By Craig Robinson
When Governor Terry Branstad took office in January of 2011, the state’s unemployment rate stood at 6.1 percent. Today, Iowa’s unemployment rate is at 4.9 percent, the lowest it has been in four years.
In 2010, the state budget was a mess. At one point that year the State of Iowa had a $1.071 billion budget gap. The Culver administration and the Democrats were using one-time money to pay for everything from teachers to state troopers. State employees were forced to take furloughs. Mid-year across the board budget cuts forced schools and state agencies to fire staff to make their budgets balance. Iowans were losing faith in their state government.
Thankfully, headlines like those are a thing of the past.
In his first budget address to the state legislature since defeating Governor Chet Culver in the 2010 election, Branstad said, “I think we need to start with a stern talking to. Now, you wouldn’t run your family budget that way. If you did so, you would soon be visiting the bankruptcy court. And we should never run the people of Iowa’s budget that way, either… it will come to an end, now.”
In his 2013 address to the legislature, Governor Branstad started his speech by saying, “I am pleased to report we have made great progress. Our state’s balanced budget is built on the principles of stability and predictability. It is a shining example of the good work we have done together.”
Branstad and his administration have followed through on their pledge to stop the use of budget gimmicks and returned the state to sound fiscal stewardship. While Branstad has struggled to get some of his key proposals through legislature, mainly because of a Democrat majority in the Iowa Senate, his work in cleaning up Iowa’s budget mess is a major accomplishment that should not be overlooked.
For as bad as things looked to be in 2010, things look pretty good in Iowa today. By adhering to the state’s spending limitation law and ending the practice of raiding various funds to pay for ongoing expenditures, instead of having a $1 billion budget gap, the state has a $1 billon surplus. While a billion dollars sounds like an enormous amount of money, it’s only one-sixth the size of the state budget, and many of Branstad’s proposed reforms come with a hefty price tag.
Regardless of how you may feel about Branstad’s education reform package or his plan to overhaul Iowa’s property tax system, one has to admire the Branstad Administration’s commitment to not just balance the budget this year, but to make sure it balances five years from now.
Governor Branstad introduced a number of proposals in the last couple of days, but the main focus is on education and property tax reform. Below is a brief outline of those proposals and some initial reactions.
Price Tag: $187 once fully implemented.
The program focuses on teacher development and compensation with the aim of increasing student performance. The Branstad administration is seeking $14 million from the legislature for the initial phase of the program. The program will be fully implemented after five years with a price tag of $187 million.
The proposal has some conservatives in the state grumbling about the price tag, as they would prefer to see reform of the current system instead of adding roughly another $200 million to the current spending levels. Increasing the average pay for first year teachers is something that has broad support. There is also frustration that nothing is done to give parents more choice in education by providing vouchers for private schools or tax credits for those who choose to home school.
Property Tax Reform
Price Tag: $400 million once fully implemented.
Governor Branstad campaigned on property tax reform, yet his proposal has not been able to pass in the legislature. Branstad’s current proposal is different than the one he originally pushed. Local governments would have lost revenue in the original proposal, but by using part of the budget surplus, the state can make up for the shortfall with funding so they would be held harmless.
Currently, residential, commercial, and industrial properties are all taxed on their market value, while agricultural property is taxed on its productivity. Residential property and agricultural property are also currently linked, which is something that needs to be addressed quickly. Increased productivity and high crop prices have caused residential property taxes to increase significantly.
The Branstad proposal would group all four (rather than just two) classes of property together, and at the same time, reduce the rate on commercial and industrial property by 20 percent over four years. It would also put a halt to any future tax shifts between classes of property by tying the classes together with one combined rollback, which Branstad said corrects a mistake made when the original rollback formula was implemented.
Another significant change that Branstad is proposing is to permanently change the school finance formula so that allowable growth will be replaced by 100% state aid. Under the current system, allowable growth, which is the rate of annual increase in dollars available per student, can trigger an automatic increase in local property taxes. This is a proposal that was discussed in the 2010 Republican gubernatorial primary.
His budget also fully funds the Homestead Tax Credit and the Elderly and Disabled Tax Credit in fiscal year 2014 with an additional appropriation of $33 million.
Branstad makes a strong case as to why property tax reform is needed. In the budget briefing, David Roederer, the Director of the Office of Management, explained that property that payments have increased by 54 percent in the last ten year, but will jump an additional 47 percent in the next eight years if something is not done. The Branstad plan would limit that growth to 22 percent.
Branstad is not going to have much opposition on property tax reform from Republicans, but some legislators would rather see an income tax cut instead. With Democrats already announcing their opposition to Branstad’s property tax plan, getting an income tax cut through the Iowa Senate seems impossible. Still, Branstad will need to get all Republicans singing off the same piece of music if he expects his proposal to make it to his desk.
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