Governor Terry Branstad delivers his "Condition of the State" address to the Iowa House and Senate this morning. Iowa Public Television will livestream the speech here, and I'll update this post later with highlights. The governor's commercial property tax reform plan will be a centerpiece of the address. As part of that plan, Branstad indicated yesterday that he will seek unprecedented limits on local government taxing authority in Iowa.
UPDATE: A few details from the governor's proposed budget are now below, along with some reaction from Democratic lawmakers. Branstad is asking for a significant spending increase in the 2013 fiscal year.
Lynn Campbell of IowaPolitics.com covered Branstad's comments about property taxes at his weekly press conference on January 9:
He told reporters Monday that he will again call for a rollback on commercial and industrial property taxes from 100 percent to 60 percent of valuation. But this year, he's calling for it to happen over eight years, rather than five years. Branstad's plan also would limit residential and agricultural property tax increases to 2 percent, rather than the current 4 percent. And it would limit city and county property tax increases to the rate of inflation. [...]
The governor has said that Iowans would see their property taxes increase by $1.3 billion during the next five years, if lawmakers don't approve property-tax reform. The estimate was based on the assumption that local governments would increase their tax levies each year by the 4 percent maximum permitted by state law.
Local government leaders last year decried the Republican plan to reduce property taxes, saying it would be "crippling" and would lead to service reductions, layoffs and increased tax rates.
Linda Hinton, government relations manager for the Iowa State Association of Counties, said Monday that county officials once again are wary of property-tax reform, and especially concerned about the proposal to cap residential and agricultural property-tax increases at 2 percent. [...]
Branstad said he has worked with local governments to alleviate their concerns. Under his plan, the state would reimburse a portion of the tax revenue loss by local governments - $50 million the first year, then $100 million, then $150 million.
"We foresee that we're going to be able to protect local governments," Branstad said.
The governor also said the state is willing to provide cities and counties some relief from unfunded mandates by the state, such as housing military prisoners for free and requiring written reports instead of electronic ones. A report by county officials identified nearly 1,300 state mandates on county officials.
I'm impressed Branstad was able to deliver that last line with a straight face, as if ending obscure mandates like those targeted in a new Republican bill would have anywhere near the impact on local budgets as slashing commercial property taxes would.
Tuesday's edition of the Des Moines Register published more details about and reaction to Branstad's plan.
The maximum amount of property taxes a local government would be able to collect under the governor's plan would be the amount set in the fiscal year that begins July 1, 2013, multiplied in future years by an annual growth factor set by the state. To spend more, local governments would need to obtain approval from voters in a special election, and the approval would be limited to two years.
A separate House version introduced Monday by Republicans, House Study Bill 500, would also limit local government budget growth, but the tax relief for commercial and industrial businesses would be spread over 14 years rather than the eight years proposed by the governor.
Local officials' objections rest on the principle of home rule, which refers to the power of a city or county to set its own system of government without undue state restrictions.
"I think the Legislature is wrong in trying to direct local governments in what they do," said Senate Majority Whip Tom Courtney, D-Burlington. "Local governments should be able to tax and spend for what they need to do, and they are directly accountable to the people in their communities."
Many Iowa lawmakers served as city or county officials before being elected to the legislature, so I expect huge resistance to the Branstad approach, especially in the Democratic-controlled Senate. Bleeding Heartland has argued before that Branstad's disregard for local government authority was one of the most under-reported stories in Iowa politics last year. Not only did he seek to limit local governments' taxing powers, he issued an executive order limiting local governments' use of project labor agreements and leaned on the city of Cedar Rapids to set aside one such agreement, signed before he was inaugurated.
Majority Leader Mike Gronstal indicated in his opening remarks yesterday that Democrats are committed to property tax reform modeled on the plan that cleared the upper chamber with bipartisan support last year. Excerpt from Gronstal's January 9 speech:
Here are my top three priorities.
One, help Iowa businesses create jobs by cutting commercial property taxes.
Last year, Senate Democrats and Senate Republicans put aside partisan bickering when we voted to cut property taxes IN HALF for four out of five businesses.
It is the only proposal that does not simply shift more of the cost of local schools and local services onto the backs of homeowners and farmers. That's because the Senate's property tax is paid for.
Most importantly, the Senate's property tax cut focuses the help on the people who need it, Iowa's small and Main Street businesses. That's why it passed the Senate on an overwhelmingly bipartisan vote of 46 to 4.
Now's the time to help create jobs in Iowa by cutting commercial property taxes.
Governor Branstad and members of the Iowa House, the Democratic and Republican members of the Iowa Senate are ready to help you get it done.
I'll add updates from Branstad's address later today. Meanwhile, share any comments about his speech or policy agenda in this thread.
UPDATE: The governor's draft budget would spend a little more than $6.2 billion from the state's general fund during the 2013 fiscal year, which runs from July 1, 2012 to June 30, 2013. That's a 3.8 percent increase in general fund spending, compared to the current fiscal year. A large part of the extra $230 million would go toward education reform proposals summarized here. Branstad also wants $25 million for a "High Quality Jobs Program"; sounds like corporate welfare, but I haven't seen the details yet.
Last year Branstad's first budget proposal staked out a middle ground on spending; higher than what Iowa House Republicans sought, but lower than the initial spending bills Senate Democrats approved. Branstad later adopted the House Republican stand on spending levels, even as state revenue forecasts improved. The current-year budget allocates about $5.99 billion in general fund spending.
