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CULVER UNVEILS TAX
& SPEND BUDGET
On Tuesday, the Governor released his
budget recommendations for Fiscal Year (FY) 07, FY 08 and FY 09. Not
surprisingly, the FY 08 budget increases spending by over a half-billion dollars
and the $170 million thought to be generated by the cigarette tax increase does
not go to health care.
The Governor recommends the $1 per pack
cigarette tax increase (making it a total per pack tax of $1.36) begin on April
1, 2007. He believes this will generate $32 million in FY 07 and $138.4 million
in FY 08.
In his budget address, Culver stressed
that the increase will all go for health care. This is NOT true. The entire
$170.4 million is deposited into the General Fund and spent on General Fund
programs.
The entire increase for Health and Human
Services budget is only $102.6 million. Why is this important? Even if the
Governor claims that the increase for HHS is entirely paid for by the
cigarette tax increase, it leaves $67.8 million to go for other non-health care
purposes.
Gov. Culver also assumes an increase of
$25 million for combined corporate reporting (he calls it “closing a corporate
tax loophole”). Governor Vilsack proposed doing this in several of his budget
requests. Combined corporate reports are a tax increase on some of Iowa’s
largest employers. Culver and the Democrats have to tell Iowans why they
believe increasing taxes on businesses will improve the economic climate of the
state.
The Governor also proposes a “tax
amnesty” program that he expects will generate $16 million in new revenue and he
believes that enhanced collections by the Department of Revenue will generate
another $4.6 million. He raises fees by $1.5 million (fire marshal fees,
restaurant inspection fees, Department of Commerce fees). The Governor proposes
reducing revenue by $4.3 million by increasing the earned income tax credit, and
$2 million through an energy fuel vehicle tax credit.
The total for revenue adjustments is
$32.3 million for FY 07 and $179.2 million for FY 08.
Fiscal Year ’07 Supplemental.
The Governor proposes $55.1 million in
supplemental appropriations for FY 07. The biggest item is $25 million for his
new “Power Fund”. (This is how Vilsack proposed funding the Values Fund after
the Supreme Court struck down the original version.) There were no policy
details provided on how exactly the Power Fund will be used but it has something
to do with renewable energy.
The next largest item is $8 million for
Medicaid. He also proposes spending $4 million on a targeted small business
program, $3.4 million to open the Oakdale prison more quickly, $2.5 million for
the new stem cell research and human cloning center and $3.5 million for two
veterans’ programs ($1.5 million for the Veterans’ Homebuyers Program and $2
million for Injured Veterans Grant Program).
The Governor also uses $119.9 million of
the FY 07 ending balance to fund the Property Tax Credits (he does fund $40
million of the credits in the FY 08 budget). That means he spends $175 million
in FY 07 with most of it going to FY 08 programs. After this spending is taken
into account, it leaves an ending balance for FY 07 of $87 million, which goes
to fill the reserves to 10 percent and leaves a small amount ($44.9 million) to
be used to repay the Senior Living Trust Fund (SLTF).
The Governor proposes spending $5.754
billion in FY 08, which is $403 million above FY 07 after FY 07 is adjusted for
supplemental appropriations. This is an increase of 7.5 percent. When the
supplemental appropriations for FY 07 are shifted to their proper year, that
would make the increase $440 million, or 8.3 percent over adjusted FY 07. This
does not account for the salary bill, which was not included because
negotiations with the labor unions are ongoing.
However, if the $120 million ending
balance is used for the salary bill, it would increase the FY 08 spending to
$560 million, or 10.5 percent above adjusted FY 07.
This increase is simply not sustainable
in FY 09 and beyond. The Governor even admits that by proposing a 4 percent
allowable growth for FY 09 instead of 6 percent. He does make the claim that
when the $70 million increase for teacher salaries in both FY 08 and FY 09 is
added in, it is the equivalent of 6.5 percent allowable growth.
GOOD NEWS?!
The good news is that the Governor
recommends keeping the reserve funds full at 10 percent. Under his budget
request, after FY 08 the Cash Reserve Fund would be full at $433 million (7.5
percent) and the Economic Emergency Fund would be full at $144 million (2.5
percent).
