Streamlining government. Iowa legislators trimming expenses to cover budget shortfalls. We’re getting an update on budget maneuvering from the democratic house majority leader Kevin McCarthy on this edition of Iowa Press.
Borg: Two weeks into the new legislative session, Iowa’s 83rd general assembly moving quickly now into budgeting for fiscal year 2011. That begins July 1. In normal times budgeting wouldn’t be catching the attention it is this year, but with eye-popping tax revenue shortfalls, nearly everyone is watching because hardly any Iowans is escaping the effects of cutting state services. In some cases the term “cutting” is being replaced by “streamlining” and “reorganization,” but the change usually doesn’t dull the pain. Des Moines democrat Kevin McCarthy leads the majority party in the House of Representatives. Representative McCarthy, welcome back to Iowa Press.
McCarthy: Thank you. Thank you very much.
Borg: And the two people you see daily at the statehouse across the table here, Associated Press Senior Political Writer Mike Glover and Radio Iowa News Director Kay Henderson.
Glover: Representative McCarthy, Dean mentioned in the opening one of the key issues the legislature is going to face this year is going to be a reorganization of state government to save money. That seems to be on the fast track. How quickly can that get approved?
McCarthy: As soon as possible. Obviously the way the budget works is the governor is required under the Constitution to submit his budget by the end of January. So January 31 we expect to receive the governor’s budget. And then our hope is over the remaining – or the succeeding two weeks after that, we can develop our budget targets. What we hope to do to be responsible this year is to not do – what we normally do is set a budget target that would be true draconian, I should say, which could be a negative nine, negative ten percent per budget cluster. What we’re going to try to do is incorporate the savings that we’re going to realize in our 2011 budget from the reorganization cost savings measures that we think are likely to pass, so we can maybe put a more reasonable responsible budget target. So when you have the government reorganizations and cost savings in early retirement and all these other things, we might be able to come in then with a negative four percent or negative three percent budget target in some cases, which would make our balancing the budget in these various committees much more doable.
Glover: And the governor and democrats who run both chambers of the legislature have taken new taxes off the table. Are there any other revenue streams out there available for you?
McCarthy: We’re going to be looking at all of our different budget committees to try to find ways to draw down federal dollars to try to raise revenues in certain areas without raising taxes on middle-class Iowans. The health care area, for example, we’re working with hospitals to try to draw down more federal dollars. They have said we were willing to pay a voluntary assessment of $40 million which will equal a three-to-one federal draw down, which we could then help – obligations for a Medicaid budget. That’s one example of ways to draw down federal dollars.
Glover: I’m thinking of that always tempting revenue source of gambling. Will we have a gambling debate this year?
McCarthy: Two things on that issue. One, there’s been some discussion over the last few months on whether there should be some sort of KINO type video gambling machines in bars, which would be competition with existing facilities. That proposal appears to be dead at this point. It will not move forward. There is an increasing likelihood – I’ll say after discussions this last week with Senator Gronstal and Speaker Murphy and our state committee chair Mary Mascher, Representative Doug Struyk from the republican party, Representative Brian Quirk, the head of gaming and licensing and representatives of the 17 Iowa casinos, it looks like we will very likely have a gaming debate this year, a fairly limited gaming debate, hopefully, but it looks like we will have a gaming debate.
Glover: And when will that be?
McCarthy: Well, what we’re looking at right now is to try to find ways that it would be a win-win for these institutions, for their communities, and for the state by providing some additional limited expansion of gaming in noncontiguous areas. Let me explain what that means. Right now in our 17 casinos, you’re only allowed to game on the gaming floor and in areas immediately contiguous. Well, there’s really no areas that are contiguous. All these casinos have convention areas, ballrooms, places where they have boxing tournaments or whatever it is, and we would be looking at some sort of non-electronic form of gaming, like poker-type games, in some of these noncontiguous areas under the same existing rules and regulations that we have now in Iowa. That would be a win-win because you’d have these gaming institutions be able to make a little bit more money. You’d have to – you know, depending on each casino, you’d have to have a different sort of business model. Harrah’s, for instance, participates in the National Poker Championship that you watch on TV. They’d be able to, because of their model, be able to draw from South Dakota and Nebraska and be able to have some fairly large tournaments there. Non-profits win because they get more money back to the non-profits in their community and the state would be able to tax that at a certain level yet to be determined to get more gaming revenue that way. Also a big issue that would be tagged onto this gaming debate would be the repeal of the referendum requirement. Right now all 17 Iowa casinos have on their ballot for this November a referendum that would decide whether the voters want that casino to continue or not. This discussion has been around for a couple of years. What we would likely do is say for casinos that have had two successful elections already over an eight-year period, eight years apart, if you’re stabilized in your community, it looks like they want you there, remove that referendum requirement this November and instead allow the voters reverse referendum possibility in the future. If a community wants to get rid of gaming in their county, they’d be able to get some signatures and have a reverse referendum to remove that in the future. So you still have the ability to have the voters have a say in the future, but you’d remove that requirement. That’s also potential additional revenue for us at the state because what we probably will do is have some sort of opt-in fee that casinos would pay. That would be a win-win scenario as well because many casinos are banking significant amounts of money in preparing for this public relations campaign this coming fall. And so if a casino has banked a million dollars for this PR campaign, if their fee is a half million to opt-in, the state gets a half million dollars from that casino in terms of the opt-in fee. They save money and the public relations campaign has more stability. We have more stability to the state. We’re bonding for infrastructure and flood recovery in the state right now tied to gaming dollars coming into the state. So trying to find ways -- no new competition for these existing facilities, limited expansion of what they’re already allowed to do in existing facilities but ways to generate some more revenue for the state.
