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STATE AUDITOR VAUDT
PRAISES HOUSE GOP BUDGET
On Monday, February 20, State Auditor
Dave Vaudt presented his review of the House Republican budget targets for FY
2007. Like Americans for Tax Reform, Vaudt praised the budget for spending $200
million less than the Governor spends. He also commended the House GOP for
taking significant steps in the right direction as far as addressing his
concerns about past budgetary practices.
The Auditor’s review was divided into
three categories: comparison of the House Republicans’ and the Governor’s budget
proposals, significant steps in the right direction, and recommendations.
Comparison of House Republicans’
and Governor’s Proposed Budgets
The Auditor said that at first blush
there doesn’t appear to be a lot of difference between the two budget
proposals. However, the Auditor states, “Once shifted expenditures and other
necessary adjustments are factored in, however, the House Republicans’ proposed
spending for FY 2007 totals $5,521.5 million while the Governor’s spending
proposal totals $5,723.8 million—that’s $202.3 million, or 3.5 percent
less than the Governor.” This is due to the Governor taking the
cigarette tax increase off budget and under funding Medicaid by a larger amount
than the House GOP budget blueprint. “That’s why it is so important to make
apples-to-apples comparisons when trying to evaluate proposals and make good
budgeting decisions,” stressed Auditor Vaudt.
Significant Steps in the Right
Direction
“It is refreshing to see a
proposed budget that addresses several significant concerns I have expressed
about Iowa’s finances,” remarked Auditor Vaudt. The House GOP budget for FY
07 takes positive steps by focusing on “true total expenditures”, controlling
the growth of “true total expenditures” to 3.2 percent over FY 2006, reducing
the spending gap by $126.5 million compared to FY 06 and providing for a $50
million balance in the Senior Living Trust Fund at the end of FY 2007.
“Adoption of the House Republicans’ proposed budget would provide a solid
foundation for the progress Iowa needs to make in bringing expenditures in line
with revenues,” added Auditor Vaudt. “That is what I’m looking
for—progress—steps in the right direction.”
Recommendations Noted
The Auditor also had recommendations as
we ahead towards FY 08 and beyond. “While the House Republicans’ budget shows
improvements I have been calling for, I do have some recommendations,” remarked
Auditor Vaudt. Those recommendations include eliminating dependence on the
current year’s projected surplus to balance next year’s budget, funding Medicaid
at levels equal to the best cost estimates available, considering the potential
impact on programs of not funding salary and benefit increases, developing
longer-range plans to address the impacts of built-in expenditure increases and
revenue reductions. “While I am pleased with a number of aspects of
the House GOP FY 07 budget, it’s never too early to start looking ahead to FY
2008 and beyond. This proposed budget makes steps in the right direction, but
there are more to be made. I don’t expect all the necessary steps will be made
in any one year, but we have to maintain the progress that has begun. That is
why we must constantly consider the long-term impacts of the budget decisions we
make today,” stressed Auditor Vaudt.
Conclusion and looking ahead to
the future
Coming on the heels of recognition from
Americans for Tax Reform (ATR), it is good news that the Auditor gave the House
GOP budget high marks. It is not too surprising, especially when compared to
the Governor’s budget proposal, which would lead to a financial disaster if
enacted. But the House GOP deserves credit for creating a budget proposal,
which answers many of the concerns of the Auditor.
As the negotiations begin with the
Senate and Governor, we need to heed the words of Grover Norquist of ATR who
said urged that the Legislature base all future budget negotiations on this
budget. After this review by the Auditor, it is likely he agrees with this
recommendation.
WAY & MEANS PASSES
INTERNAL REVENUE CODE UPDATE
HF 2461 is the annual Internal Revenue Code Update as proposed to the
Legislature by the Iowa Department of Revenue. It includes provisions to put
into Iowa income tax law the federal income tax changes enacted by Congress
2005.
House
File 2461 updates the provisions in the Code for the Research
and Activities Tax Credits, as well as updates the definition of the Internal
Revenue Code for Iowa income tax purposes so that all of the 2005 federal tax
changes, which affect the computation of Iowa net income for individuals,
corporations and financial institutions, are adopted.
In July of 2005, Congress approved the
Energy Tax Incentives Act of 2005. Many of the provisions of the federal Act
provide for additional federal tax credits for energy efficiency and energy
production. Most of these changes, however, will not directly affect the Iowa
income tax.
In September of 2005, Congress approved
the Katrina Emergency Tax Relief Act of 2005. Many of these provisions related
to deductions for individuals and businesses directly affected by Hurricane
Katrina. Although the majority of the Katrina Act will not affect Iowa income
tax, the provisions that remove the limitation on the amount of charitable
contributions deducted from income taxes for 2005 will be allowed for Iowa tax
purposes.
With an amendment that was adopted by
the committee,
House File 2461 also provides for a $2,000 income tax
deduction of $2,000 for individuals who buy clean fuel
motor vehicles if the taxpayers are eligible for the
federal tax credit. Before January 1, 2006, a taxpayer
received a deduction for the purchase of a clean fuel motor
vehicle. After December 31, 2005, the purchase becomes
eligible for a federal tax credit.
HOUSE GOP HEALTH
CARE PLAN MOVES FORWARD
One of the major issues of the
2006 legislative session took a significant step forward Tuesday when the House
Commerce, Regulation and Labor Committee adopted
House File 696 by a unanimous vote. The current version of the bill
contains four major divisions.
The first deals with the ability of
business associations to offer health insurance coverage to their members’
businesses. Currently, most associations are prohibited from offering such
coverage to their members. For most small businesses, this policy forces them
into the small group coverage market, making health insurance very expensive.