BAD NEWS?!
On the other hand, the Governor has
decided to use the revenue dedicated for the SLTF for new spending on programs
like his Power Fund. If he had done the right thing and funded the credits and
other programs in FY 08, there would have been enough money left in the ending
balance to completely refill the SLTF to $300 million. Under the Governor’s
budget, the SLTF will be repaid $196.8 million at the end of FY 08, leaving it
$103.2 million short of being fully repaid. However, due to the appropriations
made from the SLTF, it will only have a balance of $92 million at the end of FY
08.
PENNIES FROM HEAVEN?
The $25 million for commercial property
tax relief is only symbolic and will do nothing to lower commercial property
taxes. Whether it is given to property owners in the form of a $250 corporate
income tax credit or put into the school aid formula, the property tax increase
due of 4 percent allowable growth will be greater than the $25 million in
relief.
Culver and Democrats can’t get away with
repeating this myth of the cigarette tax going to health care. By putting the
entire increase in the General Fund instead of putting it in the Senior Living
Trust Fund (SLTF), or anti-smoking programs, Culver has admitted that it
is really about raising revenue for state government. Also, a 10 percent
increase in the budget is simply not sustainable and threatens to ruin all of
the hard work that went into restoring the reserve funds and repaying the SLTF.
BIG EMPLOYERS
TARGETED WITH CULVER TAX INCREASE
Also on Tuesday, Governor Culver
proposed his Fiscal Year 2008 budget with several tax increases.
To continue with the real Democrat
agenda, to make Iowa even more unfriendly to business, Culver is proposing to
raise taxes to the tune of $25 million on businesses.
This tax increase, called
“combined corporate reporting,” is being marketed as “closing a tax
loophole”.
What is combined reporting?
Combined or unitary corporate income tax
reporting requires a corporation with any reporting requirement in Iowa to
combine all its subsidiaries that are deemed unitary and file an Iowa return
based upon an apportioned allocation of tax liability to Iowa.
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Current law
Iowa corporations currently
use separate entity reporting, allowing Iowa franchise or income tax
to apply to each separate corporation doing business in the state.
These separate entities must file separate tax returns reporting net
income. Combined tax reporting requires that two or more related
entities engaged in businesses in and outside of Iowa calculate
their tax burden as a single unit under the apportionment formula.
It is a radical change in
the way corporate income taxes are calculated. This is the third
consecutive year that the Governor has proposed this change and it
is estimated that the Iowa General Fund would see approximately $25
million in new revenue in Fiscal Year 2008.
Why Combined Reporting is
Bad for Iowa:
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Multi-jurisdictional corporate tax managers generally consider
combined reporting a negative factor when evaluating states for
new or expanded industrial plants.
- This tax
increase would further stall economic development in Iowa. Tax
increases slow productivity increases that lead to economic
growth.
- Forty-one
percent of manufacturers nationwide in 1998 reported they would
seek to lower state and local tax burden when expanding or
relocating a facility. (Grant Thornton Survey of American
Manufacturers, 1998).
- Combined
reporting runs counter to the principle of simplicity. The
definition of a unitary business is a subjective determination.
- For small to
medium sized multi-state corporations, a move to combined
reporting creates a costly administrative burden in order to
comply with the complexities of combined reporting.
- Professor
William Raabe, (of Samford University in Birmingham, Alabama),
stated in his 1999 report that “when a fundamental change in the
tax law comes about, businesses and individuals change their
behavior. Other factors remaining unchanged, taxpayers will
move home and jobs, offices and plants, to find the lower tax
liabilities to which they are accustomed. Taxpayers
disadvantaged by a move to combined reporting are likely to move
physical, financial, and human capital out of the state, in
managing their tax costs.”
- States with
combined reporting discovered that business taxpayers reacted
negatively to the highly subjective and arbitrary applications
of the method’s rules by courts and administrators. Since then,
legislatures in most other states have unwound combined
reporting from their statutes. The device remains on the books
largely as an election at the taxpayer’s disposal, not as a
required computation. (Professor William Raabe Report – Samford
University, 1999)
- Where a move
to combined reporting translates into a tax increase for
companies, they will mitigate these circumstances by moving or
passing on the costs to consumers. (Professor William Raabe
Report – Samford University, 1999).
