Borg: Ship of state in troubled waters. Iowa legislators convening next January facing a sea of red ink. We're questioning the Iowa Senate Democratic Majority Leader Mike Gronstal on this edition of Iowa Press.
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On statewide Iowa Public Television this is the Friday, October 2 edition of Iowa Press. Here is Dean Borg.
Borg: Iowa's legislature isn't currently in session and it's a safe bet that many aren't looking forward to convening January 11th. Consider these challenges -- unemployment at a 23 year high in Iowa, people out of work aren't paying the usual income and sales taxes so state tax revenues are way under what legislators budgeted for state services, the state tax credits for luring film and video producers costing far more than legislators anticipated now under investigation and all that with a democratic governor and legislative majority up for renewal in the November 2010 election. Those are some of the challenges, some may say headaches, facing the Iowa Senate Democratic Majority Leader Mike Gronstal of Council Bluffs. Welcome back to Iowa Press.
Gronstal: Thanks for having me.
Borg: Across the table two statehouse reporters Associated Press Senior Political Writer Mike Glover and Radio Iowa News Director Kay Henderson.
Glover: Senator Gronstal, Dean mentioned in his open the controversy over tax credits to the film industry. Step back away from who did what, when and how and all that kind of stuff and look at the big picture. Was that a good idea to give the film industry big tax credits to lure an industry to Iowa?
Gronstal: I think it remains to be seen. I think we're going to get this investigation from the Attorney General and from the state auditor, I think we're going to do a good evaluation of the program and if we can't show a real benefit to the state of Iowa, not just a few part-time jobs, but a real long-term benefit to the state of Iowa I think it's 50/50 as to whether this program continues.
Glover: Is it your sense right now regardless of the details in question as to whether that was a good idea?
Gronstal: Yes, I think that is very much an open question. I think the legislature is going to take a very hard look at this next session, decide whether this makes sense for our state.
Glover: Look beyond the film industry, one of the major economic development incentives this legislature has chosen to use are tax credits to various industries. Is that a good idea for other industries?
Gronstal: If you can show that a tax credit creates a climate, for instance, research activities credit, if you can show that that keeps an industry here in the state of Iowa and builds long-term jobs and high wage, high skilled jobs in the state where there is a net benefit to the state treasury by having that set of jobs come along with it yes, that makes sense. If you can't show that and that's why some effort to evaluate whether these programs do create long-term benefits.
Glover: To be clear, you have questions in your mind as to whether this film tax credit ...
Gronstal: I think it's 50/50 whether this survives because people are going to take a very hard look at this and right now the hundreds of millions in potential credits I think you can see very little in terms of potential benefits. So, people are going to have to justify this.
Henderson: The governor said Iowans won't be taken for suckers. Hasn't the state of Iowa been taken for a sucker?
Gronstal: I would say the legislature was surprised -- we understood we had caps on tax credits in the state of Iowa that went into effect July 1 and I think we were surprised that those caps were avoided by doing a whole bunch of activity before July 1. So, I think there are some real reservations about what happened there.
Henderson: What sort of damage has been done to the state's reputation beyond just the film community in terms of economic development in general?
Gronstal: Again, I think it's a question of needing to make sure we have some real transparency in this equation. I think there are probably tax credits out there that do work to the benefit of the state of Iowa. So, I think if you've got a company like Rockwell Collins or you've got companies like Pioneer Hi-Bred that use the research activities credit to create long-term, high wage, high skill jobs in this state I think you can show those have a benefit but I think more and more you're going to see legislators ask for transparency and justification that this isn't just simply a big drain on the state treasury.
Henderson: You told Mike it's 50/50 if the film office tax credit continues. Do you regret your yes vote in regards to this program?
Gronstal: I've got to wait until I see what the reports are. I may regret having created this. But like I said, that's why I said it's 50/50. I think it's very much in question as to whether this made sense.
Borg: You've already said and we have said many times here 50/50 chance as to whether or not it continues. That means it is inevitable that the legislature is going to take up this matter. But are you saying in taking it up that it's only going to concentrate on the film tax credits or the entire concept of tax credits for stimulating business and industry?
