The Iowa House approved a major “deappropriations” bill, House File 45, on January 19 by a party-line vote of 60 to 40. Republican leaders fast-tracked what they call the Taxpayers First Act, which passed the House Appropriations Committee on the third day of the 2011 session. The bill would cut dozens of programs while increasing spending in a few areas. In addition, $327.4 million from this year’s surplus revenue would go into a new “Tax Relief Fund,” instead of being used to help close the projected budget gap for fiscal year 2012. This bill summary (pdf) lists the budget cuts and supplemental appropriations in House File 45. Click here for the full bill text.

Although the majority of speakers at a January 18 public hearing opposed the bill, and organizations lobbying against the bill outnumber those that have signed on in support, the House Republicans passed the bill with few significant changes. Democrats offered many amendments as floor debate went late into the evening on January 19, trying to save funds for the statewide voluntary preschool program, passenger rail, smoking cessation programs, and sustainable communities, among other things. Representatives rejected almost all those amendments on party-line votes. This page shows what amendments were filed, and the House Journal for January 19 contains the roll call votes.

House File 45 now moves to the Iowa Senate, which has a 26-24 Democratic majority. Democratic senators are likely to back increased expenditures for mental health services and indigent defense while opposing many of the spending cuts. After the jump I take a closer look at some of the most controversial provisions in House File 45.

GLOBAL BUDGET ASSUMPTIONS AND PRIORITIES

State revenues have come in ahead of projections in the current fiscal year, which means that Iowa will have a large surplus for fiscal year 2011 and a smaller projected budget gap for fiscal year 2012. Last year, Republicans repeatedly claimed Iowa faced a billion-dollar budget gap for fiscal year 2012. Now the talking point favored by Branstad administration officials and Republican lawmakers is a $700 million budget gap for next year. Even that number greatly overstates the shortfall legislators need to address when drafting the 2012 budget.

The Iowa Fiscal Partnership recently published a short background piece on the state budget, which should be required reading for every legislator. Excerpt, with a few passages bolded for emphasis:

Improved revenues coupled with very significant spending cuts have resulted in a substantial budget surplus for Fiscal Year 2011 and a much improved revenue picture for FY2012. The December Revenue Estimating Conference concluded that the Iowa General Fund budget will have a year-end surplus of $496.5 million on June 30, 2011, and general fund receipts for 2011-12 will be $6,031.3 million.

These figures assumed that temporary federal tax cuts would expire and not be extended, so they significantly understate what Iowa will receive in both individual income and corporate income tax. The overall impact on the REC estimates for the actions taken by Congress to extend the federal tax cuts early had been estimated by the Iowa Department of Revenue to provide an additional $40 million in state general fund receipts for the fiscal year ending June 30, 2011, and an additional $100 million in 2011-12 receipts.

The Legislative Services Agency has used the Revenue Estimating Conference figures to make a projection of what will be required under current law and a “status quo” budget (assuming no changes to current 2011 funding levels except where current statutes require funding changes, as with the school finance law, Medicaid law, and selected other Code provisions). The LSA report projects that $263 million in adjustments are needed to balance the 2011-2 budget.  (See Table 1.)

That shortfall includes the following assumptions:

   * The Revenue Estimating Conference’s December estimates without correcting for the extension of federal tax cuts (which could add about $140 million to the revenue available for 2011-12)

   * An increase of $231 million in school aid funding (representing 0 percent allowable growth and including an estimated $81 million for voluntary preschool in 2011-12, with the preschool estimate subsequently revised down to $69 million to better reflect actual use)

   * Full funding of all property tax credits back to the counties according to current state law (historically, lawmakers have often voted to temporarily set aside these statutory provisions and provided only a portion of these funds; if lawmakers take the same action in 2011-12 as they did last year and only partially fund these credits, this would result in $55.4 million less in state expenditures)

   * A $50 million commitment to the Grow Iowa Values Fund as per current law (again, lawmakers have set aside this provision the last two years and provided an appropriation of $38 million in 2010-11)

   * Adding $103.5 million to the budget to honor the collective bargaining agreement (lawmakers have not always included the costs of the agreement in their budgets, instead requiring agencies to come up with the funding within their appropriations).

