Four takeaways from Branstad destroying the Iowa legislature's budget compromise

Late in the afternoon on the last day state offices were open before the long holiday weekend, Governor Terry Branstad used his veto pen to strike “all the big deals” Iowa House Republicans and Senate Democrats negotiated to end this year’s legislative session.

The budget compromise was already a much better deal for statehouse Republicans than for Democrats. House GOP leaders got the global budget targets they had demanded, which were lower than what the governor requested and Democrats proposed. Most of the concessions to Democrats came in House File 666, a $125 million collection of one-time appropriations.

While Branstad didn’t veto the entire supplemental spending bill like he did in 2014, he cut out House File 666’s largest and highest-priority items for statehouse Democrats: $55.7 million for K-12 school districts, $2.5 million for community colleges, nearly $2.9 million for the University of Iowa, $2.25 million for Iowa State University, and $1.1 million for the University of Northern Iowa.

In other words, after standing on the sidelines during most of the battle over the 2016 budget, Branstad handed House Republicans near-total victory. The fallout will be substantial.

1. Branstad’s vetoes will cause hardship, not only for K-12 and higher education.

Disputes over how to spend state resources are more than a political chess game. The latest vetoes will cause hardship for thousands of Iowans.

Since Branstad returned to the governor’s office and Republicans took control of the Iowa House in 2011, “allowable growth” for K-12 school budgets has been set at some of the lowest levels in four decades. Senate Democrats called for 4 percent allowable growth this year–less than the 6 percent many educators wanted. But Republicans would not budge from the 1.25 percent increase in state aid that the governor and House GOP proposed.

Finally, Republicans agreed to a K-12 education spending plan that set allowable growth at 1.25 percent in the regular appropriations bill but added $55.7 million in one-time money through a supplemental spending bill. The net effect would have been close to the Democratic compromise offer of increasing state aid by 2.625 percent for the 2016 fiscal year.

Even that level of spending wasn’t enough to help school districts balance their budgets; the Iowa State Education Association estimated that roughly 1,000 teacher positions would either be eliminated through layoffs or not filled after retirements. It’s not yet clear how many school districts will raise property taxes.

Branstad’s veto message on the supplemental spending bill noted disingenuously, “By using one-time money and not providing supplemental state aid for the second fiscal year, the legislature compounded the uncertainty that school districts faced this entire legislative session.”

The failure to approve school funding on the timetable required by law is a scandal, but at least school districts had a few weeks for planning between the Iowa House and Senate passage of the supplemental spending bill and the start of the new fiscal year on July 1. Branstad just blew a hole in their budgets less than two months before the classes resume.

In any event, Iowa Policy Project Executive Director Mike Owen pointed out last Thursday,

These one-time funds for education [in House File 666] were designated for one-time uses – in deference to the Governor’s previously stated concerns. The veto leaves schools with only 1.25 percent growth in the cost per pupil for the new fiscal year, well below schools’ actual costs – a legislative decision that will drive up property taxes for many districts. Neither the Governor nor the Legislature can claim accurately that they have provided sufficient funds for Iowa’s public schools, and the conclusion to this question comes 16 months past the legal deadline.

Cutting funds for community colleges and state universities will lead to tuition increases. Iowa Board of Regents Chairman Bruce Rastetter (a top Branstad campaign donor) tactfully declined to criticize the line-item vetoes, even as he admitted the tuition freeze planned for this year will only be possible for the fall semester. Higher tuition will only add to the debt burden for thousands of Iowans attending state universities. The average Iowa State University student graduates with nearly $30,000 in debt; the same figure for the average University of Iowa student exceeds $28,000.

Media coverage of Branstad’s vetoes naturally focused on education funding and the rejection of money to keep two mental health institutions open. Others combing through the appropriations and supplemental spending bills have uncovered more atrocities. The Iowa Fiscal Partnership flagged a little-known provision of Senate File 505, the health and human services appropriations bill:

[L]ow- and moderate-income Iowans face severe “cliff effects” – a sharp loss of resources – when their income rises enough to end their eligibility for child care assistance. A vetoed provision of SF505 would have lessened this effect for an estimated 200 families and nearly 600 children each month. These families, whose incomes are just below 150 percent of the federal poverty level (about $36,400 for a family of four), would have become eligible for child care assistance. This would have been a small but significant first step toward reducing the cliff effect. The Governor talks about increased incomes, but his veto means families will not be able to accept or seek small pay increases if it means they could no longer afford child care. The Governor’s claim that an improvement would “perpetuate” the cliff effect is to totally misunderstand the impact of this important benefit for low-income working families. Child care costs are not going down, and incomes are not rising fast enough for families to recover.