Gronstal: I think what you're going to see the legislature say is on all of these things we want to see some transparency, we want to see what happens and we want to see what kinds of jobs it creates. If it's just going to create a few five or six week long jobs and doesn't really create any long-term growth in our state that's not a very good deal for the state especially if it is costing us scores of millions of dollars.
Borg: What is the message then that those who are currently in tax credit under the current legislation or those who are anticipating -- what is the message you're sending today?
Gronstal: The message I'm sending is if you can show this is a -- first of all, if we have existing commitments we have made out there as far as I'm concerned we will respect those commitments, we will do what we have to do to honor those commitments. So, as long as there hasn't been fraud involved, and we don't know the answer to that, but we will honor those commitments. The question is what happens in continuing these programs and if they're going to continue they're going to have to show a real cost benefit for the state of Iowa.
Glover: You operate in the statehouse in a very, very political arena, everything that happens at the statehouse has political fallout, this happened on a democratic watch. What is the political fallout from all of this?
Gronstal: I think if they see an effort that didn't work very well I think people will be disappointed in that but I think it's the responsibility of the legislature, we try things in economic development, everything we try doesn't work and it's perfectly okay to occasionally decide we went down a road, we've now decided that road doesn't make as much sense as we thought it made and so we're going to go back and change that. We'll respect the commitments that we've already made for people but I think it is exceedingly likely the next session of the legislature we'll add some restrictions on some of these tax credit programs.
Glover: The biggest person who is on the ballot next year is Governor Culver. There are those who argue that this scandal, controversy, whatever you want to call it plays into two of the major criticisms that people have of Governor Culver. One, that he sees a problem and he throws money at it. Two, he's not a very good manager. Does he face any political fallout?
Gronstal: I think the governor acted very forthrightly in this situation. I think when he found out about the millions and millions of dollars that were put in this fund he put a halt to the program. I think he acted very quickly, I think we were all glad he acted quickly and he asked the republican state auditor and the democratic attorney general to do an investigation. I think that's what you do when you find something that is not working. You go in and you act quickly to stem the tide of what is happening and then you do a good review and I'm sure he'll have recommendations for us.
Glover: Are you satisfied with his management of his program? After all, this happened on his watch.
Gronstal: I am disappointed these things happened. I don't know that anybody can stop them from happening and to his credit once he found out about it he acted quickly and put the program on hold and got people to investigate it. I think that is the appropriate action, I think the governor moved quickly, I think that was the right thing to do.
Henderson: People in your party, Senator, are critics of tax credits in general as are people like republican Bob Vander Plaats, a candidate for governor, who said tax credits are a bad idea because they pick winners and losers. Is this an atmosphere now in Iowa in which the state may overreact and repeal tax credits?
Gronstal: I think we'll take a look at some of the tax credits in the state of Iowa but, again, I think the question is can we put a program together that encourages long-term economic growth in this state by creating high wage, high skill jobs. That is what Iowans want. And we're going to continue to pursue those things and not everything we try is going to work, not every fund in the economic development strategy works but we're going to try those things, those things that don't work we're going to change, we're going to get rid of the funds that don't work and keep our focus on creating long-term, solid jobs for Iowans.
Henderson: One of the things that did work was the legislature enacted a series of tax incentives that lured Google to build a server farm in your backyard in Council Bluffs. Is this debate, this controversy going to prohibit the legislature in the future from approving those sorts of specific incentive packages for specific industries because, in this instance, a specific benefit package for the film industry failed?
Gronstal: Actually what happened with the program to encourage server farms was the opposite. We took a look at it, we discovered it is working incredibly well, there are long-term jobs, there is a significant net benefit to the state treasury and we came back and structured some additional programs to take some of the medium size opportunities out there and encourage them. Iowa is a great place to locate those kinds of businesses. Not a lot of seismic activity in the state, a strong supply of electricity, energy in the state, that's what these server farms use. So, we actually did the opposite. In that case we had a program that worked incredibly well and we came back and honed it some to continue to capture those kinds of companies in our state and, again, create thousands of jobs, long-term jobs that pay high average annual salaries and they are high skill jobs, that's the kind of thing we need in Iowa.
