Branstad’s budget shortfall raises red flags

Iowa’s Revenue Growth Eaten Up By Branstad’s Corporate Property Tax Cuts & Other Handouts


An Iowa Policy Project analysis of the state’s budget outlook finds baseline expenses will exceed revenues, forcing the state to dip into surplus funds even before new spending is debated, which may be unsustainable long-term given the growing cost of corporate property tax cuts phase-in


Iowa’s economic and revenue growth has been stolen by a corporate property tax cut deal and other handouts and giveaways signed into law last year by Governor Terry Branstad, forcing the state to dip into surplus funds to cover expenses, and that’s before badly needed new appropriations in education, environmental protections, and infrastructure are considered, according to a comprehensive new budget analysis by the Iowa Policy Project released on January 13 and interpreted by Iowa Citizens for Community Improvement Action Fund (Iowa CCI Action Fund) members.

The findings raise serious questions about Iowa’s long-term budget outlook, cast doubt on Governor Branstad’s claim to be a responsible manager of state government, and add momentum to demands made by CCI Action Fund members and others that Iowa must raise new revenue from the very wealthy and big corporations in order to fully fund the vital public services that everyday people and hardworking families depend on.

“The state of Iowa simply cannot afford to pay the cost of these corporate property tax cuts over the long-term if we also want to continue to invest in critical public services,” said CCI Action Fund member Ross Grooters from Pleasant Hill.  “We need to raise new revenue by making the very wealthy and big corporations pay their fair share of taxes.”

The Iowa Policy Project, a nonpartisan, independent think-tank, published a two-page budget guide Monday titled Iowa Budget Dilemma 2014.  The Iowa Policy Project budget analysis shows:

$6,983.2 million in net revenue FY15
– $7,072.0 million in net expenses FY15 (not counting potential new appropriations)

($88.8 million) shortfall FY15

$710.9 million FY14 surplus after rainy day funds are full
– $88.8 million shortfall

$622 million FY15 surplus

The corporate property tax cuts signed into law last year will cost the state approximately $135.9 million this year, more than $275 million next year, and will continue to grow beyond $380 million annually, raising serious long-term concerns about Iowa’s budget that the state’s surplus and rainy day fund may be incapable of absorbing over time.

The rhetorically misnamed Taxpayer Trust Fund is another major drain on state revenues, and is capped at $120 million.

“This is very alarming because the state can’t spend surplus funds forever,” Grooters continued.  “At this rate we could be out of money in just a few years.”

The Iowa Policy Project’s new budget estimate does not include the possibility of another tuition freeze at Iowa’s state universities this year, estimated at a $44.2 million increase over baseline appropriations, nor does it include the possibility of increased funding at badly understaffed departments such as the Department of Natural Resources, Workforce Development, and other agencies and departments.

Branstad’s corporate property tax cuts will also cost local and county governments an estimated $741 million over ten years even after the state backfill is fully funded.

Iowa CCI Action Fund members say this view of Iowa’s budget outlook raises serious alarm bells and shows that Governor Branstad has mismanaged the state’s budget in the service of a corporate agenda that is hindering the ability of state government to fully fund vital public services.

CCI Action Fund members warn Governor Branstad and state policymakers that spending cuts to make up any potential shortfalls will not be acceptable and that new revenue must be raised in order to fully fund vital public services.

Branstad has already laid the groundwork to propose $30 million in cuts to county mental health services in the budget he will propose Tuesday during his Condition of the State address, and he may propose other spending cuts.  Branstad’s departments have proposed an overall budget that is actually $27.2 million less than last year’s.  On December 8, Branstad told a group of reporters gathered at an Associated Press media conference that no “major” spending cuts would be needed in order to keep the budget balanced five years out, an apparent admission that some cuts may be necessary if new revenue isn’t raised outside of expected economic growth.

“Governor Branstad is funneling Iowa’s economic growth to out-of-state corporations rather than reinvesting in the public services that benefit everyday people and hardworking families,” Grooters continued.

“This is money generated by the productivity of Iowa workers and the income taxes paid by Iowa families, and it should be used to benefit the common good – to fix our roads, clean up our environment, and improve the public safety – it should not be used to pad the corporate profits of out-of-state companies.”

CCI Action Fund members released in December a “People First Iowa” blueprint for the state that includes tax policies to force factory farms and other out-of-state corporations to begin paying their fair share of taxes – and suggests the new revenue could be used to fully fund public services.  The “People First Iowa” initiative includes:

  • Raising the minimum wage – more personal income means a larger tax base, and more money in workers’ back pockets means more demand, which creates more spending;
  • Combined corporate reporting – to close a loophole in Iowa tax code that allows out-of-state corporations like WalMart and McDonalds to avoid paying income taxes on sales generated in Iowa;
  • Ending the Research and Development Tax Credit, which gives out-of-state corporations like John Deere and Rockwell Collins a tax credit so large that they end up receiving a rebate check from state government rather than actually paying any taxes themselves;
  • Closing three tax loopholes that factory farm polluters get on their manure pits, animal feed, and electricity.  The pollution control tax exemption is a revenue drain on county government that, if ended, could produce new revenue to fix county roads damaged by factory farm trucks, while the state tax credits for animal feed and confinement electricity could be better spent on finding new initiatives to help young farmers, women farmers, and immigrant farmers get affordable access to land and diversified markets.
  • Passing a Corporate Tax Transparency Act that would require publicly traded companies doing business in Iowa to publicly post the state taxes they pay, or don’t pay, so that everyone knows.

“Spending cuts and more tax cuts for the very rich and big corporations are off the table.  We can’t afford that anymore.  We have to raise new revenue so we can expand vital public services,” Grooters concluded.

Iowa CCI Action Fund is a grassroots, statewide people’s action group that believes community and political organizing is the most effective way to build a more just and democratic society that puts communities before corporations and people before profits, politics, and polluters.

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