Revenue forecast: A confirmation of failure

Iowans need a handle on what the budget surplus means, and what it doesn’t.

With new revenue information in hand, it is apparent that:

•   Large cuts to higher education were unnecessary
•   Continuing to short-change K-12 schools was needless
•   Concerns about large tax cuts were warranted.

During the 2018 session we saw legislators craft mid-year cuts and an FY2019 austerity budget behind closed doors. The effect will be the same as it has been for several years now: Iowa lawmakers won’t have much to work with when the 2019 legislative session convenes in January due to large tax cuts, leaving tight purse strings for education.

The October 2018 Revenue Estimating Conference (REC) projections show a $127 million surplus — up $95.6 million from what was expected for fiscal year 2018, which ended in June.[1] Many in the state are searching for factors they think contributed to the surplus. In reality, the discrepancy in expected and actual revenue is related to errors in forecasting. The REC used a slower rate of growth in calculating these projections after overestimating revenues for the past two fiscal years.

A significant factor contributing to the surplus is a state revenue boost caused by new federal tax cuts, especially for higher-income families. Iowa has a special state break for federal taxes paid. But because fewer federal taxes are being withheld, additional income is subjected to state tax.

Proponents of the state tax cuts seek to attribute the budget surplus to the cuts themselves. First, it is impossible to credit the budget surplus to the 2018 state tax cuts, most of which will not take full effect until 2019 and beyond.

Second, even the REC estimates do not predict continued growth at the FY18 levels. Iowa will have already given away the FY18 surplus before the beginning of the next legislative session — because tax cuts mean less revenue. The FY20 budget will be tight. This will steer the legislative discourse to hold down K-12 spending, to push higher-ed costs toward tuition and student debt, and to threaten needed services and institutions — as the administration is doing right now to the University of Iowa Labor Center.

Sustainable budgeting requires realistic forecasts and working to help all Iowans understand the impacts of budget and tax choices. A sustainable budget means adequate revenue to pay for essential services such as education, health care and environmental quality, and helping to create opportunity for all.

[1] Iowa Department of Management, “Iowa budget closes with higher-than-expected revenue, $127 million surplus.” September 2018.

Natalie Veldhouse is a research associate for the nonpartisan Iowa Policy Project in Iowa City. nveldhouse@iowapolicyproject.org

A Roadmap for Opportunity: It’s Time to Put Iowa on the Right Path

At this critical juncture, Iowa can take the high road to shared prosperity, or go down a dead end.

181009-roadmap-logoIowa can unlock the potential of each individual and allow all workers to share in the fruits of their labor by making public investments in the foundations of a strong economy. Well-resourced schools, access to higher education, decent wages and protections, economic supports, clean water and renewable energy, and a cleaned-up tax system, all can pave the way to opportunities and broadly shared prosperity that Iowans want.

Unfortunately, policy choices have put us on a road that prioritizes corporate profits over worker wages and corporate tax cuts over the public investments that allow for a strong, sustainable economy. We are at a crossroads and our policy choices today and in the near future can either pave the path to economic opportunity in every corner of our state, or create roadblocks to prosperity for everyday Iowans.

Our people-first roadmap offers the way forward. It lays out the evidence-based, responsible solutions to our state’s most pressing issues, pinpointing several stops along the way that would mark progress for our state, such as:

pinCreating the workforce of our future and ensuring our children reach their potential. Iowa can and should ensure K-12 schools receive the funding they need for every child to succeed, no matter where they live. We also must restore our commitment to higher education with more state support, lower tuition, and aid to reduce student debt.

pinBoosting economic security and supports for working Iowans. Giving Iowans’ lowest wage workers a long overdue raise, ensuring workers get paid what they’re legally owed, shoring up our system of compensation for workers who get hurt on the job, and restoring worker rights to collective bargaining can ensure that all Iowa workers are getting a fair deal. Iowans also need a boost in child care assistance, which can make or break the ability of a family to work.

pinRestoring a public commitment to the health and well-being of every Iowan, particularly seniors and people living with disabilities. Reversing the privatization of Medicaid and pursuing cost savings through innovation and efficiency rather than reduced services and worker wages are critical steps to ensuring access to health care for all Iowans — now and in the future.

pinEnsuring clean water and renewable energy for a healthy, sustainable Iowa. We can and must balance the state’s need for clean and abundant water with our agricultural economy by reducing water pollution. Likewise, Iowa should restore its legacy of leadership in renewable and efficient energy in order to create a cleaner, greener state for future generations.

pinCleaning up and restoring balance to the tax code. Right now, Iowa asks the lowest income Iowans to pay a higher share of their income in state and local taxes than those with the highest incomes. We can fix this by cleaning up corporate tax loopholes that squander precious public dollars that could otherwise be invested in shared opportunity for Iowans.

Iowa is at a critical juncture. We can take the high road that leads to progress and shared prosperity, or go down a dead end. The policies in this roadmap provide a clear route to a stronger Iowa. For more detail on each stop on the roadmap, please click here.

Tuition rising — is anyone surprised?

There is a price to families when the Legislature chooses not to fund higher education.

Today’s announcement of plans to raise tuition at Iowa universities should not surprise anyone. When the Legislature cuts back, the regents need to fill in the gaps. And that creates new gaps, in family budgets immediately, and beyond, with — student debt.

