PDI Policy Perspectives - February 18, 2018

POLICY PERSPECTIVES | February 18, 2018

THIS IS IOWA Legislative Showcase

Legislative Session Update

PDI Issue Focus

Bills Being Tracked for PDI

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Your Input Needed BEFORE 11AM Monday!

As the deappropriations bill continues to evolve, the needle has moved all over the place on levels of state funding for numerous programs. One extremely troubling piece for economic development though is the apparent agreement by the House and Senate to cut the High Quality Jobs Program by $10 million, or roughly 63%, in this current fiscal year! This essentially forces the stop of any IEDA programs that involve money until July when the new fiscal year starts. This shuts off the IEDA's ability to compete at a time when the federal government just took actions on tax policy that could incentivize businesses to make investments.

The Senate passed the HQJP cut in SF 2117, and the House kept that cut in place in committee. Before the full House votes on SF 2117, however, they have elected to hold a public hearing to gather input at 11:00am on Monday, February 19th. By following THIS LINK, you can sign up to speak at the hearing. More importantly though, you can elect not to present in person and leave comments that become part of the public record for the hearing.

We need PDI members to weigh in! Please follow the link right now and leave some public comments for the committee on behalf of the High Quality Jobs Program. This is critically important, not just because of the FY 2018 cut, but also because that new lower level is likely to become the starting point for the HQJP in the FY 2019 budget. Weigh in now!

Legislative Session Update

Six weeks of the 2018 Legislative Session are now in the rear view mirror. Monday, February 19 will be day 43 of the scheduled 100-day session. Almost halfway there... In fact, we MAY already BE halfway there. In the deappropriation bills that we will talk about a little farther down, legislators have proposed trimming the legislative per diems from 100 days down to 90 or even 85 days.

This doesn't mean the session would end when per diems expire. Historically, the Legislature typically goes past that date. However, the end of per diems always comes with a sense of urgency about wrapping up for the year, especially since many of the legislators are forced to continue working without the help of their clerk.

First Funnel

We passed a major milestone of the session this past Friday when we reached the First Funnel deadline, the date by which any policy bills that have not been passed by the committee to which they were assigned become dead for the year. That doesn't mean an idea contained in a bill is dead for the year; it can still be attached to other legislation. Tax and spending bills are exempt from the funnel.

The first funnel week is always chaotic due to a combination of factors. First, every bill needs to be passed by a three- (or five-) person subcommittee and then be passed out of full committee by the end of the week. This means that subcommittee meetings on each individual bill are occurring every 15 minutes starting before 8am all throughout the day. There are sometimes more than ten subcommittees meeting at one time, depending on how many locations can be identified for meetings in the building. All of these subcommittee meetings are occurring with an eye toward when the next full committee meets, as they need to ensure a bill gets on that agenda to clear the funnel.


	Late in the day, after the tourists have left the building and most lobbyists have been standing on marble floors for over 12 hours, you'll often see us pulling chairs out into the rotunda while we wait for legislators to come out of caucus.

If that isn't bad enough, another level of chaos is that bills are continuing to be introduced during this time at a very fast pace, sometimes exceeding 80 or 100 per day. All those new bills need to enter the subcommittee/committee mix if they are to survive the funnel, so some of them will be go from just being printed to clearing the funnel in a matter of only a few hours. For those closely tracking the process, this requires a lot of focus to ensure something doesn't slip through.

While all of this is going on, and legislators and lobbyists are running from one meeting to another, the Capitol is filled from dawn to dusk with the normal number of visitors, advocacy groups, student tour groups and others that are enjoying the beauty of the State Capitol building.

Deappropriations

The deappropriations bill is still a live round at the Capitol and has not yet been agreed to by the House, Senate and Governor. The Senate passed their version, SF 2117, on February 8. Since that time, the House amended SF 2117 in committee and is awaiting agreement before they pass it through the Chamber.

The latest version, by the House, is the lightest on overall cuts. The Governor had proposed overall budget cuts totaling $27.1 million, the Senate passed cuts totaling $31.9 million, and the House's amendment brings the overall cuts down to $20.5 million. Every one of the proposals had held K-12 education and the property tax backfill harmless, while spreading the cuts across the rest of state government.

In the House's proposal, the biggest cuts are $8.1 million from Regents, $4.3 million from the Department of Human Services, $3.4 million from the Department of Corrections, $1.6 million from the Judicial Branch, $925k from the Department of Public Health, and on down the line hitting virtually every agency. The Senate and House each were able to cut $10 million less from their General Fund reductions because their versions both rely on a $10 million transfer out of the Iowa Economic Development Authority's High Quality Jobs Program (a cut of 60%, from $15.9 million down to $5.9 million).