Part two of the committee version of
HF 696 provides the Small Employer Health Care Tax Credit. This would give
an employer a credit on the $1,000 they contribute for an employee’s health
insurance or the first $1,000 they contribute to an employee’s health savings
account. The maximum tax credit amount any one employer could receive would be
$25,000. The cost to the state would be phased in over five years with a
maximum cost of $50 million per year by FY 2011. |
The third
division of the bill addresses the issue of wellness incentives. As
mentioned in last week’s newsletter, current Iowa law does not
permit employers or insurers to pass along to individual plan
enrollees any savings associated with certain lifestyle
choices. Division III permits this to take place.
The final part of
HF 696 is the Small Employer Catastrophic Risk Program. This
would provide a state appropriation to fund a reinsurance program
that would cover fifty percent of the cost of claims exceeding
$50,000 in small employer groups. The projected annual cost of this
program would be around $20 million. Projections from the insurance
industry say that implementing such a program would decrease
insurance costs by close to five percent.
House
File 696 now moves to the House Ways and Means Committee for
further consideration.
HOUSE
REPUBLICAN PROPOSE 3% RATE INCREASE for MEDICAID PROVIDERS
On Thursday, House
Republicans announced that they would be providing a three percent
provider rate increase for health professionals and facilities
serving the state’s Medicaid enrollees. Among the groups that will
receive this increase are hospitals, physicians, dentists,
pharmacists, nursing homes, and child welfare providers. This
increase will be on top of the three percent increase provided to
the same providers in the FY 2006 budget.
Over the past several
years, the Legislative and Executive branches have developed a
process, which provides decision makers and the public with more
accurate information on Medicaid spending and the needs of the
program in the future. These monthly forecasting meetings involve
Department of Human Services, the Department of Management, and LSA
Fiscal Services.
On February 10, this group
met and significantly lowered their projections for the current
fiscal year and next year as well. The projected range of need for
the FY 2006 supplemental is now $11 to $30 million, down from a
range of $30 to $45 million. For Fiscal Year 2007, the range of
projected growth is $55 to $95 million, down from $85 to $115
million.
Because of the revised
forecasts, House Republicans made several changes to their initial
budget target for the Health and Human Services Appropriations
subcommittee. The FY 2006 supplemental was lowered from $37.5
million to $20.5 million. Also, the amount of Medicaid funding that
will wait until the 2007 session was cut in half, to $20 million.
These changes present the
state with an opportunity to address the needs of Iowa’s provider
network. Last year was the first year since 2000 that the state had
been able to provide a rate increase to all Medicaid providers.
That increase replaced the three percent cut that was imposed on
them in 2001.
The rate increase will
require an appropriation of $19 million in FY 2007. With the
federal match on Medicaid, this action will provide a total increase
of around $55 million in the next fiscal year. All this would be
done without the need to increase any state taxes.
Raising the reimbursement
rates would be part of a state spending package of nearly $800
million on the Medicaid program. Additionally, the House Republican
plan provides for a significant reduction in reliance on the Senior
Living Trust Fund to supplement the program. For FY 2007, House
Republicans are proposing to use only $40 million for Medicaid,
which is down almost $60 million from the FY 2006 level.
Ways
& Means Update
Bills introduced in committee this week:
HSB 701- A study bill for exempting the services furnished for
the production of master audio, video, film, or digital recordings
or similar media from the sales and use taxes. 2-21-06 Subcommittee
assigned Boal, Davitt, and Tymeson. H.J. 340.
HSB 702- A study bill for authorizing the state medical examiner
to collect and retain fees for medical examiner facility expenses
and services related to tissue recovery and making an
appropriation. 2-21-06 Subcommittee assigned, Upmeyer, Carroll, and
Frevert. H.J. 340.
HSB 703- A study bill relating to a tax amnesty program and
including an effective date provision. 2-21-06 Subcommittee
assigned, J.K. Van Fossen, Kaufmann, and Shomshor. H.J. 340.
HSB 709- A study bill relating to the percentage of assessed
value for property tax purposes at which apartments, mobile home
parks, manufactured home communities, land-leased communities, and
assisted living facilities are taxed and including a retroactive
applicability date provision. 2-21-06 Subcommittee assigned, Huser,
Shomshor, Struyk, and J.K. Van Fossen. H.J. 340.
HSB 727- A study bill relating to taxation by making changes
relating to property tax, income tax, city and county budgets,
creating an implementation task force and providing an
appropriation, and providing effective and applicability dates.
HF 2441- A bill for an act relating to the assessment for
property taxation purposes of machinery, equipment, and fixtures
used at concrete mixing facilities and including effective date and
retroactive applicability date provisions.
HF 2455- A bill for an act allowing cities to create enterprise
zones near modes of transportation. (Formerly
HSB 629)
HF 2460- A bill for an act relating to a targeted jobs
withholding tax credit to be used for funding improvements in
certain urban renewal areas. (Formerly
HSB 530)
Bills passed out of
committee this week:
HSB 593- A study bill for updating the Code references to the
Internal Revenue Code and including retroactive applicability and
effective date provisions. 2-15-06 Subcommittee assigned, Eichhorn,
Quirk, and Tomenga. H.J. 312. (See Cmte. Bill
HF 2461)
HSB 654- A study bill relating to the determination of the
holding period for purposes of certain capital gains under the
individual income tax and including effective and retroactive
applicability date provisions. 2-15-06 Subcommittee assigned,
Eichhorn, Paulsen, and Reasoner. H.J. 313. (See Cmte. Bill
HF 2465)
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