Taken together, changing these assumptions to reflect prior legislative actions and new federal law would add $322 million to the plus side of the balance sheet and more than eliminate the $263 million projected by the LSA as a shortfall that needs to be addressed. (See Table 2.) It also would result in a much lesser amount of “one-time funding” (including cash reserves) for the state budget in 2011-12.  While not totally closing the structural deficit Iowa has experienced over the years, it substantially reduces that amount and makes closing it – absent any additional unfunded tax expenditures or spending increases – achievable.

When Republicans talk about a $700 million budget gap for 2012, they are assuming that $327.4 million in this year’s surplus funds will go into that Tax Relief Fund. It’s not clear how the tax relief will be doled out, but corporate tax cuts are at the top of the GOP priority list. Iowans for Tax Relief and the Association for Business and Industry are among the groups lobbying for House File 45, in large part because of these planned tax cuts. Governor Terry Branstad is expected to advocate for corporate tax cuts when he delivers his budget address to lawmakers on January 27.

During House floor debate, Democrats tried and failed “to add provisions to the bill that would specifically direct the tax relief fund to families making under $250,000 a year or to businesses with fewer than 35 employees.”

Democrats in the Iowa Senate may vote to use that surplus funding to help close next year’s budget gap without big cuts in public services. Barring that, they should insist that tax relief goes to lower- and middle-income Iowans and small businesses. Another possible step would be to adopt a state-level version of the federal “pay as you go” rule, which means that “increases in state spending (both appropriations and tax expenditures) beyond 2010-11 funding […] should be paid for by other changes to revenues or expenditures.”

Economists are skeptical that corporate tax cuts will generate substantial economic activity in this state. A better way to level the playing field for Iowa businesses would be to close the loophole that allows out-of-state corporations to avoid paying taxes on revenue generated in Iowa. While that may be a non-starter, Democratic senators including Senate Majority Leader Mike Gronstal have indicated that they will resist corporate tax cuts paid for by slashing spending on preschool and other services.

EDUCATION

Education cuts make up a large share of the $500 million in savings Republicans claim House File 45 would provide over three years. Eliminating the statewide voluntary preschool program for four-year-olds accounts for nearly a third of that total. Many speakers at the January 18 public hearing in the House chamber urged lawmakers not to cut the preschool program, but Republican legislative leaders insist that preschool is too expensive and has no long-term benefits for kids.

House Democrats made preschool the focal point of their opposition to House File 45, and Senate Democrats will do the same. Both Majority Leader Gronstal and Senate President Jack Kibbie mentioned early childhood education as a priority in their remarks on the opening day of the 2011 legislative session.

On January 19 the Iowa Senate Education Committee invited experts to discuss the effects of quality preschool. From the opening statement by Betty Zan, a professor of education at the University of Northern Iowa and director of the Regents Early Childhood Education:

A great deal of research over the last 40 years has shown the long term benefits of preschool education-that’s probably why the business leaders recommended it. There are three studies that stand out as being particularly noteworthy because they use rigorous research designs, and they were conducted longitudinally. These three programs all converge in their findings. What they show is that children who have participated in high-quality preschool programs not only do better in school, but these programs also have long lasting effects.

There is less grade retention, lower rates of placement in special education, higher rates of high school graduation, higher rates of college attendance, lower rates of juvenile delinquency, higher rates-this is amazing-higher rates of home ownership and car ownership, and lower rates of incarceration. So these are some long term benefits that have been found across several studies, not just one study. […]

These three research studies that I’m talking about also conducted cost benefit analysis. I’m not an economist, so I can’t speak to how these cost benefit analysis were conducted, but what they say is the benefit cost ratio is very high. […]

The issue of quality is so critically important, and what you need in a quality preschool program is, you need a highly trained teacher who understands child development and early education. Who provides a research based curriculum and a comprehensive set of experiences and instruction that will support all areas of children’s development, because we’re not just talking about academics we’re also talking about physical development, social development, and emotional development. So a wide range of developmental issues.