Glover: Once you get this controversy past you, you run into a state budget that is in deep, deep trouble. Let's look at that for a second. Is it inevitable that the governor is going to have to do an across-the-board cut at some point this fall?
Gronstal: I don't know about inevitable, I'd say it is highly likely that within this month of October you will see some action in that area.
Glover: And next week the revenue estimating conference is going to meet and give you their official sense of how the economy is going. If you think it is inevitable that the governor is going to have to do an across-the-board cut how big?
Gronstal: I think we've got to wait and see what those numbers are.
Glover: Republicans are already suggesting the legislature ought to be called back into special session so you can make targeted cuts and not just do a broad band across-the-board.
Gronstal: Fascinating. When it was Tom Vilsack and they had the majority in the legislature they said, go ahead governor, do an across-the-board cut. They can't seem to make up their mind which way they like it.
Borg: You say you don't know how large, you can't project right now large that across-the-board cut, if it does come, might be. But would you advise and council in a smaller across-the-board cut and take it as you go or take a larger cut now so that agencies and those depending on appropriations can better plan their own budgets whether than nibble away at their budgets during the year?
Gronstal: My recommendation would be to take the larger cut and then if things turn out to be better than expected we can certainly make adjustments in the next session of the legislature. But right now I think we continue to be troubled by this national recession that has affected our revenues just stunningly so I'd take the bigger and if we got lucky and funds turned out to be better than expected we could always go back and fix some things. But right now funds do not look like they are getting better.
Glover: Are you having regular conversations with the governor about this issue? Is there communication between the majority democrats of the legislature and the democratic governor?
Gronstal: There is great communication, we're talking on a regular basis both directly to the governor and to the governor's staff. So, we're having great communication on these issues, yes.
Henderson: In 2008 you were spreading a gospel message of how great the Iowa economy was. In September in Iowa the state took in 19% less in tax revenue when you calculate refunds. What has happened to the state's economy and why is the national economy seeming to uptake and Iowa's is seeming to fall through the bottom of the floor?
Gronstal: We entered the recession a little later than they did nationally, we will exit the recession a little later as well and that is typical for Iowa that our economy lags what is happening at the national level. So, that is not unexpected. The long-term fundamentals for Iowa I think continue to be quite positive. We have a very bumpy road to go over next year, we're going to really struggle with our budget, we're going to struggle to maintain the critical services, funds like health care, education in the state, we're going to have trouble maintaining our commitments to those things so there is a very bumpy road. But the long-term economics for Iowa I actually think are quite bright. We have a great farm economy, we have new value to commodities so the long-term I think is fairly bright for us. It's going to take us a while to get out of this. It's clearly a revenue issue relative to the national recession.
Henderson: In response to Dean's question you said if things turn around we may be able to plug more money back into the budget. Are you sending a signal to all of those who are dependent on state spending that this across-the-board cut that the governor is sure to issue some time in the month of October is going to be it? Legislators do not have another pot of money to refill some of these cuts?
Gronstal: I think we have a very daunting task for next year's budget. We have been through those daunting budgets before in the early part of this century, back in the early 90s, back in the early 80s, we've been through these challenges before. It is going to be a challenge and there is going to be pain involved. I'm not trying to send a signal -- Dean asked would you advise to do a little more or a little less? I'd advise, in terms of a cut, to do a little more. If we get lucky then maybe we can do something to restore some of those cuts but I'm not putting much hope out that that's going to happen.
Glover: One of the signals that Governor Culver has sent is that he wants to solve this budget problem strictly through spending cuts with no new taxes. Are democrats in the legislature on board with that or would you like to see the possibility of a debate over some taxes?
Gronstal: I don't think there is any significant talk inside the legislature about increasing taxes. I think we're on the same page on the governor on that.
Glover: Any new tax at all, gas tax, sales tax?
Gronstal: I don't see any kind of broad based taxes out there. I'm not trying to mince words here. Is there an occasional fee here or there? The last session in the legislature we made some changes in terms of court fees so we could more appropriately fund the judicial branch. But in terms of broad based tax increases absolutely not.
