Republicans blow a billion-dollar hole in the budget (updated)

Matt Chapman reports from today’s Iowa Senate committee hearings on a massive tax bill published the previous day. -promoted by desmoinesdem

Senate Republicans dropped Senate Study Bill 3197 on February 21, scheduling a subcommittee on the tax plan first thing the following morning and a full Ways and Means Committee to consider the bill shortly after lunch. They had employed a similar shock-and-awe tactic last week to get Senate Study Bill 3193 through the legislature’s “funnel” on the last possible day. That bill, modeled after a Florida law deemed unconstitutional, called for drug testing Medicaid and food assistance (SNAP) recipients, along with quarterly instead of yearly recertification and work requirements.

In opening comments on his tax proposal, Senate Ways and Means Chair Randy Feenstra said SSB 3197 was “bold” and would save Iowans an average of $1,000 in taxes. You can watch the whole meeting on video here.

Senator Pam Jochum, the ranking Democrat on the committee, said she was looking forward to input from EMS and firefighters, among others, since this bill would end deductions. She was also concerned that there was no fiscal impact statement and wanted to be sure it fit the budget. Jochum asked Feenstra if he had any data he could share.

Feenstra said it would be a seven-part process, the first and maybe the second done today.

Since this is a billion-dollar tax cut, I would think we would have collected some of that data while writing the bill, Jochum countered. Other Democratic senators echoed her point.

Many lobbyists lined up for the committee meeting, and even though the room wasn’t small, it was standing room only. Multiple Democrats wondered why lawmakers couldn’t slow down and get further public input on the bill.

Senator Matt McCoy brought up the de-appropriations already working their way through the legislature and wondered if a downturn in Iowa commodities had been factored into the bill.

Other Republican senators talked about Iowa’s supposedly high corporate tax rates.

During the morning subcommittee hearing, many lobbyists expressed support for the tax plan, including Drew Klein, state director of the Koch-funded group Americans for Prosperity. Some first responders were there pushing back on the deductions they would lose and noted that the state already has a volunteer firefighter shortage of some 800 people.

Claire Celsi was there, along with some educators, to warn of how a massive cut in state revenues would affect K-12 schools.

Union lobbyists pointed out how this legislation would once again hurt public employees.

I had a chance to speak and talked about the mid-year spending cuts, happening for the second year in a row because revenues have fallen short of projections. I mentioned that while Iowa may be 40th in the country for corporate tax rates, we are at the very bottom for mental health. I talked about how much Republican lawmakers have been punching down on the most vulnerable Iowans this session.

The bill passed the subcommittee in the morning along party lines. The full Ways and Means Committee convened at 2:00 to consider it; you can watch that video here.

Senator Feenstra repeated what a bold plan it was and said they were working side by side with the Appropriations Committee to make the “necessary adjustments.” He asserted the fiscal impact would be $1 billion in 2020 and a third of that amount for 2019.

I can assure you the bill is fiscally responsible, allows Iowans to keep more of their hard-earned money. However, at the same time, we will balance our budget, keep our commitment to repay the cash reserve, fully fund Medicaid and provide an increase in almost 50 million to K-12 education.

Question number two: impact on revenue five years from now. As I said, through the appropriations process, this will make the necessary adjustments to account for the fiscal impact of the bill. And we are confident this bill will not negatively affect, impact our ability to fund the priorities in Iowa, whether it be education, health care, or public safety. While we don’t have a five-year projection at this point, we do believe this bold cut will put money back in the pockets of hard-working Iowans and job creators and will help stimulate an economy, grow jobs, and increase the wealth of Iowans. And from that, the state will see more revenues coming into the general fund.

In other words, Feenstra promised the tax cuts would trickle down.

[note from desmoinesdem: Feenstra apparently has not given up on his bogus “dynamic scoring” scheme, which projects implausible levels of economic growth and revenue increases to lowball the expected costs of large tax cuts. The plan didn’t work for Kansas, Oklahoma, or Louisiana, and there’s no reason to believe it would work in Iowa.]

Senator Herman Quirmbach asked how Iowans are going to pay for this plan.

Feenstra repeated that he is working with appropriations on how the numbers will be played out and where the money will come from. They are proposing expanding the sales tax to cover more goods and services.