Currently, seventeen states
require combined reporting. Of Iowa’s border states, Illinois,
Minnesota, and Nebraska require combined reporting. This fact puts
Iowa at a competitive advantage over those three states, since we do
not currently require it.
DEMOCRATS BEGIN DISMANTLING ‘RIGHT TO WORK’ IN THE SENATE
On Monday, January 29,
Senator Dearden (D-Des Moines) filed Senate Study Bill (SSB) 1120, a
bill which effectively repeals Iowa’s Right-to-Work law.
SSB 1120 authorizes so-called “fair share agreements” for public
employees. The scope of negotiations for purposes
of a collective bargaining agreement includes
negotiating “fair share agreements” and the
terms for payroll deductions of fair share fees for non-members.
For public employees, the
employer must automatically deduct once each month from the wages of
non-members the amount of the “fair share fee” – the “fair share
fee” cannot exceed the amount of the union dues and charges required
of being a member. However, the fee can be equal to the dues.
Even worse,
SSB 1120 provides that a labor union may enter
into an agreement with an employer that, as a
condition of continued employment, requires
employees whom the union is certified to
represent to become a member of the labor union or to pay a
fair share fee to the extent permitted by the United States
Constitution, the Iowa Constitution, and applicable federal
law.
The Right to Work Principle
The Right to Work principle
affirms the right of every American to work for a living without
being compelled to belong to a union. Compulsory unionism in any
form -- "union”, "closed", or "agency" shop--is a contradiction of
the Right to Work principle and the fundamental human right that the
principle represents.
In 1947, the Taft-Hartley
amendments to the 1935 National Labor Relations Act affirmed states’
right to pass Right-to-Work laws. Right-to-Work laws guarantee that
no person can be compelled, as a condition of employment, to join or
not to join, nor to pay dues to a labor union.
COMMERCIAL PROPERTY TAX TASK FORCE REPORT RELEASED
Last week, the Commercial
Property Tax Task Force finally unveiled their report to Governor
Culver.
The task force report
includes immediate recommendations, as well as a 21st
Century Tax System Task Force.
Immediate Recommendations:
- Commercial
Property Tax Refund Strategy – Provide commercial property tax
relief to the extent possible to commercial property owners by
means of a commercial property tax refund reported on income tax
forms and paid as a property tax refund.
- Education
Funding Strategies – Continue investing resources in accordance
with the 2006 legislation which focuses on equalization of the
disparities among school districts.
- Increase the
state’s share of K-12 education funding from the current 87.5%
to 88.5% in Year 1 and to 89.5% in Year 2, with a goal of the
state paying 95.0% by 2012.
- In conjunction
with increasing the equalization formula described in the
previous recommendation, in Years 1 and 2, increase the uniform
school levy from $5.40 to $6.50 or $7.50, depending on
projections generated by the Iowa Department of Revenue.
21st Century Tax
System Task Force Study Priorities:
- Decouple
agricultural and residential property valuations and limit all
classes of property to 2% increases and decreases annually.
- Create a more
transparent property tax system.
- Improve
efficiencies through sharing of local governmental services.
- Review and
analyze properties exempt from property tax.
The full report is available
on the web at:
http://www.governor.iowa.gov/news/2007/01/attachments/26-cpt-task-force-rpt.pdf
Ways & Means
Update
Bills introduced in committee this week:
HF 130 A bill for an act relating to the increase in the amount of historic
preservation and cultural and entertainment district tax credits authorized
for approval for a fiscal year and including effective and
applicability date provisions.
HF 131 A bill for an act relating to property taxation and local budgets by
imposing requirements on those cities, counties, townships, and other property
tax certifying boards that seek to increase the amount of property taxes
certified for levy, requiring funding of real property-related services,
changing the number of signatures necessary to protest an adopted
county budget, requiring a transitionfor the imposition of city taxes against
annexed property, abolishing county compensation boards, tying together
the assessment limitations of certain classes of property, and
including effective and retroactive and other applicability date provisions.
Bills passed out of committee this week:
No bills passed committee
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Week
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