Exploring Paul McKinley's fantasy world (part 2, w/poll)

Last week I highlighted the half-truths and misleading arguments that underpin Iowa Senate minority leader Paul McKinley’s case against Democratic governance in Iowa. I wasn’t planning to revisit the Republican leader’s fantasy world until I read the July 16 edition of his weekly e-mail blast. McKinley claims to offer five “big ideas” to “make Iowa again a state where jobs and prosperity can flourish.”

His premise is absurd when you consider that CNBC just ranked Iowa in the top 10 states for doing business (again), and number one in terms of the cost of doing business. Many of McKinley’s specific claims don’t stand up to scrutiny either, so follow me after the jump. There’s also a poll at the end of this post.

McKinley correctly notes that the most important issue facing Iowa now is creating jobs and the overall health of the economy. He then tries to blame Governor Chet Culver and Democratic legislative majorities for our current economic struggles, as if the country didn’t just experience the worst recession in six decades.

There has not been a plan to move our state forward when it comes to permanent private sector jobs. Instead, they’ve created an eye-popping legacy of irresponsible spending and generational debt now known as I-JOBS which has amounted to spending $1.7 billion dollars of borrowed money over 30 years to create temporary government make-work.

Yet again McKinley exaggerates the repayment costs for the I-JOBS infrastructure bonding program. $1.7 billion was the initial estimate, but that figure’s been out of date since last summer, when strong investor demand and Iowa’s solid credit rating drove down the interest rate on those bonds.

As I noted last week, Iowa’s per capita debt is still quite low compared to most other states.

Let’s take a closer look at what McKinley calls “temporary government make-work.” The I-JOBS site lists the categories of infrastructure spending:


   * $185 million to improve public facilities across Iowa, such as the Iowa Veterans Home, correction facilities, and our community colleges.

   * $100 million for further investments in state public infrastructure, including state parks.


   * $118.5 million in competitive grants available for reconstruction of local public buildings and flood control prevention in communities hit by last year’s disasters.

   * $46.5 million in grants targeted for help to Linn County, Cedar Rapids, and to rebuild fire stations in Palo, Elkader, and Charles City.


   * $50 million for the Bridge Safety Fund to be used for infrastructure projects relating to functionally obsolete and structurally deficient bridges on the Primary Highway System.

   * $3 million for capital improvements and related studies for expanding passenger rail services in Iowa.

   * $3.5 million for constructing and improving recreational trails within the state. Of the amount appropriated, $750,000 was allocated for the Principal Riverwalk in Des Moines and $500,000 for the trail system and bridge in the Pinicon Ridge Park in Linn County.

   * $1.5 million for the Railroad Revolving Loan and Grant Fund. Of the amount appropriated, $1 million was allocated for replacement of the Union Pacific railroad bridge over the Cedar River in Waterloo, which collapsed during the 2008 flood.

   * $750,000 for infrastructure improvement grants at general aviation airports within the state.

   * $1,250,000 for deposit into the Public Transit Infrastructure Grant Fund.

   * $10 million through the existing Revitalize Iowa’s Sound Economy program, which is available to the cities and counties via an application-based program to fund road and street improvement to promote economic development in the state.

   * $45 million was appropriated for formula distribution to all of the cities and counties in Iowa to be used for construction, reconstruction, repair, and maintenance of city streets or secondary roads. Forty-five percent of the funding will be distributed during the first year of the program (arriving July 2009). Fifty-five percent during the second year (arriving July 2010).


   * $100 million to rebuild 10 buildings destroyed by flooding at the University of Iowa, which will allow the use of nearly $500 million in federal funds.

   * $15 million to build a veterinary hospital lab at Iowa State University


   * $35 million to help construct sewers in communities under 10,000.

   * $20 million in competitive grants for communities of any size for water improvement projects.

   * $25 million to water-quality projects, including flood prevention, as well as soil conservation practices.


   * $20 million invested in affordable housing for elderly, disabled, and low-income Iowans.

   * $10 million to construct or improve shelters for domestic abuse, emergencies, and the homeless.

   * $5 million to repair homes damaged by last year’s floods.


   * $25 million invested in improving access to technology throughout Iowa.

   * $10 million to create a revolving loan program to support alternative energy projects to support both new jobs and energy independence.

To bring up detailed lists of projects funded by I-JOBS, go here and click the links for any of the categories.

McKinley dismisses all of the above as “temporary government make-work.” Yet the long-term benefits of improving infrastructure go way beyond the number of jobs created during the construction period. As Bonddad noted recently, “The US economy grew at a solid rate in the 1960s. Why? A big reason was the US government building the highway system. Now goods and services could move between cities in a far easier manner. If you think that wasn’t a big deal then you obviously don’t get out much.”

Here’s an example that’s closer to home. I-JOBS is contributing $9.5 million to a Davenport sewer diversion tunnel project. Once completed, the sewer improvement will open up economic development in a large area on that city’s west side. Under the Republicans’ preferred “pay as you go” approach, that project would never get done.

