Friday, February 5 marked the 26th day of the 100-day scheduled legislative session. Week Four at the Statehouse was a challenging one, cut short by Presidential caucuses, bad weather, and the passing of a former legislator. Despite the hurdles, legislative leaders did not cancel the work week. However, it was shortened to cram all legislative activity into Wednesday and Thursday morning to allow legislators time to travel to Epworth to honor the passing of Senator Tom Hancock.
Former Senator Hancock passed away suddenly just after midnight last Sunday from an apparent heart attack. He was a Dubuque County Supervisor that served two terms in the Iowa Senate. Hancock was 67 years old and spent 31 years working for the US Postal Service prior to his elected positions in the Legislature and in Dubuque County. He was also a past President of the Iowa Firefighters Association and the Dubuque County EMS Association, and served as Chief of the Epworth Volunteer Fire Department for 16 years.
FY 2017 Budget
As you know, it takes agreement from the House, the Senate and the Governor in order to enact the budget each year. The budget process usually involves each of those three entities introducing their own budget numbers, starting with the Governor's budget in the first week of session.
Senate Democrats announced their FY 2017 budget targets this week. Budget targets are the broad numbers that each of the appropriations subcommittees is authorized to allocate. As you may know, we are allowed to spend 99% of the state's revenues for state budgeting. The Senate Democrats spend all but $4.7 million of that target. Where the different sides end up arguing is when trying to decide whether and how other revenues fit into the budget picture. For example, House Republicans are already arguing that the Senate budget proposal spends 101.1 % of the ongoing revenue.
The bottom line is that two of the three budget proposals are out and it's only early February. This signals that legislators are trying to get things moving so they can adjourn on or really close to their 100-day session mark. If the House Republicans bring their budget numbers forward soon, then the individual budget bills can start to take shape. You can view the Senate Budget targets HERE
A variable that could complicate the state budget process this year is the perceived health of the state economy. Two indicators being tracked by the Iowa Department of Revenue's index on the state economy reached lows not seen since 2009 in December, which could signal a softening of the economy. One of the indicators tracks manufacturing demand and the other tracks diesel fuel demand. Overall, the index dropped 0.5 percent in December, marking 12 consecutive months of declines. If lawmakers start to get nervous about the state revenue numbers going down, it could affect the timeline for passing the FY 2017 budget.
Other Big Issues
School Supplemental Aid is again a contentious issue, as expected. The Senate is holding firm on an increase of 4% to schools. The House has approved 2%, and the Governor suggested 2.45%. Leaders of the Education Committee in both chambers have expressed their interest in resolving this issue as soon as possible. However, neither side appears to be budging.
The Secure an Advanced Vision for Education (SAVE) Fund is also creating a lot of angst in the Capitol right now. It began in the 1990s as the School Infrastructure Local Option (SILO) sales tax, and was converted into a statewide sales tax in the decade following. It consists of a state-wide 1-cent sales tax which is distributed to schools on a per-pupil basis to be used for infrastructure needs or property tax relief. The SAVE sales tax is set to expire on December 31, 2029. This seems like a ways off, but for schools wishing to build infrastructure that requires bonding, having the certainty of a longer expiration date is crucial.
The Governor has proposed extending the SAVE tax while diverting part of the future growth in revenues toward water quality. The House Ways & Means Committee would like to extend it but divert future growth toward property tax relief. The House Education Committee also would like to extend the SAVE tax, but would divert future revenues toward districts that have disproportionate costs, such as higher costs for transportation or higher property tax rates due to lower property values. How they proceed remains to be seen, but it's unclear whether a pure extension of the SAVE tax would have the support of the Legislature and Governor without one of these changes in the future funding stream.
The House and Governor are pushing legislation that would update Iowa's tax code to conform to certain tax changes made by the U.S. Congress. They would like to see it enacted soon so the changes could be in effect for Iowans who are filing their taxes this Spring. If the House gets their way, the change would be retroactive back to the beginning of 2015, but it would cost $96 million. The Governor is advocating instead for a bill that would cost $49 million by taking effect in 2016. It is unclear whether the Senate will pass a version of the coupling bill, considering the budget challenges that lie ahead.
The Iowa Senate continues to fight the Governor's move to turn over control of the state's Medicaid system to private managed care companies. They have introduced legislation to end Medicaid privatization, and will hold legislative meetings on the issues on Monday, Feb 8. This is not an issue the Senate is likely to walk away from this session without some serious questions answered.