Chronic Budget Crisis Building in Iowa
Iowa Policy Project
DES MOINES, Iowa (Jan.
13, 2005) — Iowa will be hobbled by budget deficits as long as
legislators keep avoiding a long-term solution, researchers said today.
In the
final report in a five-part series, the Iowa Fiscal Partnership (IFP)
examines how Iowa has balanced its budget and suggests changes that
could help the state meet its obligations year to year. Iowa could
modernize its tax system by closing tax loopholes, broadening the sales
tax base and fixing the personal income tax, researchers said.
“Iowa
lawmakers are returning to a chronic budget crisis, but they shouldn't
be surprised,” said Charles Bruner, executive director of the Child
& Family Policy Center and co-author of the report for the IFP. “By
raiding special funds, they have shoved budget responsibilities to the
next year. It gives the illusion of balancing the budget, when in fact
it's building up a structural deficit.
“In short, it's time for a long-range look at Iowa's tax policies.”
Elaine
Ditsler, research associate for the Iowa Policy Project (IPP) and also
an author of the report, said the state's budget practices have hurt
education and human services, at the same time pushing responsibilities
off to local governments.
“These
are really hidden deficits built into the structure of Iowas budget,”
Ditsler said. “Sooner or later, the bills come due. Iowans deserve a
tax system that will adequately fund the Legislature's budget promises,
during good economic times and bad.”
Among findings in the report by Ditsler, Bruner and IPP Research Director Peter Fisher:
—
Faced with general-fund gaps of over $3 billion between 2001 and 2005,
the state cut $1.4 billion in services and made $2 billion in transfers
from other sources. In turn, services funded by the other sources had
to be scaled back.
—
The number of full-time state workers decreased by 1,585 employees
between FY2001 and FY2003 – and additional workers were laid off in
private industry due to the spinoff effects of the state budget crisis.
—
By 2005, cuts to key programs and services had not been fully restored
in education or child and family services. Cuts have caused both
increases in property taxes and an inability to meet service needs. For
example, while child abuse cases grew by 20 percent, the child welfare
budget remained flat; furthermore, over one-third of the state's mental
health institute beds had been closed.
—
The structural deficit will worsen as previously enacted tax cuts
continue to be phased in, and service needs and costs will continue to
rise, and federal budget impacts increasingly put new burdens on state
government.
—
The Senior Living Trust Fund has been particularly hurt by the state's
budget choices. Established in 2001 to provide services to help the
elderly stay in their homes, it has instead been used to pay for
programs previously supported out of the general fund.
“A lack
of revenue is behind Iowa's chronic budget crisis,” Fisher said.
“Iowa's tax structure and rainy day fund have not allowed the state to
keep its promises in an economic downturn. They need to be updated.”
Specific proposals for Iowa included:
—
Adopt “combined reporting” to close loopholes in corporate income
taxes, to assure that firms conducting business in Iowa cannot shift
income on paper to another state just to avoid taxes.
—
Modernize the sales-tax structure to reflect the move from a
goods-based to service-based economy, and encourage adoption of taxes
on internet commerce to allow Iowa-based retailers to remain
competitive.
—
Hold the line on repeal of Iowa's taxes on retirement income, which
would erode Iowa's revenue base with the aging of the population, and
also would make the tax system even less fair to working families than
it is now. Less than one-third of Social Security recipients are taxed
on their benefits, and for those taxpayers, the tax is not a
substantial burden or an encouragement to leave the state, as some
claim.
—
Encourage a more proportional overall state and local tax system by
making the individual income tax more progressive.
—
Regularly review tax expenditures – business tax “incentives” – to
examine their effectiveness and public benefit, and to allow better
public scrutiny of their impact on the budget situation. Their eventual
cost often is far greater than originally estimated.
The Iowa
Fiscal Partnership is a joint initiative of two nonprofit, nonpartisan
policy research organizations, the Iowa Policy Project in Mount Vernon
and the Child & Family Policy Center in Des Moines. Reports from
the IFP are available on the web at www.iowafiscal.org.
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