As most of you know, in the last few months there was a lot of speculation about whether there would need to be a special session of the Legislature to balance last year’s budget that ended this past June. By law, we are required to make sure the books balance at the end of the year, and the Legislature has given the governor the authority to fill any gap with up to $50 million of money from the state’s economic emergency fund. Our reserve funds currently have over $600 million in them. As the first numbers started coming in, it appeared the gap might be well over what the governor could transfer, which would have triggered a special session. The final accounting showed that the gap was not as great as feared and the governor was able to close the year by transferring $13 million dollars, well within the authority given to her.


Some individuals, who evidently do not understand Iowa’s budget process, have made spurious allegations that the governor somehow “cooked the books.” The first problem with this is that there are a lot of nonpartisan staff at the Capitol that would have to be involved to make that happen. The second problem with this accusation is that the state having more revenue come in late is not unusual. In the past 14 years, there are only three years that it did NOT happen.


Almost the exact same thing occurred this fall in Minnesota. A report from Democratic Governor Mark Dayton’s budget office reported the following:


Net general fund revenues for the fiscal year that ended June 30, 2017, are now $1 million (0.0 percent) less than forecast in February, nearly wiping out the negative $104 million variance we originally reported in the July 2017 Revenue and Economic Update. Higher than expected tax and non-tax payments received and lower than expected refunds paid out between the end of the fiscal year and the official close explain the improved revenue position.


While some try to portray Iowa’s situation as problematic, a review of some other states’ financial conditions and issues shows that our budget problems here in Iowa are actually pretty minor.


Minnesota


While Minnesota’s books are now closed for last year’s budget, they are still battling over the current budget. The Governor vetoed the entire operating budget for the Legislature’s operations, in an effort to force legislators to renegotiate items in the overall state budget that Dayton approved. They are still fighting it out in the State Supreme Court.


Kansas


The Kansas Supreme Court is the main player in that state’s battle over school funding. Since the 1970’s, Kansas’s top court has made itself the arbiter of what is an adequate education in the state. Final education funding will probably be decided by the Court long after the school year has started.


Illinois


Across the Mississippi River, the Land of Lincoln thought it had “solved” its budget woes when a group of Republican legislators agreed to help override Governor Bruce Rauner’s veto, thus ending a two year period of governing without a budget plan. Now Democrat state comptroller Susan Mendoza (the elected official responsible for paying the bills) has announced that her office had over $9 billion of bills that needed to be paid but there are no funds to do so. Mendoza also said that executive departments were withholding other bills, leading her to believe that Illinois may have up to $16 billion in unpaid bills. This would be on top of the pension funding shortfall, estimated to be at least $130 billion.


Connecticut


Connecticut has failed to implement a budget for this fiscal year. Connecticut’s budget quagmire shows no sign of resolution and is further complicated by a wedding. A Democrat senator and Republican representative will be getting married this Saturday, and they are scheduled to depart afterwards on a two-week honeymoon in South Africa. This will be problematic for the Connecticut Senate, which is evenly divided by party; 18-18.


Register’s Property Tax Article Contains Major Errors


An article that appeared The Des Moines Register and other papers last month centered on the assertion that the property tax relief passed a few years ago, did not save commercial property taxpayers as much as the Legislative Services Agency (LSA) predicted it would. Those articles also stated that local governments lost more in property tax revenue than LSA said they would. It is important to note that the articles seem to be based on the fiscal note for Senate File 295 and on a January 2017 Issue Review (both authored by the same LSA fiscal staff person). It is also important to note that the author of those documents was not contacted to explain, verify, or provide context for those documents in the articles in question.


Could both of those assertions be true? Could the bill not save as much money for commercial taxpayers as predicted, and at the same time cost local governments more than projected? Seems like rational minds would conclude those two premises cannot be true at the same time, so let’s examine them separately.


Did commercial property taxpayers see the savings the bill projected?


Yes. The articles make a significant error of understanding, when they say that the bill was predicted to save commercial property taxpayers $218 million in FY 17 and that it only saved $125 million. The only way that is true is if you ignore half the bill. The author of the article did not include the commercial property tax credit totaling $123.9 million in FY 17. Since that would seem to save commercial taxpayers quite a lot of money—it should have been included in the “savings” calculation. The legislation did in fact save commercial property tax payers what was projected.


Was the impact on local governments more than the bill predicted?


No. The articles erroneously concluded that the revenue loss to local governments was well above the projection. To reach that conclusion they compared the Fiscal Note’s estimate of the revenue loss to the Issue Review’s calculation of the maximum revenue loss that could have occurred (from the Issue Review, the maximum was $107.2 million). Those two are not the same thing.


The Issue Review (had it been properly understood) clearly states that the loss described is the maximum. The loss minimum is actually $0. What local governments actually lost is somewhere in-between, and likely very close to the loss projected in the fiscal note ($25.9 million from table 4 of the fiscal note). The Fiscal Note estimate assumes local governments set higher rates than they otherwise would have in response to having less taxable value than they otherwise would have. The Issue Review assumed nobody raised rates (which we know is not true). The Issue Review and Fiscal Note had a different methodology on this issue and clearly stated that.


The articles would have undoubtedly been compelled to explain all of this had they actually contacted the author of these documents or made the effort to understand the legislation. Property tax rates go up and down as cities see fit. There is no “legislated” rate increase. Some articles would seem to imply that the legislature has the authority to raise rates. That is just not true. It is the cities that have the ability to raise rates on several types of levies they have control over. To imply that the Legislature controls that is just erroneous.


Fake news?


If you have any questions or concerns, please contact me.


Home phone: 515-382-2352


E-mail: Dave.Deyoe@legis.iowa.gov