In this morning's Condition of the State speech, Branstad stood by his proposal to hold back third-graders who can't pass a reading test, saying, "Because reading is so essential for later success in school, it 's just unfair to promote an illiterate child." I hope legislators don't go along with that idea. As educator Scott McLeod argued here,
Failing 3rd graders who can't pass some reading assessment is a really, really bad idea. It doesn't matter how many safeguards and second chances there are and I understand why the policy is being proposed (both educationally and politically). The bottom line is that, regardless of the 'social promotion' rhetoric and whatever gut intuition parents or policymakers may have, the research evidence is overwhelmingly unidirectional that in-grade retention does far more harm than good. Desired test score increases often never materialize and, even if they do, they usually don't persist past a few years. One of the stronger and consistent findings in educational research is that, in the long run, in-grade retention is at best a long-term wash score-wise and the resultant negative impact on students' psyches and their likelihood to graduate is horrific.
Kathie Obradovich reported that many members of the public were denied entry to hear Branstad's speech, because the governor reserved most of Iowa House gallery seating for a hand-picked audience.
O.Kay Henderson reported on early Democratic reaction to Branstad's speech.
[Senate Ways and Means Committee Chair Joe] Bolkcom says he's "open" to Branstad's ideas, including new proposals to reduce taxes on companies that supply components to larger manufacturers, like John Deere. [...]
While Democrats are raising questions about one idea - ending "social promotion" of third-graders if they can't read - Senate Democratic Leader Mike Gronstal is also striking a conciliatory tone.
"I think his stuff on education, in particular the early grades of assessing reading abilities and then doing interventions, I think there's broad support for that," Gronstal says. "I think we're really committed to doing something on commercial property tax."
Yet Gronstal pointed out the plan Democrats devised last year would provide more direct relief to a small business owner Branstad cited during his speech. Democrats are also raising concerns about details in Branstad's budget plan, specifically his call to shift some education spending around to pay for some of his proposed education reforms.
"Part of the money is coming from teacher quality...and that goes into (teacher) pay. Part of the money is coming from classroom size money...Research show next to a good teacher, (reduced) class size is one of the best things we can do for kids," says Representative Sharon Steckman of Mason City, the top-ranking Democrat on the House Education Committee. "...It's kind of like a shell game. You just move that money around."
Other Democrats say Branstad hasn't set aside enough money to cover the state's increased share of paying for mental health care for the poor.
State Representative Tyler Olson, the ranking Democrat on the House Appropriations Committee, released the following statement:
"House Democrats are encouraged by the Governor's focus in his budget on job creation and improving our schools. We are ready to work with the Governor and Republicans this session to help create jobs.
House Democrats will also oppose any effort to weaken the middle class or reward Wall Street over Iowa's Main Street businesses.
In these tough economic times when many Iowans - including veterans returning from service overseas are looking for work, we're disappointed the Governor has no plan to reopen the workforce centers. We are committed to reopening the centers that will help Iowans learn new skills to land a good-paying job and help local businesses find workers."
The 36 field offices that Iowa Workforce Development closed last year are never coming back, but Olson's comment is another sign that the issue will live on in competitive Iowa House and Senate races this fall.
SECOND UPDATE: IowaPolitics.com posted the full transcript of Branstad's condition of the state address. Here are more details on the governor's budget. General fund spending for fiscal year 2013 would be $6.244 billion, which is equal to 96 percent of projected state revenues. Of the $230 million in additional spending, $25 million would cover the costs of education reform in the coming fiscal year. Some $17 million of that would be new appropriations, while $8 million would be shifted from existing state education programs. Lynn Campbell reports,
The governor also proposed $40 to $60 million in savings from the Road Use Tax Fund, rather than increasing the gas tax.
While Branstad proposed a casino tax increase last year, he does not propose any tax or fee increases this year.
Speaking to Des Moines Register staff on January 10, Branstad confirmed that he will not reopen the debate over Iowa's universal voluntary preschool program for four-year-olds. He is open to a gasoline tax increase, as long as it doesn't take effect in the 2013 fiscal year:
Branstad said he would not support increasing Iowa's gasoline tax in the fiscal year that starts July 1 since he believes the state's short-term road needs will be covered through government efficiencies.
The state's transportation department is expected to outline between $40 million and $60 million in proposed saving next week that would be diverted to road improvements.
"If we get the savings approved first, then, yeah, I think I'd consider that," Branstad said to a question about raising the gas tax in outgoing years. [...]
Branstad on a radio show last year said he couldn't support a gasoline tax increase in the upcoming year. Today was the first time he has indicated a willingness to consider a gasoline tax in this year's legislative session, but he specified his support would be for outgoing years, not this coming fiscal year.
[Iowa Senate Transportation Committee Chair Tom] Rielly said he believes the governor's latest statements will lead to a serious legislative discussion on the issue. Setting the increase to begin in outgoing years is something Rielly said he would be willing to work with the governor on since it would allow the state to find a long-term solution.
"The governor has reopened the door, and that's a good thing," Rielly said. "I think it's good that we continue to let the process work. At the end of the day we all agree that we want safe roads, we want to put people to work, and we want to have people outside of Iowa paying their fair share."