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Iowa Senate Advances Governor's Tax Proposal; Senator Calls House Plan 'A Lonely Island'

Iowa Capitol in the spring
Michael Leland
A wide-ranging tax plan proposed by Gov. Kim Reynolds and supported by Senate Republicans had its first hearing Monday.

A wide-ranging tax plan proposed by Gov. Kim Reynolds and supported by Senate Republicans had its first hearing Monday, as Iowa lawmakers entered the second week of legislative session overtime.

House Republicans have not agreed to that plan, in large part because of a provision that would shift mental health funding from counties to the state.

Sen. Dan Dawson, R-Council Bluffs, said the “proposed compromise” from Reynolds combines her priorities with those of the House and Senate GOP.

“This bill is the pathway forward,” Dawson said. “There is no other train in this Capitol right now that’s going to leave the station and address all of these priorities.”

Dawson said this plan will provide tax relief, propel the mental health system and move Iowa forward. He called the separate tax bill proposed by House Republicans “a lonely island.”

Changes to the mental health system

Mental health advocates are generally supportive of the proposed changes to mental health system funding, and are very happy about a provision that directs insurance companies to provide equal reimbursement for in-person and virtual behavioral health services.

Leslie Carpenter with Iowa Mental Health Advocacy said she would prefer that the state’s 14 mental health regions be partly funded by local property taxes and partly funded by the state. But she said the bill would strengthen oversight of the regions and make sure they are providing the mental health services mandated by the state.

“That piece of increased oversight is very reassuring to advocates who are looking out for those are the most serious ill, and I believe that would be extremely helpful for the people who tend to have the least access to services,” Carpenter said.

But some mental health system officials, including those who run the state’s mental health regions, say they worry about the state keeping its promise to fund services.

“There is a concern that if it is all state funded, there needs to be a mechanism to guarantee that those funds are available if the state has lean years—which we know happens—that those services and supports are still available for individuals with disabilities,” said Russell Wood, CEO of Central Iowa Community Services.

The Iowa Farm Bureau and groups that advocate for tax cuts support shifting all mental health funding away from property taxes because they say that will provide property tax relief.

Phasing out the backfill

The governor and Senate Republicans also want to phase out payments known as the “backfill” that go to local governments to make up for commercial property tax cuts.

Local governments oppose this part of the bill. Robert Palmer, lobbyist for the Iowa League of Cities, said ending the backfill is ending a property tax relief measure.

“There’s really no other way to describe the transition that occurred back in 2013 of the state paying for a portion of the loss of property taxes in order for property taxes to not increase at the local level,” Palmer said. “So we find that the $52 million being removed from cities is unconnected to other priorities in this bill.”

The Iowa Association of Business and Industry supports ending the backfill.

“We believe this bill lays that out responsibly, phasing it out over time, which is a good thing,” said ABI lobbyist Brad Hartkopf.

Other provisions

The bill would also remove tax cut revenue “triggers,” ensuring more income tax cuts can take effect in 2023. It would phase out the state inheritance tax, and exempt COVID-19 relief grants and loans from state taxes.

It would expand eligibility for the child care tax credit and increase funding for some affordable housing programs, though it wouldn’t do as much in those areas as Reynolds and House Republicans proposed earlier in the session.

Education groups opposing the bill because it would eliminate the option for a voter-approved property tax levy to fund educational, cultural and community programs.

Read the whole bill here.

House committee advances separate tax plan

The House Ways and Means Committee advanced a separate tax plan last Thursday with bipartisan support. It has several provisions in common with the Senate bill, but it does not address mental health funding.

House Speaker Pat Grassley, R-New Hartford, has said that major change needs more consideration.

Rep. Chuck Isenhart, D-Dubuque, said Democrats would support the House GOP tax plan for now because it doesn’t end the backfill and doesn’t shift all mental health funding to the state.

“I agree with Speaker Grassley that we have not considered all the ramifications of what that might be,” Isenhart said.

Last week, Grassley was asked to explain to Iowans why Republican leaders can’t agree with each other.

“I think Iowans—if they thought we just came down here and we were in lockstep on every single issue through every step of the process, I don’t think they would think that’s good government,” Grassley said. “So I don’t look at it in any way to be—you know—it’s just the way this process works.”

Daily stipends lawmakers receive to cover their travel expenses ended Friday, April 30. That was the target date for the end of session, but it is not clear when the legislative session will be over.

Katarina Sostaric is IPR's State Government Reporter