DES MOINES — Iowa Senate Republicans plan to begin work Monday on an sweeping compromise worked out with Gov. Kim Reynolds that they are calling “the pathway to adjournment” for the overtime 2021 session.
Sen. Dan Dawson, R-Council Bluffs, chairman of the Senate Ways and Means Committee, said the components of a compromise the governor rolled out Wednesday now have been incorporated into a 26-division Senate study bill that includes eliminating the 2018 state income tax “triggers,” compressing brackets and reducing rates; having the state take over mental-health funding from property taxpayers while phasing out the “backfill” aid to local governments; phasing out the state’s inheritance tax; exempting taxation on COVID-19 assistance; and incorporating various issues dealing with housing, energy infrastructure, child care tax credits, telehealth parity and other topics into a 103-page document with a 31-page explanation.
Dawson is slated to lead a subcommittee Monday that begins work on Senate Study Bill 1276, a measure that subcommittee member Sen. Pam Jochum, D-Dubuque, said “has everything but the kitchen sink in it.”
Senate Republicans have pressed for tax-law changes throughout the session, starting with a call to speed up implementation of state income tax cuts started three years ago by removing economic conditions that had to be met to “trigger” the reductions in a responsible and sustainable manner. They also have pushed for providing $100 million in property tax relief by having the state gradually assume the cost of delivering mental-health services to Iowa’s regionalized system, ending the state tax paid on inheritances, reversing a 2013 commitment to “backfill” local property tax revenue lost due to commercial/industrial rate reductions, and raising the state’s share of the K-12 school foundation aid formula from 87.5 to 88.4 percent on July 1.
Earlier this week, Reynolds rolled out a plan incorporating several priorities of hers and majority Republicans as well as $400 million in state tax relief. Senate Republicans endorsed it, but House Republicans have reservations and are proposing House File 893 as an alternative.
Senate Majority Leader Jack Whitver, R-Ankeny, has halted the process of formulating a fiscal 2022 state budget plan — which the Legislature must accomplish in order to adjourn — until Republicans who hold edges of 32-18 in the Senate and 59-41 in the House resolve their differences on tax policy and now a host of other issues rolled into SSB1276. This annual session was scheduled to end on April 30, though now it will go at least into next week.
House Speaker Pat Grassley, R-New Hartford, said negotiations are underway to see “what a pathway looks like” in finding consensus. But Senate Republicans say the House’s more cautious approach leaves out too many “really meaningful pieces” to accept.
“Senate Study Bill 1276 is the only pathway forward to have tax relief for Iowans and to a successful conclusion of session,” Dawson said Friday. “The House file is a lonely island and it’s going to drag out adjournment.”
Both the House and Senate plans remove of triggers effective 2023 and implement steps to eliminate federal deductibility, compress the tax brackets from nine to four and reduce rates so the top charge is 6.5 percent. Other provisions increase the child care eligibility threshold by double to $90,000: exempt COVID-19 relief grants for businesses, farmers and workers; raise the cap to $7 million on the state housing trust fund real estate transfer; require parity for telehealth mental health services; establish a disaster recovery trust fund and an eviction prevention program; transition the existing alternate energy revolving loan program to an energy infrastructure revolving loan program; extend the brownfield/grayfield redevelopment tax credit for 10 years through June 2031; boost high-quality jobs tax credit scoring for businesses offering child care services for employees; allow tax credit allocations between innovation fund “angel” tax credit programs: and conform Iowa with federal tax provision to allow accelerated depreciation for equipment purchases.
Both versions include but take different approaches to the inheritance tax phase out, workforce housing tax credits and high quality jobs/renewable chemical production tax credits. The House GOP plan also would deliver about $300 million from the taxpayer relief fund to Iowans through income tax credits.
But the Senate plan is the only one that eliminates county levies for mental health and has the state take over funding responsibilities; eliminates the commercial and industrial property tax “backfill” aid for local governments; makes changes to the school foundation aid formula; and covers a host of topics dealing with a sales tax exemption for food banks, downtown loan guarantees, beginning farmer tax credit changes, capital gains changes, repeal the public education and recreation tax levy, an elderly property tax credit, transit district hotel/motel tax, extending four income tax checkoffs through 2024, assisting manufacturers with qualified modernization investments, and other provisions.
“The stalemate on adjournment will be broken if Republicans reach an agreement on tax cuts,” Jochum said. “Until the tax issue is resolved, a budget cannot be finalized. They have some compromising to do.
Jochum said she believes the nonpartisan Legislative Services Agency needs to formulate fiscal notes on each GOP proposal for legislators to make informed decisions.
“Our revenue numbers are artificially inflated due to the massive amount of federal cash that is flowing to Iowa (and all states) at this time. We need to let the dust settle to determine where we stand financially and that will not be known for at least another year,” the Dubuque Democrat added. “The House proposal seems to be doable, but we need to see the short-term and long-term fiscal impact to ensure the state can adequately fund essential services and prepare for future pandemics and epidemics. We know it is a matter of ‘when,’ not ‘if.’”