Revenues Up

Speaking of cuts, part of the reason for the House's decision to go lighter on their cuts in the deappropriations bill could be a reaction to news from the non-partisan Legislative Services Agency that revenues appeared to be higher in January as compared to last year. The Iowa Department of Revenue implemented a series of timing changes that increased revenues, but even without factoring for that, state tax collections increased by over $133.1 million over last January.

A major piece of the revenue growth has been a surge in estimate payments, coming in $109.4 million higher for the months of December and January over the same months last year. The analysts believe the increase is due to the federal tax law changes that led many Iowans to pay the maximum amount of taxes they were able to prior to January 1st.

What does this mean for the FY 2019 budget? And more importantly, the FY 2018 budget and deappropriations? Iowa's budget laws are set up so that fiscal years are distinct from one another. When you combine that with a restriction on the Governor's ability to transfer more than $50 million from emergency funds without legislative approval, it becomes unlikely that the Governor and legislators will decide that they no longer need to pass a deappropriations bill. Any downturn in the FY 2018 numbers as books are closing this Fall could mean the need for a special legislative session right before the November election which would look very bad for the party in power.

As for FY 2019, the uptick in revenues could definitely make enacting the FY 2019 budget a lot less painful, especially since the federal tax bill is expected to further increase Iowa's projected state revenues. The Legislature will still need to wait until the Revenue Estimating Conference meets in March to update their budget projections before they can proceed forward on a budget proposal. Remember that they are required by law to enact their budget based on the lower of the two estimates published in December and March.

Governor rolls out her tax proposal

This past Tuesday, Governor Kim Reynolds introduced her tax reform plan to make a number of changes to the Iowa tax code. The bills to enact her plan, SSB3195 and HSB671, were read into the Chambers later in the week and can now be viewed by the public.

The package amounts to tax cuts totaling about $1.7 billion between now and 2023. The main pieces of the legislation include reductions in personal income tax rates, elimination of federal deductibility, elimination of the alternative minimum tax, an increase in the standard deduction, an increase in section 179 expensing for small businesses, and an expansion of the sales tax base to capture online sales. The proposal does not make any reductions in the property tax backfill for local governments. You can view the Governor's detailed press release about the proposal HERE.

The House and the Senate will now begin sifting through the details of the Governor's proposal and look to either introduce their own bills or to make modifications to the Governor's plans. Members in both the House and the Senate have indicated they are working on plans which include an increase in the state sales tax which would trigger the funding (IWILL) of 3/8 cent into the Natural Resources and Outdoor Recreation Trust Fund. There is clearly a long ways to go yet this session to reach consensus, and we don't expect to see much more than high level talks until the REC projections in March are released.

PDI Issue Focus

TIF Bill

A new bill affecting tax increment financing (SF 2267) was introduced this past week by Senator Chapman, the Chair of the Senate Commerce Committee. Like the TIF bill we discussed previously (HF 2063), SF 2267 will remain alive through the end of session because it's a Ways & Means Committee bill.

SF 2267 would really decimate TIF by pulling the county and school levies out of a project unless the county and school specifically "opted in". Additionally, the bill would no longer allow the use of TIF on any projects in areas zoned as residential, multiresidential or agricultural. The bill also places significant restrictions on revitalization areas. Be sure you are talking to your legislators about TIF, and about how damaging bills like this would be to your area.

Lease-Purchase Legislation

Legislation (HF 2253 and SSB 3110) that would curtail a local government's ability to use "lease purchase" for projects has cleared the funnel in the House and can be debated in that Chamber at any time. As we mentioned in the last edition, PDI was monitoring this until the bill was amended to expand the definition of public improvement in order to block this use in projects that are paid for in whole or in part with public money. PDI is opposed to this legislation as currently written and we will watch it closely and work toward an amendment that makes the bill less onerous.

Post-First Funnel Bill Tracker List

Listed below in the FIRST Table are bills we are tracking for you that SURVIVED the first funnel deadline. In the SECOND table, we list the bills we are tracking for you that DIED in the funnel (though be advised a similar version may still be alive). Also, note that some bills in the Dead bill list are technically still alive because they are Ways & Means or Appropriations bills from last year that are listed there because legislators have so far not shown any interest in moving forward this year.

Bills Still Alive

HF2004

Workforce Housing Tax Incentives Program Eligibility