The teacher must be highly skilled in assessment, must be able to use reliable and valid measures to as assess a child’s progress and make the changes in the program that are necessary to meet the child’s individual needs. This takes a very highly skilled teacher. This is what we have right now in Iowa with the statewide voluntary preschool program. We have insurances in place that the programs will be high quality.

Republicans have said they support a voucher program to help low-income Iowans pay for preschool. However, House File 45 doesn’t create any such program or indicate how much it would cost. Branstad may offer a proposal in his budget address next week, but Senate Democrats are unlikely to exchange the current program for a vague promise:

Gronstal said he also believes that if a voucher program is implemented for lower-income families, it should be done at the same time as the elimination of preschool funding and not just be something to consider down the road.

“If you’re going to do that, you should do that at the same time,” Gronstal said.

Gronstal told the Des Moines Register on January 20 that Democrats have the votes in the Senate to save the preschool program.

Other education cuts that may meet resistance in the Senate include the $10 million reduction in the Area Education Agencies budgets and significant cuts to library acquisitions and other programs at the three state Regents universities. Iowa State University economist Dave Swenson described the proposed cuts as “bizarre spite.” The freeze on sabbaticals for 18 months is a particularly illogical bit of “micromanagement.” Ending sabbaticals would save less than $165,000 in fiscal year 2012 while costing universities millions of dollars in lost grants.

BUSINESS INCENTIVES AND ENERGY

House File 45 would eliminate the Iowa Power Fund and reduce spending on the Grow Iowa Values Fund. Even Branstad’s appointee to head the Iowa Department of Economic Development, Debi Durham, wasn’t happy about the cuts to the Values Fund. Renewable energy companies (especially in the biofuels sector) have a lot of clout at the state capitol. Even if the name “Power Fund” disappears, I doubt the legislature will end all state support for the kind of projects and companies the Power Fund helped. In their opening statements for the 2011 legislative session, both Gronstal and Kibbie emphasized the need to keep investing in Iowa’s renewable energy industries.

For reasons I don’t understand, House File 45 would eliminate the Save Our Small Business fund, which “provides loans to businesses with 35 or fewer employees to promote the creation and retention of jobs in Iowa’s economy.” Politically and economically, it’s a no-brainer for Senate Democrats to go to the mat to protect that funding.

TRANSPORTATION AND INFRASTRUCTURE

House File 45 seeks to eliminate $30 million in “sustainable communities” funds provided through the I-JOBS bonding initiative. However, it’s not clear how much of that money has already been awarded for infrastructure projects. The legislature can’t revoke funds for which contracts have been signed. Senate Democrats unanimously supported the I-JOBS funding last year, and on January 19, all 40 House Democrats voted for an amendment to save the sustainable communities funding. Chuck Isenhart of Dubuque offered that amendment, which is fitting, since Dubuque is the Iowa leader on sustainable development.

Passenger rail could be another high-profile victim of House File 45. Republicans want to eliminate the appropriation needed to match a federal grant for extending passenger rail from the Quad Cities to Iowa City. I’m not convinced Senate Democrats are prepared to fight to preserve these funds. Senate Transportation Committee Chair Tom Rielly isn’t sold:

State Sen. Tom Rielly, D-Oskaloosa, who is chairman of the Iowa Senate Transportation Committee, said later Tuesday that he has mixed feelings about plans for the Chicago-to-Iowa City passenger train.

If passenger rail is to move forward, this seems to be a perfect opportunity – with federal money available to help establish the trains and with the Iowa Interstate Railroad willing to host passenger service on its tracks, he said.

“However, I can’t lie,” Rielly said. “Sometimes I am skeptical and have reservations about whether the train would be utilized. But with forecasts of $4 or $5 per gallon gasoline in the future for motorists, it makes sense to seriously consider the train project, he said.

