DES MOINES — The 2018 legislative session is headed for overtime.
Republicans who control both chambers of the 87th General Assembly and GOP Gov. Kim Reynolds will need more than the 100 scheduled days to get their work done. The two biggest hurdles to adjournment — state income tax cuts and a fiscal 2019 state budget.
GOP leaders last week moved closer to resolving differences between the House and Senate over the size and scope of the tax cuts. They are starting to move their competing plans through committees with the goal of reaching a compromise in negotiations.
Legislators’ daily expense money runs out after Tuesday.
“We’re still having conversations with the House and the governor to hopefully come to agreement on that tax plan. Once that’s done, then we can start working on the budgets and hopefully wrap up,” said Senate Majority Leader Jack Whitver, R-Ankeny.
On the House side, Speaker Linda Upmeyer, R-Clear Lake, said Republicans are looking at a plan that would provide relief to taxpayers but within a “responsible, stable” approach that maintains obligations to education, Medicaid and other priorities.
The House plan would cut state income taxes by $1.3 billion over five years. It does not eliminate federal deductibility or change corporate tax rates. It would cut individual taxes by $140 million in 2019 and $300 million in 2020.
“The projections show that returning these dollars still allow us the room to fulfill the obligations and responsibilities and expectations of Iowans,” said Upmeyer. The projected impact on the general fund would be $99 million in fiscal 2019 and $197 million in fiscal 2020.
Plans offered by Senate Republicans and the governor do seek to eliminate federal deductibility, and the Senate envisions cutting corporate tax rates after 2021.
Reynolds’ package sought to cut individual income tax rates by 23 percent, resulting in $1.7 billion in accumulated relief by 2023. The governor also recommended triggers that would slow implementation based upon economic conditions.
Senate Republicans start with an 8 percent across-the-board cut in personal income taxes in tax year 2019 that grows to nearly $2 billion in five years if certain bench marks are met. It also includes triggers and a plan to eliminate federal deductibility, cut rates more, compress brackets, reduce the corporate tax rate and make other changes.
Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee, said the “bold but prudent” changes cut income taxes $733 million less in state income taxes in the first two years of implementation.
After that, if revenue grows more than 3.6 percent a year, the excess would flow into a trust account until it hits $200 million. At that time, the money would be used to buy down rates, eliminate federal deductibility and begin lowering corporate income taxes in 2021.
“I think there is a lot of common ground. I think the House and the governor’s office, we all believe that we have to do something significant with tax reform so now it’s just a matter of the minutiae of how we get there,” Feenstra said.
When fully implemented, the Senate plan would reduce Iowa’s top personal income tax rate from 8.9 percent to just under 6 percent, compress nine tax brackets into four and lower the corporate rate from 12 percent to about 7 percent, he said.
At the same time, GOP senators still expect to provide about $200 million in new spending next fiscal year and $235 million for fiscal 2020, after closing with a cushion of about $136 million on June 30, 2019.
Rep. Guy Vander Linden, R-Oskaloosa, chairman of the House Ways and Means Committee, said he likes the cautious course House Republicans have chosen.
“In my aviation background, we used to say that there are old pilots and bold pilots, but no old, bold pilots,” said Vander Linden, a former Marine officer and helicopter pilot. “And I think that may apply to tax relief as well.”
Democrats question whether the state can afford tax cuts at a time they say the budget is in crisis due to Republican mismanagement.
This is the second year in a row of midyear budget cuts as tax collections lag expectations. Democrats doubt already strained programs can be maintained while significantly reducing revenues.
Rep. Dave Jacoby, a Coralville Democrat and ranking member on the House Ways and Means Committee, said Democrats are interested in smart tax policy, too, but the “math just doesn’t add up.”
Jacoby said his household might receive a tax break of a couple hundred dollars under a GOP tax cut. But he asked reporters, “What the heck good is that going to do when the tuition for both of my daughters is going up $800 a kid? That doesn’t help if we’re not funding education. Again, it’s a budget mess.”
After seeing state funds cut again this year, the Board of Regents last week began discussions aimed at raising tuition at the three state universities.
Proposed base tuition increases for resident undergraduates at the University of Iowa and Iowa State are 3.8 percent, while University of Northern Iowa is asking for a 2.8 percent increase. With rising mandatory fees, room and board and other costs, the average estimated cost for a resident undergrad next academic year is about $21,369 — or $533 more than this year.
“The proposed tax cuts in this difficult agricultural time is more like a ruse to somehow make the election candidates look good,” said Regent Larry McKibben, a Marshalltown Republican who previously served in the Iowa Senate.
GOP leaders say they want to make sure federal tax cuts estimated to be at least $1.8 billion make their way into Iowans’ pockets rather than create a windfall for the state.
So far, the only fiscal 2019 budget work lawmakers have done was passing a 1 percent increase, or $32 million, in state aid for K-12 public schools. That was less than the 1.5 percent the governor wanted.
Reynolds proposed a $7.447 billion general fund spending plan, a 2.7 percent increase. Last month, legislators erased a projected general-fund shortfall for the current year by cutting $25 million for state agencies and repurposing $10 million in uncommitted revenues.
That leaves a projected ending balance of $31.9 million June 30.
Iowa law limits spending to 99 percent of the budget, but GOP leaders say they expect to spend less when they release fiscal 2019 targets.
Also unresolved as legislators march toward adjournment are the issues of traffic-enforcement cameras, toughening abortion restrictions, funding private school vouchers, revamping energy efficiency and utilities regulations, the opioid epidemic, the fledgling medical cannabis program and legalizing sports betting.