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New IA tax-relief fund will receive $60 million; questions surround use of fund

By Lynn Campbell
IowaPolitics.com

DES MOINES, IA. -- Uncertainty surrounding a newly created $60 million tax-relief fund and few safeguards on how the state taxpayer dollars will be used opens up the potential for misuse, state lawmakers say.

House Ways and Means Chairman Tom Sands, R-Wapello, told IowaPolitics.com on Friday that among 100 Iowa House members, 50 Iowa Senate members and the governor, there are probably 151 different ideas on how to use the $60 million that will go into the Taxpayers Trust Fund this year.

"Whenever you try to put something in any type of 'lockbox,' you have to remember, there's 151 keys," Sands said. "So there's always potential for abuse, but that certainly isn't our intent for this. And I think by labeling it 'Taxpayers Trust Fund,' that is it to be used for the taxpayer, not be spent on their behalf, but returned to them in one way or the other."

Money will be deposited in the new Taxpayers Trust Fund for the first time this fall, after the books close on fiscal 2012, which ends June 30. The fund, created last year by lawmakers, captures money from unexpected revenue growth after the state's cash reserves and economic emergency funds, also known as "rainy-day funds," are full.

Previous estimates showed the tax-relief fund would receive $46.2 million this year.

But the three-member Revenue Estimating Conference, which makes the state's official revenue estimates, on Friday increased state revenue projections by $50.9 million in fiscal 2012 and $29 million in fiscal 2013. The uptick came because of a strengthening economy that has translated into more money for the state, from sources including the personal income tax, sales tax and corporate income tax.

That means the Taxpayers Trust Fund will get the full $60 million allowed under state law. State government also will have an extra $37.1 million to roll into next year's budget. The state has a budget of about $6 billion and does not have a deficit. The excess money traditionally would have been considered a surplus at the end of the fiscal year, and would have been available for spending the next year.

"By law, the increase in revenue projected today will not be used to increase spending," House Appropriations Chairman Scott Raecker, R-Urbandale, said Friday. "In fact, this projected increase should be returned to the taxpayers of Iowa in the form of tax relief."

But no one yet knows how the money will be used.

So far, no one at the Capitol is talking about cutting a check to Iowa taxpayers, as the federal government has done. Talk instead has included using the money for everything from income-tax relief, to commercial property-tax relief, to an increase in the Earned Income Tax Credit, to education or mental-health reform.

"Whatever that money ends up getting used for, it has to be for the taxpayers. Period," Sands said. "My No. 1 priority is it's got to go back to the taxpayers of Iowa, because it's their overpayment that put the excess money in."

Some Capitol analysts interpret the law as meaning that the tax-relief fund cannot be spent on education. But the 2011 state law provides few safeguards on how "tax relief" should be defined. Iowa Code Section 8.57E only says, "Moneys in the taxpayers trust fund shall only be used pursuant to appropriations made by the general assembly for tax relief."

Dave Roederer, director of the Iowa Department of Management, said the purpose of the fund is loosely defined. For example, funding for education is a combination of state taxpayer dollars and local property-tax dollars. The more the state chips in, the less property owners have to pay.

The same is true for services to Iowans who are mentally ill or developmentally disabled. If the state pays a greater share $1.3 billion mental health system, that could translate into $125.8 million in property-tax relief for county taxpayers.

"It's never really been defined, I guess, all that clearly as to how that would all work through," Roederer said. "Tax relief is school aid. I mean, that's the biggest tax-relief thing. So that's tax relief."

Asked whether the loose definition of the fund sets it up for potential misuse, Roederer said: "It's not going to be that big of an issue. It's such a small part of the overall budget."

The $60 million that will flow into the Taxpayers Trust Fund represents about 1 percent of the state's $6 billion budget.

Senate Ways and Means Chairman Joe Bolkcom, D-Iowa City, on Friday told IowaPolitics.com that the money should be used to increase the Earned Income Tax Credit, a state income tax break for working families earning $45,000 a year or less.

"All the special interest groups have lobbyists. There's a long line of them waiting for their tax cuts," Bolkcom said. "The people that are going to get the Earned Income Tax cut, they don't have a lobbyist. They're out working two or three jobs to put food on the table. If we're going to use this Taxpayers Trust Fund to give tax relief, it ought to start with the people working the hardest to make ends meet."

Gov. Terry Branstad twice vetoed bills last year that would have increased the Earned Income Tax Credit from 7 percent of the federal credit, to 10 percent.

In February, the Iowa Senate unanimously approved Senate File 2161, which would increase the tax credit incrementally to 20 percent by 2014. The proposal would cost $54 million when fully implemented. Bolkcom has said increasing the tax credit will help more than 250,000 working adults and their 266,000 children.

State law does not require that the money in the tax-relief fund be used right away. That means that if there is no agreement among the Iowa House, Senate and governor on the use of the money, it will remain in the trust fund until there is agreement.

But Republicans point out that if the fund had not been created last year, the money would have rolled into next year's budget and could have been used for spending, rather than tax relief.

"There isn't really a danger leaving it there because as long as it's for the taxpayers, it could accumulate to something bigger next year, as well," Sands said.

If revenue growth continues to be strong, the fund could be filled with another $60 million next year, after the books close on fiscal 2013. But there's no guarantee that will happen. That leads some taxpayer advocates to be concerned.

"We would hate to see that money get used for an ongoing program," said Nicole Crain, president of the Iowa Taxpayers Association, a business-sponsored tax policy organization. "There is no guarantee the fund will be replenished in future years, leaving taxpayers to pick up the increased cost of any new program."

Read more about the Taxpayers Trust Fund:
http://tinyurl.com/7mk37ql

Listen to interview with Sands:
http://www.iowapolitics.com/1009/120323Tom_Sands.mp3

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