Capital Update for January 17th 2013

Governor Branstad Releases FY 2014-2015 Budget Recommendations

As part of his Condition of the State address, Governor Branstad released his budget proposal for Fiscal Year 2014 and 2015.  As in the previous two years, the Governor’s budget is built upon his goals to create 200,000 jobs, raise family incomes by 25 percent, make Iowa #1 in education again and reduce the cost of government by 15 percent.

The Governor recommends appropriating $6.5435 billion, or $316.4 million more than was appropriated for FY 2013 which represents an increase of 4.3% over the previous year.  The ongoing revenue for FY 2014 is $6.7236 billion.  Governor Branstad’s budget spends less than the state is projected to take in during FY 2014, aligning with the budgeting principles of House Republicans.  The Governor’s proposed budget spends 97.3% of on-going revenue in the upcoming fiscal year.

The expenditure limitation is $7.3453 billion but that includes the FY 2013 ending balance which is projected to be $822 million.  House Republicans have insisted that the one-time ending balance money should be returned to Iowa taxpayers instead of being spent for on-going programs.

The bulk of the FY 2014 increase goes to the following programs:

Economic Development – $25.7 million                         K-12 Education Reform – $14 million

Board of Regents – $26.9 million                                   Community Colleges – $10 million

College Student Aid Commission – $6.4 million            Medicaid – $109.4 million        

Mental Health Redesign (Medicaid) – $30 million          Dept. of Corrections – $6.4 million

Judicial Branch – $5.7 million*                                      Dept. of Public Safety – $2.95 million

Full Funding for Property Tax Credits – $33.3 million

* The Governor is required by law to pass through the Courts’ budget request

There are a few items that were not addressed in the Governor’s budget for FY 2014.  Among these are a recommendation for allowable growth for schools, funding for state employee salaries, and funds to implement the mental health redesign by equalizing county per capita spending on non-Medicaid mental health services.

For FY 2015, Governor Branstad is recommending a state budget of $6.7456 billion.  This amounts to an increase of $202.2 million over his recommended level for FY 2014, or 3.1 percent.  The Governor’s budget assumes ongoing revenue of $7.0094 billion in FY 2015 or 4 percent growth in General Fund revenue.  The FY 2015 budget proposal would spend 96.2% of on-going revenue that year.

The increases in funding are limited, with the bulk of the new resources go to:

Commercial Property Tax Relief Plan – $74.3 million

K-12 Education Reform (year 2) – $58 million

Medicaid – $34.4 million

Mental Health Redesign (Medicaid) – $11 million

State Child Care Assistance – $4.3 million

Judicial Branch – $5.1 million*

 The Governor is required by law to pass through the Courts’ budget request

House Republicans appreciate that the Governor released his budget this early in session and will be doing a thorough line-by-line review.  As part of this work, House Republicans will continue to identify efficiencies that can make state government leaner.

Allowable Growth

Allowable growth has been making headlines lately as the Governor shared his education proposals for this upcoming session.  The Governor has stated he will withhold setting allowable growth until his education reform proposal is acted upon by the legislature.  The Senate has indicated they will do no work on the reform proposal until allowable growth is set.  It may be up to House Republicans to find common ground.  Here’s a quick refresher on allowable growth and where we stand as 2013 begins.

Allowable growth is the percent growth of the states’ per pupil amount.  For example, 2% means that the FY13 per pupil amount will grow by 2%, setting the new per pupil amount.  That amount, multiplied by the number of students a district has enrolled (allowing for some extra student weighting for various things such as special education) sets how much money the district will be receiving from the state the next year.

Iowa law states that the legislature set and the governor enact allowable growth for the following year 30 days after the governor sets his budget.  Last year the legislature did not come to an agreement on FY14 allowable growth, leaving it to this legislature to set a number.  The House last year proposed changing how allowable growth is set, moving it to a biennial budget framework, setting two years’ worth of growth in the first year of a general assembly.  The Senate last year rebuked the House’s efforts and simply passed a 4% allowable growth increase.  The year ended in a stalemate.

Here are the budget numbers we’ll be looking at with allowable growth for FY14:

A three year history of rates and per pupil amounts

Fiscal Year / Allowable Growth / State cost per pupil
FY11 – 2% = $5883

FY12 – 0% = $5883
FY13 – 2% = $6001

Fiscal Cliff – What It Means To You

 Congress and President Obama reached an agreement to avert the looming fiscal cliff.  Here is an early assessment on how that affects Iowa taxpayers.

Individual Income Tax Rates

  • The wealthiest will see a new permanent top rate of 39.6%; this is up from 35%. The threshold for the top rate will be $450,000 of taxable income for married filing jointly, and $400,000 for single filers.

Investment Income

  • The law permanently raises rates on long-term gains and dividends for top-bracket taxpayers. People who have enough income to pay tax at 39.6% will owe 20% on their net long-term gains. This rate was 15% in 2012.
  • Taxpayers in the 25%, 28%, 33% and 35% income tax brackets will continue to pay the 15% rate. Taxpayers in the 10% and 15% brackets will pay at a 0% rate.

Alternative Minimum Tax – or AMT

  • Congress adjusted the 2012 threshold and permanently indexed it for inflation. No more patches will be needed. Congress originally passed the AMT in 1969. If this fix hadn’t been made the AMT would have applied to 34 million taxpayers in 2012 instead of about 4 million.

Social Security Tax – Payroll Tax

  • Many folks will start to see more taken out of their paychecks. The payroll tax which was temporarily reduced from 6.2% to 4.2% the last two years has now been raised again to 6.2% on earnings up to $113,700.

Estate Tax – Top Rates

  • The estate and gift tax exemption will remain at $5 million per individual, but the current top rate of 35% on amounts above the exemption will increase to 40%. These changes are permanent but will be indexed for inflation, so the exemption amounts will increase.

Medicare Tax

  • There will be an additional .9% tax withheld on wages in excess of $200,000 paid in 2013. The effective rate will increase from 1.45% to 2.35%.

Other items of interest in the bill include permanent extension of the expanded adoption credit, permanent extension of the expanded dependent care credit, a two year extension of the $250 deduction for teachers’ classroom expenses and a five year expansion for the Earned Income Tax Credit for workers making up to $50,000 and a one year extension of the current bonus depreciation rules.

Recap From Week 1

Greeting from the State Capitol! The House has completed its first week of the 85th General Assembly. On our first day, Monday, all Representatives were sworn in and got to pick new seats in the chamber. On Tuesday, Governor Branstad delivered his condition of the State address as well as outlined his budget proposals to the House and the Senate. Iowa Supreme Court Justice Cady also delivered the condition of the Judiciary on Wednesday.

This session I am Chairman of the Environmental Protection Committee, as well as sit on the Agriculture and State Government Committees. As Chair of the Environmental Protection Committee, I’m looking forward to working hard for you and all Iowans to protect our environment and natural resources.

On Thursday, the Jones County 4-H youth group visited and I gave them a tour of the House chamber. If you’re planning on taking a trip to the Capitol building during session, please call or email me. I’d love to meet constituents and show them the beautiful House chamber.

If you have any questions, comments or concerns about these topics or any others please feel free to contact me by e-mail at lee.hein@legis.iowa.gov or by phone at (515) 281-7330.

Sincerely,

Lee Hein

 

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