Diving into the big Iowa Senate GOP tax swap
The exterior of the Iowa State Capitol building is seen in Des Moines on Tuesday, June 8, 2021. (Andy Abeyta/The Gazette)
A massive tax package pushed by Republicans who lead the Iowa Senate is a thick thicket of a bill, weighing nearly 100 pages and containing so many complexities that anyone delving into its provisions can go unheard.
Some provisions of Senate Study Bill 3074 have received more attention than others. The bill’s intent to flatten Iowa’s personal income tax rates, with the goal of eventually eliminating income tax, and reducing corporate income tax dominated media coverage. With reason.
But Iowans are starting to learn more about another major piece of the Senate bill. Call it the great fiscal exchange. Even under the Golden Dome of Wisdom, it’s not fully understood.
Basically, the bill increases the state sales tax by one cent to 7 cents on the dollar. Under a constitutional amendment approved by more than 60 percent of voters in 2010, three-eighths of this new penny would fill the Natural Resources and Outdoor Recreation Trust Fund. This could mean new funds for outdoor recreation and water quality.
The extra penny would provide $235 million for the trust fund, according to the Department of Revenue. Several environmental groups have signed up in favor of the bill. Although we do not yet know how much of this sum will be used for new expenses or simply to replace existing dollars.
But the Senate bill also eliminates the ability of cities and counties to collect voter-approved one-cent local sales taxes. Instead of a local tax, communities would receive money from the state collected through the higher state sales tax.
Communities that already have the tax, such as the cities of Cedar Rapids and Linn County, can continue to spend state dollars on voter-approved purposes, such as street repairs. But eventually, when those referendums expire, all communities will be required to use 50% of the state sales tax dollars they receive to reduce property taxes. Voters will have no say.
Of more than 1,300 tax jurisdictions in Iowa, only 55 do not collect sales tax on local options. The impact of this change is therefore enormous. LOST replacement payments to local governments would total $627 million in fiscal year 2023
Cities and counties are nervous. They saw what happened to the dollars the state promised to pay local governments as a result of property tax cuts passed in 2013. The state stopped the landfill. There’s no guarantee that a future legislature facing a tight budget won’t do the same with sales tax payments. Not to mention what this means for the ability of local governments to issue bonds for infrastructure projects.
The City of Cedar Rapids and Linn County are registered against the bill.
Many of us were waiting for the Natural Resources and Outdoor Recreation Trust Fund to be filled. State parks and conservation programs are woefully underfunded. Iowa’s dirty water is a major problem.
But the Senate bill changes the current formula for how trust fund dollars would be spent in several disappointing ways.
Only 18% of trust fund dollars would go to the Department of Natural Resources for “establishing, restoring, or improving state parks, preserves, forests, wildlife areas, habitats, native grasslands, and wet area”.
Recreation projects will be evaluated, oddly enough, by the Iowa Economic Development Authority, not by recreation professionals within the DNR. They must pursue Iowa’s economic development policy. And in a nod to the Farm Bureau, the bill discourages spending on public land expansion.
Most of the money, 34%, goes to the Iowa Department of Agriculture for soil conservation and protection of nonpoint water sources. And most of those dollars will go to farmers and landowners for water quality improvement projects mandated by the Nutrient Reduction Strategy.
This money will be spent in much the same way as today’s water quality dollars, with payments to anonymous farmers and landowners without requiring anyone to prove that the tens of millions of dollars we spend make cleaner water. There are still no requirements that farmers and landowners adopt minimum practices to keep polluted runoff out of waterways.
So the blank checks to agriculture will continue. There will only be more.
The bill devotes a 15% share to the DNR’s watershed protection programs, but some of that money also goes to the Department of Agriculture. Ten percent will fund the Resource Protection and Enhancement Program, or REAP. 10% goes to restoring lakes and streams and 9% goes into a community conservation partnership program for local projects, matched with local dollars.
There is only a 4% share for water and dirt trails, less than half of what would be spent under the existing trust fund formula.
Then there’s the overall goal of the bill to create a much more regressive tax structure, where wealthy Iowans will get huge tax breaks and low-income Iowans will continue to pay a higher percentage of their income in taxes. national and local. Using a sales tax to provide public funding to some affluent upstream landowners and farmers doesn’t sound much like economic or environmental justice.
One group, the Iowa Environmental Council, remains undecided on the bill. These concerns about economic justice and how trust fund dollars will be spent are among the concerns of the group. But at the same time, the council would like to see the trust fund filled.
“It’s a very difficult place for us,” said Alicia Vasto, the council’s associate water program director.
It is also possible that none of this will happen. The tax plans presented by Gov. Kim Reynolds and House Republicans do not contain similar large tax swaps. This could easily be the first item dropped in negotiations on a final tax bill.
So we may never hear about it again. Given its serious shortcomings, and without changes, it is the right choice.
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