A recent feature in The Des Moines Register has delved into the issue of rising student debt. The Register story features testimonies from soon to be graduates as well as recently graduated students, who talk about how they will handle their student debt. Register reporter Kathy Bolton cites “worrisome signs that future students will be forced to borrow even more to get their degrees.”[1] An excerpt:

State legislatures are decreasing funding to public universities and community colleges. In Iowa, for instance, state funding to the three public universities is now less than in the 2015 fiscal year. Mid-year budget cuts are expected this spring and there’s uncertainty about next year’s state funding.”

The full picture is considerably more stark. Adjusting for inflation, state funding for public universities has declined since fiscal year 2001, by 40 percent at the University of Iowa, 42 percent at Iowa State University, and 28 percent at the University of Northern Iowa.[2]

And these calculations do not include the recent current-year budget cuts for FY2018 ordered by the Legislature and signed by the Governor that took a disproportionate share from the regent institutions — $11 million or about one-third of the total.

To fill the financial needs of the institutions, the regents have turned to increasing the annual tuition paid by students. Between fiscal year 2001 and 2016, tuition at the regent universities has increased between 72 percent and 75 percent. [3]

In fact, there has been a shift in the primary source of funding, from state appropriations to tuition and fees. In fiscal year 2001 the University of Iowa received 63 percent of its budget from the state. In fiscal year 2016 it had dropped to 34 percent. For the other universities the drop was: 68 percent to 35 percent at ISU, and 70 percent to 56 percent at UNI.[4]

As noted in the Register article:

“Lower-middle-class and working families don’t have big chunks of money sitting around to pay for their kids’ college education,” said (Chase) Lampe, a Pleasantville High School social studies teacher. “As costs go up, students are going to take out more loans — or not go to college at all.”

While university tuition and fees rise, wages of Iowans have not kept pace. As part of the Iowa College Student Aid Commission’s annual report for fiscal year 2016,[5] director Karen Misjak stated that “one very simple number tells the story:”

Of the 175,500 Iowans who filed a FAFSA for the 2014-15 academic year, more than 60,000 were found to have an Expected Family Contribution of zero. That means one in three families could not provide any financial support for a student in college.”

How much harder has it become to pay for a college education in Iowa? In fiscal year 2001 individuals working at the median wage in Iowa could pay for the average tuition at the regent universities by working for 36 days. That number had increased to 60 days in fiscal year 2016 — a two-thirds increase. For low-income individuals, those working at the 20th percentile of wages, the challenge is even greater: days of work required increased from 53 to 92 — a 75 percent increase.[6]

There is a price to families when the Legislature chooses not to fund higher education.

[1] Kathy A. Bolton, “Degrees of Debt,” The Des Moines Register. 2018, https://features.desmoinesregister.com/news/student-loan-debt-poised-increase/

[2] Adjusted for inflation using the Higher Education Price Index, 2016 dollars.

[3] Iowa Board of Regents data; adjusted for inflation using the Higher Education Price Index, 2016 dollars, tuition and fees rose by 72 percent from 2001-16 at ISU, 74 percent at UNI and 75 percent at UI.

[4] Iowa Board of Regents data.

[5] Iowa College Aid Commission Annual Report for FY2016, “A letter from the executive director,” https://www.iowacollegeaid.gov/content/executive-director

[6] Author’s calculation of work days needed to pay tuition and fees is the NCES average tuition and fees (adjusted) divided by Economic Policy Institute analysis of Current Population survey data of Iowa median and 20th percentile wages, divided by 8 (hours).

Brandon Borkovec is a Masters of Social Work student at St. Ambrose University, working this school year as an intern at the Iowa Policy Project on public policy analysis. 

Why the tuition freeze matters

A bright spot in the just completed session of the Iowa Legislature is that lawmakers for the second year in a row have assured a tuition freeze at Iowa, Iowa State and Northern Iowa.

A bright spot in the just completed session of the Iowa Legislature is that lawmakers for the second year in a row have assured a tuition freeze at Iowa’s Regents universities.

The 4 percent increase in state funding for FY2015 is an important investment. It means current students will be able to keep a little more money in their pockets, and prospective students will have greater access to higher education at the University of Iowa, Iowa State University or the University of Northern Iowa.

For now, the state has stalled its trend toward sharp tuition increases — a trend similar to what’s happened at public colleges and universities across the country. A new report from the Center on Policy and Budget Priorities found that from FY2008-FY14 state funding per student at Iowa’s Regent universities decreased by 23.8 percent, leading to a 12.2 percent change in average tuition after adjusting for inflation — $854 more a year per student.

It’s a simple equation: When state funding goes down, tuition goes up and/or resources to help students are reduced. Iowa Fiscal Partnership research has shown these trends in our state, as noted in the graph below covering tuition vs. state support of Regents institutions from 2001-13.

tuitionvsstateaid

These trends shift the cost of education from the state to the students and their families. The result is that students take on more debt or have fewer choices among institutions, if they choose to attend at all. At low incomes, some students may simply choose not to enroll even though education might be what they want, and necessary to their career goals.

Excessive student loan debt has broad economic implications. It is associated with lower rates of homeownership among young adults, it can create enough stress to decrease the probability of graduation and reduce the chance that graduates with majors in science, technology, engineering and mathematics will go on to graduate school.

The economic importance of higher education will continue to grow, as getting a college degree is increasingly a prerequisite to enter the middle class. And beyond those who receive the degree, everyone in the community benefits when more residents have college degrees. An area with a highly educated workforce attracts better employers who pay better wages and this can boost an area’s economic success.

Strong state revenues offer a time to reinvest in higher education, and to return funding of services to pre-recession levels.

IPP-gibney5464  Posted by Heather Gibney, Research Associate