Let’s go back to those CNBC rankings of the top states for business. CNBC’s analysts evaluated all the states according to 10 criteria: Cost of Doing Business, Workforce, Quality of Life, Economy, Transportation & Infrastructure, Technology & Innovation, Education, Business Friendliness, Access to Capital, and Cost of Living.

Now look at the table showing each state’s score in each of those 10 categories. As I mentioned above, Iowa was judged the best state in the country in terms of the cost of doing business. We’re in the top 20 in all but three of the categories: transportation (we rank 32nd), technology and innovation (29th) and access to capital (36th).

Our transportation infrastructure is relatively poor compared to other states. How should we address that problem? Iowa Democrats chose not to raise the gas tax, which would be the most straightforward way to increase funding for road and bridge work. Instead, we’ve been able to invest more in transportation because of federal stimulus money, which Iowa has used well, and the portion of I-JOBS earmarked for transportation projects. Iowa Republicans unanimously opposed the American Recovery and Reinvestment Act (2009 stimulus) and of course I-JOBS. What was their plan for improving our transportation infrastructure? “Pay as you go” would ensure that we stay behind most other states in this area, which is important for business as well as residents.

Iowa’s Democratic leaders addressed our state’s lagging performance in “technology and innovation” and “access to capital” with several programs, such as the Demonstration Fund and the Power Fund. Some of the I-JOBS bond proceeds were also allocated to telecommunications and renewable energy. Iowa Republicans unanimously opposed those investments. Eliminating the Power Fund is a perennial Republican proposal when our legislature is in session. What’s their plan to improve access to capital and investments in technological innovation?

Iowa Republicans rail against the supposedly high cost of doing business here, but an objective look at the data proves them wrong. We are not a high-cost state for business.

One more data point on the CNBC analysis is worth highlighting. Iowa isn’t doing too badly on the “education” metric in 16th place, but there is room for improvement. Todd Dorman provides some useful historical context:

[T]he state’s preschool effort was sparked by former Gov. Tom Vilsack, who convened a panel, including top Iowa business leaders, to determine how best to improve Iowa’s education system with an eye on the future need for skilled workers. Quality preschool was the top recommendation.

Culver and the Democratic-controlled legislature have made expanding access to preschool a priority, even during very difficult budget years. As a result, more than 20,000 Iowa children are expected to benefit from the preschool program during the current fiscal year. That’s a long-term investment not only for kids and their families, but also for Iowa businesses. McKinley and his fellow Republicans are eager to cut all state funding for the preschool program. That won’t serve our business environment well.

Back to McKinley’s memo of July 16. He bashes Culver for exaggerating how many jobs the I-JOBS program would create. Granted, the sales pitch for I-JOBS was flawed. But infrastructure investments aren’t ever solely about short-term jobs. “Iowa is getting very valuable social goods that will serve us for 20 years,” in the words of Iowa State University economist Dave Swenson.

McKinley cites the state’s job losses of 2009 as proof that I-JOBS has “failed,” as if there were some magic wand Iowa’s leaders could have waved to protect us from a national recession. Unemployment is too high all over the U.S. At least Iowa has taken full advantage of extra federal funding available to extend unemployment benefits.

Moving on to fiscal issues, never McKinley’s strong suit, he wrote on July 16,

Culver continues to be in denial about the health of Iowa’s finances and fails to recognize that Iowa faces a billion dollar deficit next year. Our savings accounts have been depleted to dangerously low levels, our state debt has quintupled and property taxpayers face massive tax increases this fall.

I can’t believe I have to keep writing about the so-called “billion dollar deficit” that doesn’t exist. Furthermore, our state’s savings accounts are nowhere near depleted. On the contrary: the latest projections show a higher than expected ending balance for fiscal year 2010. McKinley ignored those projections on July 9, he ignored them on July 16, and he’ll probably keep ignoring them every Friday between now and the November election.

So, here are McKinley’s five “big ideas” to improve Iowa’s economy. I didn’t get the numbers wrong, by the way–he has them all numbered “1” in his memo.

  1. Stability and Commitment

       In these challenging and uncertain economic times, Iowa employers, small businesses and entrepreneurs need stability and commitment from policymakers that they will not impose massive tax and regulatory changes that will substantially affect their bottom line. Simply put, they need to be confident that government will not “rock the boat” and imperil their financial security and ability to hire more people. Economic growth is dependent on certainty and we have not had that since Democrats took control.

Where are these “massive tax and regulatory changes” McKinley is talking about? We’ve had four years of a Democratic governor and Democratic-controlled legislature. This year the Iowa House and Senate passed modest business tax credit reform (too modest if you ask me). Businesses haven’t been hiring enough because the recession reduced demand for their products. It’s not a regulatory issue.

1. Responsible Budgeting

       We cannot afford to continue to have more government than our economy can support. For four years, we have violated the state’s 99 percent spending limitation by spending more money than our state has taken in. It leads to unbalanced budgets, record deficits, generational debt and higher taxes and fees. All of which stymie job creation. The record during the last four years under Governor Culver and legislative Democrats is a past we cannot afford to repeat.

