of time, concerning one issue, are not easily, later recovered.

As the Cedar Rapids Gazette opined in an editorial, the change “breaks the rules of good government.” The Gazette wrote:

The Branstad administration should drop its rule change bid and make its case to the General Assembly, which is elected to craft a budget and write tax policy. If it’s truly a great idea that will create jobs, as the department contends, surely the sales job won’t be that difficult.

Many businesses, we often note at IPP and the Iowa Fiscal Partnership, already pay no income tax in Iowa, and they just had their property taxes slashed. The corporate appetite for tax cuts is insatiable. Guess who pays?

*  Note: The Department of Revenue estimate of the cost of this tax break to both the state and local governments is over $40 million for each of the first four full years of implementation, according to a document provided the Administrative Rules Review Committee. The Legislative Services Agency has told ARRC that it does not have enough information to determine the accuracy of that estimate. We have revised the initial version of this blog post to reflect this uncertainty, until state officials agree on an estimate.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

 

Big ‘Oops’ for tax-cutters in school vetoes

Letting out-of-state millionaires choose to reduce their income tax is, at the very least, unsustainable.

Governor Branstad’s vetoes of “one-time” funding pose “ongoing” and “recurring” problems for a major and ill-advised proposal by his allies to restructure personal income taxes in Iowa.

And they should.

During the last session, while lawmakers and the Governor were telling schools the state could not afford more than a 1.25 percent increase in per-pupil school aid, a group in the House was pushing a plan to let individuals choose a “flat” income tax rate option. In other words, figure your taxes under the current rate structure, then compare it to the flat rate, and choose which one costs you less.

It benefits primarily the wealthy, and it costs big money. There is no upside.

We have seen such a proposal in the past, and we are virtually guaranteed to see it again in some form in 2016. Not only does it compound fairness issues in Iowa’s tax structure, but it loses hundreds of millions of dollars in revenue, year after year, that Iowa legislators and the Governor have been telling us we cannot afford to lose.

Its supporters cannot avoid that contradiction, given their obsession this year about not letting a surplus — and a sustained one at that — be used for “ongoing” or “recurring” expenses on grounds they were not “sustainable.” Those are the grounds for the Governor’s vetoes of one-time funds for local schools, community colleges and state universities.

For good analysis of the 2015 alternative flat-tax proposal, which was not presented on the House floor as some of these messaging contradictions quickly became clear, see this Iowa Fiscal Partnership backgrounder by Peter Fisher. As Fisher noted, the projected revenue loss was projected at nearly half a billion dollars — $482 million — for the new fiscal year and around $400 million for each of the next three.

In short, the flat-tax idea is not “sustainable.” No need to discuss in the 2016 session.

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

Ongoing mistake in ‘one-time’ rhetoric

Such a cautious approach was unnecessary, because funds are available for more ongoing spending on education than what either the Governor or the House leadership permitted.

The Governor appears to be missing his own point.

Vetoing one-time funding for one-time uses — as Governor Branstad did last week — goes against what the Governor himself has been saying. And Iowa students will suffer for it.

Set aside for a moment that it can be quite sensible to use one-time funds for ongoing expenses. It depends on the circumstances. Set aside the fact that Iowa revenues and projections are strong and that state money seems to be available on an ongoing basis for corporate subsidies if not for restoring repeated shortfalls in education funding.

In the case at hand, the Governor vetoed one-time funds — for public schools, community colleges and the three regents universities — that ironically would have been spent in line with his own stated concern. The $55.7 million in one-time funds for local schools and area education agencies would have supplemented regular funding, set at 1.25 percent growth per pupil, all part of a package negotiated by the split-control Legislature.

Here’s the oft-stated concern about one-time funds, in a nutshell: You don’t spend one-time money on things that commit you to the same or greater spending in the future, because you don’t know whether the funds will be there later on.

The compromise on school funding negotiated and passed by legislators (part of HF666) reflected that concern:

  • For K-12 schools, the legislation specifies that funds “are intended to supplement, not supplant, existing school district funding for instructional expenditures.” It goes on to define “instructional expenditures” in such a way that assures the funds are for one-time uses that carry no additional commitment beyond the FY2016 budget year.

So, you can add to one-time expenses that you would have had to leave out, for purposes such as textbooks, library books, other instructional materials, transportation costs or educational initiatives to increase academic achievement. You can’t plan on having the same funds available in the following budget year.

  • For community colleges and the regents, each section of the bill included this stipulation: “Moneys appropriated in this section shall be used for purposes of nonrecurring expenses and not for operational purposes or ongoing expenses. For purposes of this section, ‘operational purposes’ means salary, support, administrative expenses, or other personnel-related costs.”

In his veto message, the Governor stated, “Funding ongoing expenses with one-time money is unsustainable.” In neither case did the Legislature propose doing so.

The larger problem with one-time funding is that such a cautious approach was unnecessary, because funds are available for more ongoing spending on education than what either the Governor or the House leadership permitted. The latest estimates are for 6 percent revenue growth in the coming year.

With or without the one-time funds that would have helped school districts, the legislative compromise ensures the continued erosion of the basic building block for school budgets, the per-pupil cost.

150602-AG-history
Supplemental State Aid (formerly termed “allowable growth) defines the percentage growth in the cost per pupil used to determine local school district budgets, which are based on enrollment. For FY2016, the Legislature and Governor have set the growth figure at 1.25 percent. Though state law requires this figure to be set about 16 months before the start of the fiscal year, the issue was not resolved until last week, when the Governor signed the legislation, and the fiscal year had already begun. The Senate passed 4 percent growth for FY2017 and the House 2 percent, but no compromise emerged and that remains unsettled. The education funding vetoed last week by the Governor affects separate one-time spending that would not have affected future budgets.

For the last six budget years, per-pupil budget growth has been above 2 percent only once. Once it was zero, and schools for the coming year are at 1.25 percent. This does not come close to meeting the costs of education at the same level year after year.

Ultimately, that is the test of what is, or is not, sustainable.

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

 

See the Iowa Fiscal Partnership statement from July 2