With Iowa Legislature idle, tax swap on hold

With Iowa Legislature idle, tax swap on hold


The Iowa State Capitol in Des Moines.

DES MOINES — Iowa lawmakers’ road to adjournment has rarely looked more uncertain.

Normally, by April, legislators guiding the General Assembly toward its yearly session shutdown have a pretty good sense of what their state budget plan will look like and how they will accomplish most, if not all, of the priorities they set out when they started in January.

But a session that seemed on track less than three weeks ago now looks anything but normal as a global coronavirus pandemic has arrived at the closed Iowa Capitol building — causing lawmakers to suspend their work until at least April 30, prompting Gov. Kim Reynolds and majority Republicans to declare their signature 2020 legislative priority “on hold,” and leaving them to grapple with new budget realities being reshaped by sudden economic turmoil.

“I’m preparing myself for anything,” said Senate President Charles Schneider, R-West Des Moines.

While legislators expect to resume their 2020 deliberations at some future yet-to-be-determined point, Senate Majority Leader Jack Whitver, R-Ankeny, said the uncertain situation unfolding on a daily basis has legislative actions “kind of in a holding phase” as the state focuses on “making sure Iowans are safe and making sure that we limit the spread of the coronavirus as much as possible” as well as getting Iowa’s economy back on track.

Once public health measures have succeeded in “flattening the curve” on the pandemic and the governor and her advisers believe it is safe to open Iowa back up, Whitver expects the Legislature to reconvene to pass a budget and consider a scaled-back number of policy issues in a compressed time frame.

“Everything is on hold right now,” he said. “That’s not to say that we’re not going to do any policy when we get back. We certainly want to get as much policy done as we possibly can.”

Iowa is in line to receive the minimum $1.25 billion funding to state governments included in the $2.2 trillion federal CARES Act rescue package. Legislative and Reynolds’ administration officials are reviewing the 800-page document to determine what their next steps will be.

“We’re in a good place but we’re going to be like other states — we’re going to be impacted and so we’re going to continue to see that,” Reynolds said last week, noting her management team is monitoring state agency budgets, cash flow and state tax collections.

“We’ll continue to keep an eye on that and adjust as we need to,” she said. “We’re very grateful that we are entering into this pandemic with a very fiscally healthy state budget.”

House Democratic Leader Todd Prichard of Charles City said the pandemic has exposed weaknesses in Iowa’s education and health care systems that need immediate and long-term improvements, along with support for workers and small businesses.

“I suspect the budget is going to be tough,” Prichard said. “This virus has compounded those problems and we’re going to have to be creative and we’re going to have to make some hard decisions with limited dollars from the state.”

Schneider noted a Moody’s economist who participated in a webinar for legislators from around the country cautioned that the economic downturn brought on by COVID-19 and other factors could impact state budgets by 15 to 25 percent. Schneider said he wanted Iowa’s Revenue Estimating Conference to reconvene before lawmakers return to gain a better sense of the state budget outlook.

Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee, agreed that legislators need a fresh projection.

“I think it’s all a guessing game on how much the decline in state revenues is going to be,” said Bolkcom, who doubted lawmakers would reconvene before June. “I think it’s going to be jaw-dropping.”

Legislators on both sides of the political aisle conceded they and Reynolds likely will have to start from scratch in revamping the now-defunct nearly $8 billion spending plan they were starting to assemble into a revised rewrite that may or may not rely on one-time CARES fixes.

“Right now with the entire economy shut down almost, it’s hard to write that budget,” Whitver said. “So we just need more time to sort through potential budget decisions before we’re ready to come back as well.”

Lawmakers have passed and the governor has signed a fiscal 2021 bill providing a 2.3 percent increase in state aid for 327 K-12 school districts. Whitver said in an interview last week it is “to be determined” if that $85.6 million commitment will still stand.

“We’ll have to have a discussion with the House and the governor on that. We’ve said from day one we wanted to appropriate an amount that was sustainable, that was something that we know that we can fund when it comes time to write the check,” he said.

“So, as long as we’re confident that we can fund that, we may not have to take any of that back,” Whitver said. “I wish I had better answers for you right now but there are just so many unknowns out there.”

Bolkcom said he hoped lawmakers wouldn’t undo what already was a “very meager increase” for K-12 schools but rather use some of the federal rescue money to sustain or bolster education funding.

Whitver pointed out the state currently is in a surplus position with full 10 percent reserves to absorb some of the hit.

“We were as prepared as we could possibly be for this,” he said. “I just hope that it’s enough.”

The same uncertainty surrounds the governor’s proposed Invest in Iowa Act and possible GOP alternative tax relief plans.

Whitver said tax policy discussions would have to come after a budget blueprint is devised.

“I think it’s fair to say we’re still taking a wait-and-see attitude,” Schneider added.

“There are some policy bills that I think we would be able to finish with very little effort — bills that have already made it through the funnel deadline and might just be waiting for one chamber or the other to just pass and send down to the governor’s desk. There are a few bills like that,” he said.

“I’m sure this COVID shutdown is going to impact this fiscal year’s revenue and it also will have an impact on the next fiscal year revenue and that will help us determine whether or not we’re going to be able to move forward with any kind of a tax relief bill,” Schneider said in an interview last week. “I think we have to be prepared to maybe shelve it, but I don’t think that we necessarily can definitively say that that will be the case right now.”

Prichard said he expected legislators would want to address mental-health commitments and fund water quality elements of the governor’s proposed Invest in Iowa Act, but Bolkcom advised against proceeding with proposals to raise the state sales tax, cut income taxes or revamp the current method of funding mental-health care with property taxes.

“This is no time to raise taxes or cut taxes. I hope this crisis basically puts off any consideration of that. We should come back to her proposal next year when we have a better sense of the state budget,” he said.

Lawmakers made contingency plans before suspending their session on March 17 that included giving Reynolds authority to use nearly $20 million from the state’s Economic Emergency Fund to respond to the COVID-19 outbreak.

Before leaving the Capitol building, the Legislature controlled by Republicans with a 32-18 majority in the Iowa Senate and a 53-47 edge in the Iowa House voted to lift all limits and let the governor shift money around within the current budget, if needed.

As an added precaution, lawmakers voted in a bipartisan manner to set aside enough money to keep state government operating under a “status-quo” until Sept. 1 — which is two months into the new state fiscal year that begins July 1.

Lawmakers also empowered the 20-member Legislative Council to convene in case Reynolds decides more than $20 million is needed.

Leaders are working to schedule a Legislative Council meeting via teleconference this week to formally extend the suspension of session.

“If we’re not back by June 30, we’re not facing a government shutdown like we did in 2011 where we had to get the budget passed,” Whitver said. “We’re fully funded at a status-quo level through July and August so really the drop-dead date is Aug. 31. But I certainly hope that we’re back well before then.”

Minority Democrats said they hoped majority Republicans would focus on setting a very limited agenda whenever the Legislature reconvenes that minimizes the risks to those who would need to gather at the Capitol and not create a protracted situation by debating hot-button issues like abortion and gun rights.

“We should be in Des Moines for hours not days,” said Bolkcom.

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