What's going on at the Iowa Department of Revenue?

Governor Kim Reynolds appointed former Iowa House Speaker Kraig Paulsen as director of the Iowa Department of Revenue on February 22, only six weeks after she had named Adam Humes to lead the agency. A late Friday afternoon news release did not explain the reason for the change, saying only that Humes “has decided to pursue other opportunities.”* Paulsen will start work this coming Monday. Leadership transitions at state agencies typically are weeks or months in the making.

Humes’ predecessor, Courtney Kay-Decker, also left under odd circumstances. Appointed by Governor Terry Branstad in 2011, she sounded excited to continue to lead the department after the 2018 election. But in early December, Kay-Decker announced her resignation, effective at the start of the new year.

Humes had served as deputy director for two and a half years before Reynolds promoted him in January. The Des Moines Register’s Lee Rood reported on February 7 that he was “supposed to be confirmed soon by the Iowa Senate,” but had “canceled a scheduled appearance Wednesday [February 6] before the Senate’s Way and Means Committee.” An unnamed department employee was spreading the word that the new director was not up to the job.

As director of the Department of Revenue, Humes would oversee an operation in charge of handling roughly $10 billion in state revenue. Allocating that funding across state and local government is a primary duty. He made $146,979 last fiscal year.

The whistleblower, who didn’t want to be identified for fear of retribution, contacted Watchdog and legislators because he said Humes lacks the knowledge of tax law and administrative experience necessary to address the department’s problems.

Turnover has been high, Rood found: “At least 38 revenue workers left last year, more than a tenth of the remaining staff of 334, according to the state employee database.” Iowans seeking help with tax questions are spending more time on hold, Erin Jordan reported for the Cedar Rapids Gazette on February 1.

The Revenue Department reported the average wait time Jan. 1 through Jan. 25 was 48 minutes — more than double the average wait time of 21 minutes in January 2018.

But when Aimee Good complained Jan. 25 on Facebook about being on hold for more than an hour, the Revenue Department apologized, saying “wait times are looking to be around 4 hours due to high volume of W-2 and 1099 questions.”

The department averaged 1,297 calls per day in January, more than double the 645 average calls per day it received in December 2018 and nearly double the 703 calls per day in January 2018, according to Revenue Department spokesman John Fuller.

In recent years, Iowans have had to wait longer for their state tax refunds too. Department officials claimed heightened security measures caused those delays, but a 2017 investigation by the Register’s Brianne Pfannenstiel for the Des Moines Register revealed the truth: “Iowa didn’t have enough cash to pay people at the same pace as in previous years.” (Kay-Decker refused “to discuss or respond to the Register’s analysis” at that time.)

Not only has the department lost many staff, the quality of its analysis seems to have declined. Rood noted, “Several employees within Iowa’s Department of Revenue also have told legislators and Reader’s Watchdog that researchers ‘vastly’ underestimated the cost of a newly expanded sales tax exemption that flattened revenue at a time of economic growth.”

Way back in October 2015, Bleeding Heartland guest author Jon Muller sounded the alarm about that proposed exemption for manufacturers. He warned, “This is an ongoing tax cut of increasing value,” and pointed out that the Department of Revenue had previously estimated the policy would be much more costly.

In 2013, the Department employed a different methodology for the same tax cut. The Department provided a “lower bound” estimate of $32.7 million for FY 2017 and an “upper bound” estimate of $78.1 million. It would appear the Department’s “lower bound” has suddenly become its “best guess.”

Not only did the Department change its methodology and reduce the cost of the tax cut, it cut its inflation factor on the future cost. A 3.2% average factor in 2013 has now become a 2.4% average factor. If we simply apply the 2013 factor to Department’s new “best guess”, the cost over ten years grows another $12.3 million.

We do not know the cost of this rule. But we should not be surprised if the real cost vastly exceeds the amount estimated by the beneficiaries themselves and subsequently aggregated by an Administration that has been pushing the tax cut for years.

Indeed, sales tax revenues fell far below projections after the exemption went into effect in 2016. Both Muller and Jeff Robinson, the senior fiscal analyst for the Legislative Services Agency, attributed the drop to the new policy.

Bleeding Heartland (and no doubt other Iowa reporters) will seek further information about the unexplained factors that ended Humes’ tenure in less than two months. But it’s clear Paulsen will walk into a department that is short-handed and in disarray.

A longtime attorney for a trucking company in Cedar Rapids, Paulsen has never managed an operation as large as the Department of Revenue. Shortly after stepping down as Iowa House speaker in 2015, he waltzed into a well-paid, make-work job at Iowa State University without having to compete against any other applicants. Paulsen began working at ISU on a full-time basis, earning $139,050 per year, in the summer of 2016, but the “supply chain initiative” he was hired to run didn’t hold its first meeting until April 2018.

The learning curve will be steeper at Paulsen’s new job, and the public will notice if they are forced to wait an unusually long time to get questions answered over the phone or refund checks in the mail.

Final note: the late Friday news dump from the governor’s office mentioned nearly a dozen other appointments. A few changes are in store:

  • Reynolds named Rod Roberts as labor commissioner, replacing Michael Mauro, who retired. Since early 2011, Roberts had led the Iowa Department of Inspections and Appeals.
  • Larry Johnson, Jr. is leaving as state public defender to take over Roberts’ old job.
  • Jeff Wright will be the next state public defender. He had chaired the Iowa Board of Parole since January 2018.
  • Reynolds is keeping the following state officials in their current positions: Department of Administrative Services Director Janet Phipps, Department of Management Director Dave Roederer, Iowa Workforce Development Director Beth Townsend, Iowa Department of Public Health Director Gerd Clabaugh, Iowa Utilities Board chair Geri Huser, Iowa Utilities Board member Nick Wagner, and Iowa Division of Credit Unions superintendent Katie Averill.

    I’m shocked the governor hasn’t found a new job yet for former State Auditor Mary Mosiman. Late last year, some politics-watchers speculated she might replace Kay-Decker at the Department of Revenue.

    *UPDATE: The Attorney General’s office confirmed on February 23 that Humes will serve as director of its Revenue Division, a position previously held by Donn Stanley.

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