Oh please. Iowa hasn’t been running deficits. We’ve been using federal stimulus funds that were designated to support state budgets, and we dipped into our reserve funds following historic flooding during a severe recession. In McKinley’s fantasy world, that is irresponsible budgeting. In reality, education, Medicaid and public services would have been decimated during the recession if Iowa had spent no more than 99 percent of state revenues.

Speaking of which, I’m still waiting to see Terry Branstad’s alternative budget for the current fiscal year, which is balanced without using any federal money or funds from our state’s reserves.

1. Property Tax Relief

      Iowa already has some of the highest property tax rates in the nation and that is about to get much worse thanks to Governor Culver. His property tax increase will take effect in September will hit families and employers hard. Even if you rent property, it’s a good chance your landlord will pass that added expense on to you. We believe we need real property tax relief to help stimulate job creation in Iowa.

Does Iowa have “some of the highest property tax rates in the nation”? Not according to any ranking I’ve been able to find. This site ranks property taxes by state according to various metrics. If you sort the table by “tax as percentage of home value,” Iowa ranks 25th. If you sort by the average number of dollars homeowners pay in property taxes, Iowa is likewise around the middle of the pack. If you sort by property tax as a percentage of the median income, we’re right there in the middle.

Of course, property taxes vary from county to county, so I looked on this very long list that Forbes.com compiled based on data from the Washington-based nonpartisan Tax Foundation. “Using statistics from the 2007 U.S. Census American Community Survey, it calculated, by county, median property taxes paid on homes, median home value, taxes as a percentage of home value, homeowner median income and taxes as a percentage of income.” Forbes then ranked counties across the country on property taxes as a percentage of the median homeowner’s income. The first Iowa county to appear is Polk at number 227. Johnson County is number 265, Black Hawk County is number 292, Scott County is number 268, Linn and Pottawatamie are numbers 373 and 374, and Dubuque is number 399. You get my drift. The U.S. counties with the highest property taxes are more than double Iowa’s level in total dollars and in percentage of the average income. I’m not saying property tax relief isn’t warranted in some parts of Iowa, but I see no basis for McKinley’s claim that we have some of the highest property taxes in the country.

Property taxes are increasing for many Iowans this year. That’s partly because of changes in the “rollback” calculation, which you can learn more about here. It’s partly because many (not all) school districts have raised the tax levy to compensate for recent education cuts.

But it is false for McKinley and fellow Republicans to claim that Culver “forced” huge property tax hikes on Iowa. It’s also ridiculous for Republicans to demagogue on the state “spending too much,” then turn around and complain about property tax increases by school districts. Imagine how much more state aid to education would have been slashed if not for the federal stimulus education funding. Iowa would have seen much larger property tax increases if state legislators had spent only 99 percent of projected state revenues without dipping into reserves or federal stimulus money.

  1. End the Anti-Jobs Agenda & Remove the Barriers to Job Creation

        In this global economy, we are not just competing against our neighboring states – we are competing with countries from around the globe. Iowa must become more competitive but that will not happen if we adopt much of the anti-jobs agenda that has been discussed during the last four years. Whether it be the repeal of federal deductibility, radically changing our workers compensation system, altering collective bargaining or allowing a price-fixing prevailing wage, all of these ideas make Iowa less attractive. Even discussing these bills and others like them in the Legislature has sent the wrong message and had a chilling effect on job creation.

In four years, Iowa Democrats have failed to enact any significant element of organized labor’s legislative agenda. McKinley illogically concludes that discussing some of these bills has hurt job creation. Generally speaking, there’s no evidence that “uncertainty” over government regulations deters businesses from hiring.

In any event, unemployment didn’t start rising immediately after the Democrats took over the legislature; it went up because of the national recession, as it has in every other state regardless of which party is in control.

The Iowa GOP’s hobby horse about federal deductibility is laughable too. That “archaic holdover” serves no useful purpose. The only other states which have federal deductibility are Alabama and Louisiana, and they are both in the bottom 10 on CNBC’s list of the best states for business.

  1. Provide Immediate Economic Adrenaline and Plan for the Long-Term

       We have offered a detailed three point plan that involves providing an immediate jolt of adrenaline to Iowa’s economy by offering aggressive tax incentives for hiring more Iowans. We must also cultivate good ideas and encourage entrepreneurs to come forward to develop or expand their venture right here in Iowa. In addition, our plan includes putting together an extensive volunteer commission of business leaders and entrepreneurs from around that state that will be tasked with identifying the onerous barriers and regulations that are holding back growth, development, expansion and job creation in Iowa.

What if your commission of business leaders likes preschool funding, Senator McKinley?

But seriously, this “detailed three-point plan” is not a comprehensive job growth strategy. Perhaps a time-limited tax credit for every new job created is worth considering, but ultimately lack of demand is why businesses are not hiring.

If Iowa had turned down the federal stimulus money in the past two fiscal years, deep state budget cuts would have been inevitable, which would hurt private sector employment as well.

I can’t decide whether McKinley believes his own propaganda or is simply confident his memos won’t get fact-checked, so I’d like to hear from the Bleeding Heartland community. Please take the poll and share your thoughts on the economy or Republican messaging in this thread.  

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