Glover: Let me play devil's advocate here. Why not? If you're going to solve a budget problem that is pretty big, $900 million or so, why not do it a little bit with revenue? You've got big spending cuts you've had over the past several years and there has been no revenue enhancements for several years. Why not at least have that on the table?
Gronstal: Because I think we need to respect what is happening to the family budgets out there. They are going through the same kinds of struggles and we're not going to pile on by adding new taxes at the state level to people struggling to meet their own kid's health care needs or their own kid's educational needs.
Glover: And because it's an election year?
Gronstal: No, I think it's because this isn't the right time to be engaging in that.
Glover: To what extent do public workers have to contribute to solving this budget problem? A big part of the state's spending is salaries for state workers. A big part of the money that the state sends to local governments is for things like aid to local schools to pay teacher salaries. At what point do you ask those public workers to contribute to the solution?
Gronstal: Well, first of all, the across-the-board that is likely, that the governor is likely to do is going to affect every department of state government and that is going to affect all of those state employees. They are going to be faced with vacancies being held open longer, they took no pay increase for the year we're in so I think they are going to pay at the workplace.
Glover: And your message to school boards is you better tell teachers they're going to face the same thing?
Gronstal: I think the odds of us being able to continue to provide resources at the level we have done is pretty difficult for us so we're going to have to struggle through that. As I said, this is a very bumpy road and we're going to responsibly deal with that. We're going to try and preserve our priorities. I think Iowans have always valued education. We're going to try and have our budget reflect that. We have already been interested in making sure people have access to health care and we're going to be interested in maintaining that as best we can, keeping everything whole is not going to happen.
Borg: Is there at all an option of reopening some of the labor contracts for givebacks?
Gronstal: You have collective bargaining process that is done with the executive branch and with the collective bargaining units and they can engage in that, that is not a function that the legislature can engage in.
Borg: I understand that but as you're standing back and you're holding the purse strings ...
Gronstal: Look, they already accepted zero wage increase, they're already going to see layoffs because of tight budgets and across-the-board cuts so I think effectively they are giving at the workplace.
Henderson: You mentioned fee increases. The board of regents which governs Iowa, Iowa State and UNI is considering a tuition increase for students. One of the members of that board has suggested it should be as high as six percent. Do you think students should be shouldering a greater burden of the budget at the university?
Gronstal: We worked three or four years ago with the board of regents, tuitions had nearly doubled over a four or five year time span, we worked with them and said we would commit ourselves to trying to find additional resources and in essence we had this grand bargain, if we find those resources the regents said they would keep tuition increases at or below the higher ed inflation index and I'm hopeful that the regents will do that. That would not be -- six percent would be higher than that number.
Henderson: There have also been critics who have raised questions about giving bonuses to the presidents of those three institutions. They will not be getting pay increases but they might be in line for bonuses. Do you think bonuses are appropriate in this economy?
Gronstal: I think the process we have set up is one where we have the regents manage the regents institution. I think that is their job, I think it's probably not one that we should try and mess around with.
Borg: Bob Dvorsky this week in reaction to some of the republican criticism of those pay incentives, performance incentives I think they're called rather than bonuses, said he supports them. You're saying I'm not even going to comment.
Gronstal: That is what I'm saying. We have a board of regents, highly professional people that we put in to run our regents institutions. I think it's kind of for them to make judgments as to what is important in order to maintain quality at our university. The moment we start playing politics with it is the moment we start discouraging highly qualified people from wanting to be at our regents institutions.
Glover: One of the things you have done over the past couple of years to solve the state's budget problem is to find one-time funding sources. You got some federal stimulus money from Congress, you have dipped into the state's cash reserves. What is the one-time source you're going to use this year?
Gronstal: Well, we still have some federal stimulus dollars left. Let me say something else on that, I don't know if people understand this, we are the 8th best state in the union in terms of taking federal stimulus dollars in terms of not using them to balance ongoing expenditures, to really use them for stimulus kind of purposes, 8th best in the country. We used a lower percentage of our stimulus dollars to balance ongoing operating expenses and Nebraska is 49th in the country, they used almost every penny of their federal stimulus dollars to just balance ongoing expenditures. We have done pretty well on that front. We also did pretty well by making sure we kept a cash reserve of around $450 million, as you know the governor transferred $45 million but we still have about $400 million in cash reserves. That is better than a host of states. We still have a AAA bond rating so in spite of having very difficult challenges we have done pretty well on that financial front when you compare us to other states.
