Iowa lawmakers have reached an agreement on a comprehensive plan to move funding for mental health services from county property taxes to state while lowering income taxes, ending Iowa estate taxes, and a number of Increase tax credits for affordable housing and childcare.
The Iowa Senate passed the bill Monday by 29-15 votes, with every Republican and Sens. Kevin Kinney, D-Oxford, and Tony Bisignano, D-Des Moines, voting yes and every other Democrat voting no. The measure now goes to the House, which is expected to adopt it and send it to Governor Kim Reynolds’ desk.
House and Senate Republican lawmakers have been working with Reynolds for weeks to reach an agreement on a tax cut package. Negotiations have resulted in legislators continuing to work after April 30 – the targeted end date for the legislative term – and the deal removes one of the main obstacles preventing the session from ending.
“We have reached an agreement with the governor’s house and office, and the agreement is great and brave,” said Senator Dan Dawson, R-Council Bluffs, the bill’s floor manager. “In implementing this law, we’re delivering over $ 1 billion in tax cuts to Iowans by accelerating income tax cuts and relieving the vast majority of hardworking Iowans from raising property taxes.”
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Democrats said there was no guarantee that the state would fund psychiatric services at reasonable rates in the future and that it was breaking a 2013 pledge by lawmakers by ending the state’s payments to local governments at earlier times To offset real estate tax cuts.
Mental health funding is being shifted from county property taxes to the state
One of the primary reasons for the House Republicans during the negotiations was to take over the state’s mental health funding, which is currently funded from the county property taxes and administered by 14 regional authorities. House spokesman Pat Grassley, R-New Hartford, has called for additional “guard rails” to give the state more leverage over the use of the funds.
The bill, Senate File 619, solves this problem by introducing a language in which the 14 regions are required to enter into performance-based contracts with the state in which they are required to provide core psychosocial benefits, use all available federal funds, and to allow the state to approve, reject, or revise each region’s budget plan. Regions would also need to set mental health improvement targets and their performance would be reviewed annually.
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Grassley praised the bill in a statement Monday night, praising the House Republicans’ budgeting practices to put Iowa in a strong budgetary position.
“Our responsible use of the state budget is part of why Iowans voted us into a 59-seat majority, and we kept that promise as we worked on this legislation,” he said. “I’m proud of the role the Republicans of the House have played in making this bill the best possible outcome for Iowans.”
The bill would expire mental health counties’ property tax levies over a period of two years and create a state treasurer-managed fund to pay the 14 mental health regions.
The bill also creates an “incentive fund” that allows mental health regions to apply for additional funding if they can demonstrate that they have achieved the goals set out in their contracts with the state.
Democrats oppose ending land tax replenishment
Democrats argued that the bill will effectively increase some property taxes by gradually phasing out the “replenishment payments” the state makes each year to local governments to offset the sweeping commercial property tax cuts passed in 2013. Without these payments, cities and counties would have to raise property taxes or lower services.
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“If you vote no to my Republican colleagues, you are voting in favor of raising property taxes in our state. It’s that simple,” said Zach Wahls, chairman of the Senate Minority in D-Coralville, just before Republicans rejected the amendment.
Democrats argued that by eliminating replenishment payments, Republicans are breaking a promise made by lawmakers in 2013 that they would reimburse local governments for the lost revenue.
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Dawson said the refill payments should never be permanent and that the cost to cities and counties will be more than offset by the influx of federal incentive dollars local governments are supposed to receive through the US bailout plan.
“I’ve heard a lot about broken promises,” said Dawson. “Today we keep a promise, and that is a promise to Iowa taxpayers, that we will cut taxes so they no longer have to pay some of the highest tax rates in the country.”
Senator Zach Whiting, R-Spirit Lake, said the current legislature is not bound by promises or guidelines put in place by previous lawmakers. He said he had promised to let the refill payments run out during his own campaign.
“Previous legislatures cannot hold us responsible for promises they made back then. We can change anything we want,” Whiting said.
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Senator Pam Jochum, D-Dubuque, said Whiting helped establish why she had “deep reservations” about changing the mental health funding system.
“He said no lawmaker is bound by any person’s actions today or in the past,” she said. “He’s exactly right. There are no guarantees – none – that this state will keep its promise to adequately fund mental health and disability services.”
Income tax cuts, childcare, affordable housing
Income tax exemption from COVID-19-related grants, increased funding for affordable housing, childcare tax credits, and income tax cuts are among the other provisions included in the bill.
Democrats backed many of these pieces as standalone bills this year, despite largely voting against the final tax package.
The measure would accelerate a series of income tax cuts and come into effect from 2023. To that end, it would remove two “triggers” that require the state to meet certain sales growth targets before the cuts could materialize.
The tax cuts are part of a 2018 law that was supposed to come into force over several years. Republicans argue that the state’s revenue growth is strong and removing the triggers will give certainty about when the tax cuts will take place.
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The measure would also allow the state’s inheritance tax to expire by 2025, a compromise between the three-year exit originally proposed by the Senate and the ten-year exit proposed by parliament.
The final proposal also includes some elements from the original House and Senate bills, including:
- Exemption from COVID-19 related grants from income tax.
- Doubling the limit on childcare tax credits.
- Create parity in the reimbursement rate for telehealth and personal appointments for mental health services.
- Increased funding for several affordable housing programs.
The Senate also passed a separate law on Monday to address the “cliff effect” of childcare by phasing out those benefits for those with higher incomes rather than cutting benefits at a certain income level all at once. The House passed the bill earlier this year, so it will be forwarded to Governor Kim Reynolds on Monday.
Stephen Gruber-Miller covers the Iowa Statehouse and registry policy. He can be reached by email at sgrubermil@registermedia.com or by phone at 515-284-8169. Follow him on Twitter at @sgrubermiller.