The fiscal note on the final version of Senate File 505 estimates that expanding the Child Care Assistance Program would cost an additional $15.1 million annually. Iowa can easily afford to provide a little extra help for working families, given that the state was projected to close out the 2015 fiscal year with an ending balance exceeding $400 million.

Speaking of that ending balance,

2. Branstad is still not honest about the state’s fiscal condition.

In his veto message on the supplemental spending bill, the governor claimed,

As the Chief Executive of this state, it is my responsibility to have a long term vision that maintains stability and predictability in our state’s budget. I made the decisions today in order to prevent across the board cuts that occurred under the previous administration. Maintaining the fiscal health of Iowa over the long term is my top budgeting priority.

What a joke. Governor Chet Culver imposed a 1.5 percent across the board budget cut in 2008 because the “Great Recession” caused state revenues to “plummet” across the country. In fact, that recession produced “the sharpest drop in state tax revenue in U.S. history.” No economist is projecting anything like those conditions in the coming years.

Total spending under the budget compromise the Iowa House and Senate approved last month was about $7.3 billion ($7.168 billion from the state general fund plus “$125 million from the current state fiscal year’s budget surplus” in the supplemental spending bill). In January, Branstad himself proposed a $7.3 billion budget for fiscal year 2016.

The real threat to Iowa’s long-term fiscal health is the unaffordable commercial property tax cut Branstad signed into law in 2013. As the Iowa Fiscal Partnership explained in a March 2015 publication,

Iowa’s economy continues to rebound and state revenues are projected to rise nearly 5 percent next year, yet we find ourselves struggling to finance our most important basic services, like education. Why? Because we are giving away most of the increased revenue to commercial property owners, with no public benefit to show for it.

The commercial property tax cut will result in an estimated $277 million hit to the state budget next fiscal year, more than double this year’s cost as provisions phase in.[1] This means that the property tax cuts will consume 68 percent of the estimated $408 million in increased state revenue.[2] The small amount remaining is far too little to cover even the normal increases in the cost of providing public services due to inflation.

While the legislation has been sold as a general property tax cut, only 11 percent of the property tax reductions will flow to residential and agricultural property owners next year.[3] The rest goes to owners of commercial property, apartment buildings, industrial facilities, railroads and utilities.

Branstad isn’t concerned about the growing cost of the property tax cut. On the contrary, he boasted in the veto message on the supplemental spending bill,

In 2013, the legislature and I made multi-year commitments with the $4.4 billion property tax cut. This was a historic commitment made to the people of Iowa and a commitment we must keep to Iowa taxpayers and local governments.

Never mind the school boards and administrators “scrambling to fill the governor’s budget hole” before students come back to class. Branstad claims to have a “long-term vision” on state budgeting. No one is fooled.

Speaking of dishonesty,

3. Iowa House Republicans did not negotiate in good faith.

Republicans got most of what they wanted in the budget compromise. The supplemental spending bill passed the lower chamber by 87 votes to 4, far more than the two-thirds majority needed to override the governor’s veto. (Democrats cast all four “no” votes.)

If House Speaker Kraig Paulsen believed in the deal he struck, he would stand by his word and call his caucus back to Des Moines to override the vetoed education funding, at the very least. In a statement today, the Iowa House Democrats called for a special session to do that. Don’t hold your breath waiting for Republican leaders to reciprocate. Paulsen’s children don’t attend public schools, so why should he care about teacher layoffs or program cuts? I haven’t seen any reports of rank and file GOP state representatives criticizing Branstad or calling for an override either.

House Republicans didn’t attempt to override Branstad vetoes of provisions in a tax bill that passed unanimously in 2011, or the governor’s veto of an earned income tax credit expansion later the same year. They didn’t attempt to override the governor’s veto of last year’s supplemental spending bill, which had passed the Iowa House by 97 votes to 0.

UPDATE: Branstad told reporters on July 6 that his staff made it “abundantly clear” to lawmakers that he would veto supplemental spending appropriated for K-12 education: “Using one-time money for on-going is something I have consistently said [is] a bad budgeting practice.”

Paulsen denied that assertion:

“The governor or the governor’s office had not indicated a veto threat or that they would sign it to me or, to the best of my knowledge, to any House Republican.”

Speaking to Radio Iowa, Senate Majority Leader Mike Gronstal called Branstad’s veto “especially egregious in light of the fact that the legislature worked in a bipartisan fashion to not use one-time money to fund ongoing needs.”

We’ll probably never know whether the governor’s office signaled to House leaders that Branstad would veto most of the concessions offered to Democrats in exchange for accepting the Republican budget targets for fiscal year 2016. But we do know this:

4. Branstad poisoned the well for next year’s legislative session.

No need to belabor this point. It’s hard enough for a divided legislature to compromise in any election year. Now Branstad has blown up a deal that was months in the making, after Iowa Senate leaders gave the governor the gas tax increase he wanted. They would be crazy to agree to any big policy initiatives (such as tax reform) in 2016.