Quirmbach pointed out that if Iowa closed all its universities and community colleges, we would still need to find another $200 million to make up for the billion-dollar hole in the budget these tax cuts would create.

Jochum noted Democrats wanted to work in a bipartisan way with the majority party on a fair tax reform plan. Instead, a huge bill was dumped on our laps yesterday, and here we are in full committee. In a written statement on February 21, Jochum had outlined Democrats’ basic principles:

Tax reform must be fair. Iowa’s tax system has a number of tax brackets in an attempt make the income tax system progressive so that those with lower incomes pay at lower rates. However, according to the Iowa Policy Project, when all state and local taxes are accounted for, Iowa’s lowest income earners pay the largest portion of their income in taxes. Changes to Iowa’s tax system should address this situation and not make this problem worse.

Tax reform must make Iowa’s tax code more transparent so Iowa can show its true competitiveness to the nation. Iowa’s tax code has become a confusing collection of credits, deductions and exemptions that has left the state with high tax rates that do not accurately reflect the cost of living and doing business in Iowa. Our tax rates appear to be among the highest in the nation — but according to the Tax Foundation, the amount paid by Iowans through our tax system ranks Iowa in the middle of the pack.

Tax reform needs to take into account our current budget situation. We just completed a legislative session where funding was slashed for nearly every part of state government, and there is no sign the situation will be improving next year. We must not repeat the mistakes of Kansas, which passed massive tax cuts that have resulted in a continual budget crisis where schools are underfunded and has forced the state to balance the budget by stealing from road funds and raising other taxes.

At today’s committee hearing, Jochum said she could support some pieces of the Republican bill, but said it’s irresponsible not have any spreadsheets showing how people are affected.

Next it was McCoy’s turn to speak.

I think when people think of a rigged system in politics, this process that we’re going through today epitomizes this notion. There’s been no public input, no bipartisan collaboration. No understanding of the true cost of this measure. We literally are flying blind into the abyss.

I’ve never seen a tax package like this passed without run sheets [from the Department of Revenue] that show the true impact and price tag of the various parts of this proposal and what they will cost. This is, in my opinion, the height of fiscal irresponsibility. […]

Here we are today, with this poorly thought out plan, no understanding of how these cuts will impact vital services, and no estimate of what kind of growth this plan will achieve, if any at all.

There’s no doubt, after a quick review of this plan, that it will favor the richest individuals and corporations among us. The vast majority of the tax cuts go directly to the wealthy.

We are on the fast track to Kansas. Senators, what you do today will tell Iowans everything about what and whom you care about. This bill is full of winners and losers. The winners are the wealthy and the high wage earners, the large corporations, ALEC [American Legislative Exchange Council] and Americans for Prosperity, including my friends the Koch brothers. Rich corporate tax credits and R & D remain intact.

The losers are the poor and the working class, public education, vulnerable Iowans who rely on Medicaid and DHS oversight, higher education, Regent and community colleges, public safety, volunteer EMS firefighters including reserve police and those engaged in solar, geothermal, and energy jobs throughout Iowa.

The future workforce and the elimination of the 260 G program known as ACE will also be a loser. Historic preservations for main street, ethanol promotion and tax credits will also lose.

Today is a sad day for the state of Iowa. Once known for our rich land and wonderful public education system, we are taking a drastic, dark, and disastrous path. If this legislation becomes law as drafted, Iowa will become more like Kansas and less like the state that I love.

I implore my Republican colleagues to set up listening posts in your home districts and talk to regular Iowans. Not the hired guns that came before the subcommittee today. Talk to people that get up every day and punch a clock, educate our children and take care of our elderly and disabled. These are the people that make Iowa work.

We have bastardized this legislative process today. I’m disgusted to think that you are about to pass a massive overhaul of the Iowa tax system with no public input. The subcommittee today was dominated by special interests. Everyday Iowans had no notice that this was even happening. But even if they would have known, this scheduled meeting scheme occurred when they were working with less than a day’s notice.

I suppose this rigged system is going to end today just as you planned. It’s clear to me that some Republicans don’t care about working-class Iowans. This bill proves it. Thank you.

