DES MOINES — State legislators gave a cautious nod Tuesday to Gov. Kim Reynolds’s plan to push the state’s general fund spending above the $8 billion mark for the first time in the 2021 fiscal year that begins July 1.
“I didn’t have that penciled in when I was thinking of a number to come up, with so we’ll see,” said Sen. Michael Breitbach, R-Strawberry Point, chairman of the Senate Appropriations Committee, shortly after Reynolds unveiled her fiscal 2021 budget plan for $8.093 billion.
The Republican governor’s new budget calls for a 4.4 percent boost, or nearly $343 million more, than the $7.75 billion that will be spent this year.
That increase presumes the GOP-run Legislature goes along with her request to still this year pass a $111 million supplemental measure for unpaid Medicaid costs and provide $20 million in disaster aid to flood-stricken regions of Iowa.
Reynolds’ spending plan would provide a 2.5 percent boost in state aid to K-12 schools — a $100 million increase. The School Administrators of Iowa — which represents 2,000 administrators across the state — is seeking a 3.75 percent increase.
It would increase next year’s funding for Medicaid by $167 million and boost workforce and rural development initiatives, child care and other priority areas.
Still, it would leave a projected $386.5 million surplus by June 30, 2021, according to staff briefing documents.
Iowa’s three public universities would see a total boost of about $15 million in general education dollars, and a $5.2 million general aid increase would go to Iowa’s 15 community colleges.
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“I’m just anxious to see how she’s going to balance this budget because the spending that she’s doing and then the tax cuts that she’s proposing — they just don’t fit, that is not possible to do both like that and expect there to be money to fund all of those projects,” said Rep. Mary Mascher, D-Iowa City, a member of the House Appropriations Committee.
Included in the governor’s legislative package, however, is a proposal to boost the state’s sales tax by 1 cent effective Jan. 1, 2021, and to use some of the proceeds to further drive down state income tax rates by $170 million and take over a share of county mental health costs now paid through local property tax levies.
The tax swaps would have a net impact of reducing the state’s overall general fund revenue by $7.3 million in the second half of fiscal 2021.
Also, three-eighths of the money generated by the proposed sales tax increase would go into the Iowa Water and Land Legacy trust fund as prescribed by a 2010 state constitutional amendment approved by voters. But the governor proposes changing the distribution formula so more of the money goes to water quality, conservation and natural resources and less to trails and recreational amenities.
Initially, about $37.5 million of the sales tax increase would flow into the IWILL trust fund in fiscal 2021, and an expected $81.2 million would be generated in fiscal 2022. Overall, state officials project that increasing the state sales tax from 5 percent to 6 percent annually (along with existing 1 percent for local option and 1 percent for school infrastructure) would generate about $540 million.
According to the governor’s office, Reynolds’ proposed tax policy changes would build on income tax cuts passed in 2018 by accelerating the reduction in rates.
In fiscal 2023, under her plan, the highest of four tax brackets would be 5.5 percent and the lowest would be 4.0 percent — compared with 6.5 percent and 4.4 percent, respectively, under current law.
On the property tax side, the governor proposed to have the state take over about $80 million in mental health costs currently funded by a levy capped at $47.28 per region. Iowa’s 99 counties are grouped into 15 mental health regions and each county levies a property tax to support its region.
The new cost-share ratio of 70 percent state money and 30 percent county funding would be based on a lower levy of $12.50 and still generate enough money to cover the expected yearly cost of $130 million for adult and children’s mental health commitments.
“The governor proposes what that budget looks like. The House and the Senate will determine whether they can meet those goals and whether their visions align with hers,” said Breitbach. “We’ll see how that works out.”
The governor’s budget plan also seeks to fund increases of $15 million for rural broadband connectivity, about $4 million more for Future Ready Iowa initiatives and make changes to Iowa’s child care rules that will carry a $600,000 cost in the first fiscal year.
The state is projected in end the current fiscal year on June 30 with a $465 million surplus. But the governor’s staff indicated that about $111 million in supplemental funds —- $98 million for Medicaid and $20 million for additional flood relief — will push the general fund budget to nearly $7.75 billion.