Fueling my pessimism, 10 House Democrats joined Republicans to vote against an amendment seeking to strike House File 45’s language defunding passenger rail. The vast majority of Democratic amendments went down on party-line votes, but the roll call shows that these state representatives crossed over to vote with the GOP against rail funding: Minority Leader Kevin McCarthy, Mary Gaskill, Chris Hall, Brian Quirk, Dan Muhlbauer, Roger Thomas, Curt Hanson, Kurt Swaim, John Wittneben, and Andrew Wenthe. The proposed rail line wouldn’t go through any of their districts, although McCarthy should recognize that passenger rail can’t come to Des Moines unless it runs through Iowa City first.

In any event, I suspect saving passenger rail funding will require strong lobbying of legislators by business groups. The Des Moines rumor mill says Governor Terry Branstad is hearing from Chamber of Commerce types and the Greater Des Moines Partnership on this issue. Branstad has said he will review the costs and benefits of expanding rail transportation in Iowa.

UPDATE: Bleeding Heartland user American007 points out in the comments that Democrats Rielly, Swaim, Hanson and Gaskill represent districts through which the Amtrak California Zephyr line runs. If passenger rail were eventually extended through Iowa City and on to Des Moines and Omaha/Council Bluffs, that could displace the passenger rail line through southern Iowa.

SMOKING CESSATION PROGRAMS

Groups registered against House File 45 include the American Lung Association, the American Heart Association, and the American Cancer Society. Many speakers at Wednesday’s Iowa House public hearing decried planned cuts to smoking cessation programs. Attorney General Tom Miller noted that Iowa receives about $60 million per year from the settlement with tobacco companies and only spends about $8 million to help Iowans stop smoking. The Iowa Department of Public Health says about 20 percent of Quitline callers succeed in quitting smoking, which is much better than the success rate for people who try to stop smoking without help.

Since smoking is the number one preventable cause of early death in Iowa and nationwide, Senate Democrats are unlikely to support Republican efforts to eliminate this funding. A possible compromise might preserve the Quitline funding while reducing the advertising and other public relations expenditures for the youth-oriented Just Eliminate Lies program.

To my knowledge, Governor Branstad hasn’t expressed an opinion about what House File 45 would do to smoking cessation efforts. He supports the public smoking ban the Iowa legislature approved in 2008 (over objections from most statehouse Republicans). I don’t know why a past president of a medical school would want to sign a bill that cuts smoking prevention efforts.

FAMILY PLANNING

House File 45 would make several changes to the family planning waiver, subject to approval by the centers for Medicare and Medicaid in the U.S. Department of Health and Human Services (see section 65 in the bill). Pregnancy prevention services for men would no longer be covered, regardless of a man’s income level or insurance status. Only women under 45 who are uninsured and have income up to 133 percent of the federal poverty level would be eligible for state assistance through the family planning network. 133 percent of the poverty level means a woman with a family of four earning $29,300 or less, or a single woman earning $14,400 or less. The current waiver covers women up to age 55, earning up to 300 percent of the poverty level, who are either uninsured or have health insurance that does not include contraception coverage.

This part of House File 45 hasn’t received much media coverage, but reducing access to family planning services will likely produce more unintended pregnancies in Iowa. That in turn will produce either more abortions or more children who would qualify for Medicaid and other state benefits. GOP conservatives who claim to be against abortion and government spending should think about the implications of this policy. The proposed changes to the family planning waiver wouldn’t even save much money: $500,000 this year and $1 million in each of the next two fiscal years.

In the past few years, Senate Democrats have supported family planning funding (even Democrats who oppose abortion rights). I don’t think there are 26 votes in the Senate for this part of House File 45.

PUBLIC LANDS

Environmental organizations and groups representing hunters and fishers are vigorously lobbying against House File 45’s provisions on public lands and the Iowa Resources Enhancement and Protection Fund. Section 23 of the bill would cut the current-year REAP budget from $15 million to $11.9 million and would stop land acquisition by the Department of Natural Resources from now until June 30, 2011. REAP is a popular program, and a constitutional amendment on creating a fund to protect Iowa’s soil and water resources received 63 percent of the vote in November. Not all Senate Democrats are environment-friendly, but the “hook and bullet” crowd has some influence at the capitol. I don’t think these spending cuts will make it through the upper chamber.

Share any thoughts on House File 45 or the state budget generally in this thread.