Senator Rob Hogg spoke next. In sixteen years in the legislature, he couldn’t recall a committee suspending the rules to bring a bill up, “certainly not a bill of this magnitude.” He accused Feenstra of making claims with no facts to back it up. “We’re driving 500 miles an hour into the fog. The process is really bad.” The good news, Hogg told his Republicans colleagues, is that it would only take a few of you to slow this train down, this is reckless and really dangerous.

Earlier this year, Hogg noted, Republicans passed Senate File 2117 to make mid-year spending cuts for the GOP budget bill last year. The substance abuse agency in Cedar Rapids just had to lay off twenty people. Well guess what, if you cut public health more you’re going to cut more people. When recidivism is up, and crime is up in the state, you want to cut $3 million from corrections.

Senator Joe Bolkcom said he was “disappointed” to be where we are. Most of the cuts would go to people with higher incomes. He quizzed Feenstra on how some of the planned changes to tax credits would work. “We don’t have one shred of information about the financial impact.” “We don’t have a balanced budget today,” Bolkcom said, yet we’re looking at slashing revenue, perhaps $300 million in revenues for the next fiscal year. We can barely figure out how to cut $30 million from the current year (fiscal 2018) budget. The 2019 budget would start off with ten times as large a deficit.

Bolkcom said he had talked to lobbyists and even GOP senators who had many questions about the bill. “I talked to your own members of your caucus and they haven’t seen any numbers, Senator Feenstra. No numbers.”

“Senator Feenstra, will you commit to us that we’ll have some financial information before this bill comes to the floor?”

“Absolutely,” Feenstra promised. He said the Senate won’t debate the bill until the Legislative Services Agency has issued a fiscal note. “This bill is not ready. Everyone in this room knows it,” Bolkcom said.

Senator Bill Dotzler emphasized that senators have “a billion dollar mystery bill here. We don’t really understand the ramifications.” His whole legislative career, spanning 21 years, Dotzler has served on the economic development budget subcommittee. He noted that twenty years ago, Rockwell Collins had highly skilled jobs but a shortage of workers with the training to hold them.

Technical jobs are accelerating even more today, Dotzler said. “The number one tool that we have is intellectual capacity. And that comes from our universities and colleges.” The legislature is cutting higher education funding to balance the current-year budget, and that trend will continue. But reducing funding for education would slow economic development.

Senator Dotzler explained how recruiters for high tech jobs were locating near campuses so they could recruit right out of college. He made the point that the bill would hurt new jobs and technology coming to Iowa, but the cheap corporate rates would bring employers but not of the caliber that a highly trained workforce would.

He recalled GOP Senator Charles Schneider said one of the first things de-appropriated in the spending cut bill was tourism funding. Why would we quit advertising Iowa, and how do we bring people here when we do that?

Dotzler’s last point was that the number one concern of high-tech industry is qualified workers, not tax structure. That’s what businesses are concerned about and you need to listen to them. This bill is going to hurt Iowa.

In his closing remarks, Feenstra repeated his claims that bold tax cuts would cause Iowa’s economy to grow. He said that not far from his home, Sioux Falls, South Dakota is booming because of their state’s different tax structure.

The Ways and Means Committee approved the bill on a party-line vote of nine to six. After clearing the committee, it was renamed Senate File 2383.

FEBRUARY 27 UPDATE from desmoinesdem: The Legislative Services Agency published its fiscal note on the bill. Here’s the most important chart, showing that the cumulative effect of all the tax changes would reduce state general fund revenue by $207.8 million in fiscal year 2019, $777 million in fiscal year 2020, $941.3 million in fiscal year 2021, $1.069 billion in fiscal year 2022, and $1.164 billion in fiscal year 2023 (around 15 percent of the state budget).

Randy Bauer, a former state budget director at the Iowa Dept of Management and former senior analyst for Iowa Senate Democratic research staff, commented via Twitter, “Those are absurd numbers – the Governor and Legislature had to resort to using the rainy day fund to balance the budget this year with far less reduced revenue.” Bauer added, “This bill is absurd.”

Top image: Screen shot of Randy Feenstra speaking at the Iowa Senate Ways and Means Committee meeting on February 22.

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