Glover: And you'll be getting back to the cash reserves again next year?
Gronstal: Absolutely, there is probably no way to avoid that.
Henderson: Another fiscal headache is the IPERS fund, the Iowa Public Employees Retirement System. You have said that there will be changes that the legislature enacts that may adjust that fund in some way. Does that mean that retirees will have a retirement date that is later than maybe 65? Maybe they may work until 67?
Gronstal: I want to really reassure retirees that are near retirement this system is a system designed to last for all time so the changes we make are not going to be precipitous changes, they are not going to be changes that oh my gosh, I wish I had retired last fall because now they have changed the system and I have to work another five years. That is not going to happen in this system, it's a very manageable problem we had inside IPERS, it's a real problem but very manageable and you have got to manage to the long-term, not to gee, what is going to happen next year but how can we gradually improve the resources that are available so that we can continue to afford to pay this.
Glover: A big part of the spending you approved during the last session of the legislature was money to rehabilitate flood damaged cities around the state. Have you finished that? Is there more work that needs to be done in flood recovery?
Gronstal: There is more work to be done, I don't think we'll be finished in terms of recovery efforts for probably ten years. So, I think there will be more issues along those lines, our capacities deal with them, obviously it is more limited now than it was a couple of years ago.
Glover: And it wouldn't be an official Iowa Press if we didn't spend a couple of minutes talking about just pure politics. You've got a big majority in the senate, you've got a majority in the house. Do you keep them in the next election? And if so, what case do you take to voters?
Gronstal: Well, the key to winning campaigns isn't any of this bringing stuff up from 100,000 feet, it's finding a great candidate in a great district that is connected to their communities and we have really great candidates so we're excited about that. It's hard to tell, who knows what the mood will be a year from now, that's pretty difficult to predict. What I always say to our campaign people is what are the pieces of this we control? We do not control the national economy so what are the pieces we control? Let's do the pieces we control really well and we'll live with whatever the outcome of that is.
Glover: You've got 32 out of 50 seats in the Iowa senate.
Gronstal: That's a record, by the way.
Glover: Are you close to the maximum?
Gronstal: We're close to the maximum. I'd still see a couple of places where we might have an opportunity next year and we're still actively recruiting candidates in those areas but yes, four years ago we won 19 out of the 25 seats.
Glover: I'll ask you the same question we asked your democratic chairman last week, there is a mystery candidate in the United States Senate out there. Give us a name.
Gronstal: I don't know the mystery candidate, he hasn't told me.
Glover: So there isn't one?
Gronstal: I truly have no idea, not my job, I keep my focus on the Iowa senate doing the best job we can to find good candidates and pass good policies.
Borg: Senator Gronstal, we're nearly out of time here but speaking of time, last year you tried to cut the session length in order to save some money. Are you going into it with that same idea this time?
Gronstal: I'm tempted to say I want the session to go longer because when I told everybody I wanted to go shorter they all said let's make it go longer, let's show up Gronstal, so I think we want to try and make this a quicker session. We have scheduled it for 90 days, my target is going to be about 85 days but we have scheduled it for 90.
Borg: We're scheduled for a certain amount of time here and we're out of it. Thanks for being with us today. On our next edition of Iowa Press turning to the federal government north central Iowa's fourth district Representative Tom Latham will be here. You'll see that conversation with Congressman Latham at the usual Iowa Press airtimes at 7:30 Friday night and then Sunday morning at 11:30. A reminder too that if you want to contact Iowa Press staff just go to the Internet. The e-mail address is firstname.lastname@example.org. That will come directly to the Iowa Press staff. I'm Dean Borg. Thanks for joining us today.
Funding for Iowa Press was provided by Friends, the Iowa Public Television Foundation. The Iowa Bankers Association ... for personal, business and commercial needs Iowa banks help Iowans reach their financial goals.