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State Government News

Reynolds Proposes Tax Plan With State Takeover Of Mental Health Funding; House GOP Has Different Plan

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State Republican leaders released competing tax plans Wednesday as they try to reach an agreement to end the legislative session.

Gov. Kim Reynolds proposed a wide-ranging tax plan Wednesday that would shift mental health funding from counties to the state. But House Republicans released a different tax plan as state GOP leaders are still trying to reach an agreement to end the legislative session.

Reynolds’ bill would ensure more income tax cuts take effect in 2023, by removing “triggers” in the current law that require state revenue to reach certain growth targets for tax cuts to kick in. House Republicans have now agreed to this provision after opposing it for a long time.

The governor’s plan—which has support from Senate Republicans—would also phase out the inheritance tax by 2024, expand eligibility for the child care tax credit, put more money into housing programs, and make many more changes to tax policy.

Reynolds said her bill is a “compromise” that will bring $400 million in tax relief.

“Iowa has never been in a better position to take tax burdens off the backs of Iowans and invest state revenue to sustain critical and important services,” Reynolds said Wednesday at a news conference.

Senate Majority Leader Jack Whitver, R-Ankeny, said Senate Republicans will take action on Reynolds’ proposal in the coming days.

“I appreciate the leadership from Governor Reynolds and her proposal of a thoughtful, pro-growth compromise on Iowa tax policy,” Whitver said.

Reynolds and Senate Republicans want the state to take on the full cost of providing mental health services, which is currently covered by counties. Their bill would phase out state payments to local governments known as the “backfill” to pay for it.

House Speaker Pat Grassley has not agreed to this part of Reynolds’ proposal. He said lawmakers need more time to make sure the shift of mental health funding is done right.

“You have to have a really good plan on the back end and what those guardrails are,” Grassley said. “I think the governor has brought us kind of a good starting point for that but with where we are in session, and as little conversation that happened within the last four months, I’m not convinced that we can get there and do it properly.”

Reynolds said her proposed “guardrails” include distributing state funding to mental health regions as part of a performance-based contract that will allow the state to have more oversight of expenditures and mental health services.

Peggy Huppert, executive director of the National Alliance on Mental Illness Iowa, said she supports the governor’s plan to overhaul mental health funding.

“We think this is a major step toward state investment in the mental health system, something we have long supported,” Huppert said. “We applaud the governor for leading on this important issue.”

She said Reynolds’ proposal has “major changes” from a recent Senate GOP-backed bill, and that those changes should address House concerns.

Lori Elam, CEO of Eastern Iowa Mental Health and Disabilities Region, said she applauds the legislature for trying to find a solution, but she wants funding to be split between the counties and the state.

“I would like them to slow down, have us at the table,” Elam said. “Can we come up with some compromises and solutions that would work for both of us and be a 50-50 partnership in terms of the funding?”

The House is scheduled to have a subcommittee hearing Thursday morning on its tax plan that does not address mental health funding.