Branstad doesn’t seem to view the legislative branch as an equal partner in state government. He didn’t consult lawmakers about closing the Iowa Juvenile Home, shutting down mental health institutions in Clarinda and Mount Pleasant, or privatizing Medicaid. Today he declined to give a straight answer when asked whether his administration plans to close Iowa’s two remaining in-patient mental health facilities. Why pretend anymore that he respects the legislative process?

Passing a budget for fiscal year 2017 is one thing lawmakers won’t be able to avoid during next year’s legislative session. Many state representatives and senators will be eager to get back to their districts to campaign for re-election. But I suspect the 2016 legislative session will adjourn later than the 2012 and 2014 sessions did.

Please share any relevant comments in this thread.

UPDATE: Iowa Senate leaders issued the following statement on July 7:

In an effort to maintain quality education across Iowa and to ensure access to mental health services for Iowans, Senate Majority Leader Mike Gronstal of Council Bluffs and Senate President Pam Jochum of Dubuque announced plans to issue a formal letter to all 50 Senators calling for a special session of the Iowa Legislature.

“Governor Branstad’s surprising vetoes of one-time funding for K-12 schools, community colleges and state universities continues to make no sense to a majority of Iowans,” Gronstal said. “The Governor’s vetoes are especially egregious in light of the fact that the Legislature worked in a bipartisan fashion to avoid using one-time money to fund ongoing needs and the Legislature’s overall spending level was actually below the Governor’s.”

“In the end, it is schoolchildren, college students and Iowans needing mental health treatment who will suffer because of the Governor’s actions. I believe there will be bipartisan support for overriding the worst of Governor Branstad’s vetoes,” Gronstal said.

Legislators may call a special session if two-thirds of the Senators and two-thirds of the Representatives agree in writing to participate in a special session.

Democrats hold 26 of the 50 Iowa Senate seats, so eight Republicans would need to agree to call a special session. I will be shocked if that happens, since only one of the 24 Senate Republicans (Mark Costello) voted for House File 666, the supplemental spending bill. Costello’s district includes Clarinda, where one of the just-closed mental health facilities is located.

If senators return for a special session, at least seven Republicans who did not vote for the supplemental spending bill on June 5 would need to change their minds to override Branstad’s veto.

SECOND UPDATE: Speaking to reporters on July 7, Paulsen speculated that there is not enough support in the legislature to override Branstad’s veto of education funding.

Only one way to find out for sure: call House and Senate members back to Des Moines.

Paulsen repeated that Branstad did not indicate during the legislative session that he would veto a one-time spending bill. He also defended the supplemental spending bill as allocating money to “legitimate” one-time expenses rather than on-going expenses. He accused Democrats of “playing politics” with education funding, sending the legislature into overtime–even though it was House Republicans who refused for months to meet Democrats in the middle on allowable growth for K-12 school budgets.

Finally, Paulsen noted that he does not see two-thirds support in both chambers for overriding the veto. Maybe not today, but passing an override in the House (with substantial Republican support) would put pressure on GOP state senators). Again, the supplemental spending bill passed the House by 87 votes to 4. There should be ample support for overriding the veto, if state representatives sincerely want to take some pressure off school districts. But Paulsen indicated that most of his caucus members balk at calling a special session, a good sign that they were never sincere about backing extra K-12 funding.

THIRD UPDATE: Branstad claims the supplemental spending bill didn’t restrict the use of funds for one-time expenses:

Branstad, who vetoed the $55.7 million supplement late last week, said he doesn’t think the limitations on how the money should be used are enforceable.

“Oh, come on,” he said when asked about them.

“One-time spending should only go for one-time projects like capitol (improvements) where you build the project and it’s over,” he said. “That’s one-time spending. When you put it into things like Medicaid or you put it into things like education, that’s ongoing spending.”

He said even things like textbooks need to be repurchased again in the years to come.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said the governor had never made it clear to negotiators that he would veto any use of one-time funding for education. Instead, he said, the governor left an open door and said he would consider whatever bill the Legislature sent him.

“This is just people posturing for the sake of posturing,” Gronstal said. “I get the governor’s trying to come up with some kind of excuse for a senseless veto. But that’s all it was: a senseless veto on his part.”

As for a possible special session, the governor said,

“I’m not interested in the Legislature coming back to fight over how much money they’re going to spend,” he said. “I’m interested in how we can improve the programs that are going to provide for the best education possible for our kids.”

A few weeks ago, Branstad suggested he might call lawmakers back for a special session to set allowable growth levels for K-12 budgets in the 2017 fiscal year. That plan is certainly off the table now.

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