Henderson: You’ve described it as win-win. Does that mean you have the votes to pass it in the Iowa House and Senate?
McCarthy: I don’t know but I do know that right now in terms of the leadership we seem to be at least preliminarily on board and we are beginning discussions with the key players. They seem to be on board. And as I mentioned, I reached out to Representative Doug Struyk and talked to other members on the republican side who appear to be willing to work with us. So all gaming debates have a bi-partisan component. This will not be a partisan component. But this is going to be much more limited than what we’ve had in the past. This is not new gaming.
Glover: It sounds like this is a long way down the road, Representative McCarthy.
McCarthy: We hope to have a proposed bill within the next two weeks and this probably would be something that would maybe be a late February, early March debate. And we hope to have bi-partisan support for it. Because it’s so limited and the budget situation is what it is, I think there’s a reasonable likelihood we could pass something in this regard.
Henderson: Sticking to the issue of taxes, tax credits have been under the scrutiny of the statehouse. Several of the governor’s top agency managers have recommended significant changes in the way the state administers tax credits, and they’ve recommended the elimination of the film tax credit. What action will legislators take on that report? The governor didn’t endorse it. He said you need to look at it.
McCarthy: Across the board in the tax credit area I think at a minimum you’re going to see more accountability, more transparency on these tax credits. And then secondarily, we’ll probably be looking at sunsetting some or maybe capping – a stricter cap. We did last year a $184 million cap on the Department of Economic Development tax credits. All of that effects how we balance the budget. So you’re likely to see a stricter cap. In terms of elimination, we really have to let the house and senate ways and means committee – they were just preparing – I think this next week they’re going to be actually starting to look at all these various tax credits and the governor’s recommendation because it’s a balancing act. On one hand it’s not always just what’s a good return for the state. You may have something that is very important that we want to continue, revitalize on a dilapidated area – community. That may give us zero return to the state, but it may be very important for a given community. So what do you want to incent balanced against what’s our return to the state. The film tax credit program actually, if implemented appropriately with the appropriate safeguards, could be a net plus to the state, but it may not be something that we want to incent anymore, given all that has happened. So we have to really go through this process. That’s really kind of the month of February that the analysis will occur, and then we’ll start passing legislation in that regard in March.
Henderson: On this program earlier this year, Senator Gronstal said in regards to the changes recommended on the business tax credit side, specifically the research activities credit, that he was skeptical of that because it benefits businesses like Rockwell Collins. Is Rockwell Collins and Pioneer and some of those businesses making that case? And will legislators even approach making a change in that particular credit?
McCarthy: They have to make the case. They’re telling us that they will be able to make that case this year. If they can make the case that it’s creating jobs and Iowa is benefiting as a result of those tax credits, I think it will be less likely that we would move to eliminate that sort of thing. But they’re going to have to make the case. In the past, because we haven’t had this sort of economic crunch, legislators from both parties haven’t put the pressure on some of these groups to come in and say tell us what you’re doing with this money. Is it doing what it’s supposed to do? If they can make the case, and they’re telling us they can, then we’d likely keep a lot of those.
Henderson: The governor recommends that you take the $50 million from the road use tax fund – that’s the fund under which gas taxes are paid – and use that to finance operations for these state troopers. That hasn’t been terribly popular among legislators. Is that dead?
McCarthy: It looks to be – I just want to say, because we’ve all agreed in leadership with the governor, to try to keep everything on the table of the budget savings ideas, at least in terms of until we get into committee discussions on them, because if every legislative leader and the governor all took their pet peeves off the table, there would be nothing left on the table for discussion. Wit regard to the road use tax fund issue, a couple of things. One, in the legislature it’s just been our culture – culture is a very important thing in the legislature, culture and tradition. Culture and tradition of road and infrastructure issues is that they’ve been done in a virtual 50-50 bi-partisan way. It’s just the way it’s always been done. Committees work that way. Minority members floor manage bills. It doesn’t matter who is in charge.
Borg: Are you trying to tell us that republicans are not going to sign on?
McCarthy: Republicans have indicated there will not be any support on that, so that makes it much more challenging. Having said that, there’s democrats that oppose it as well because we’ve joined forces in a bi-partisan way just a couple years ago to start closing the shortfall in the road use tax fund.
Borg: So back to Kay’s basic question. Is it dead?
McCarthy: It looks to be extremely challenging to find consensus on it at this time looking forward, but it’s still on the table.
Borg: What are you going to do for education? Governor Culver in his Condition of the State said I want this to be a priority. He recommended taking $100 million, for example, from reserves to, in your terms, backfill what was taken away in his across-the-board cuts. Is that going to happen?
McCarthy: That will likely not happen. First of all, as we move forward – the governor’s office did issue a clarification after the State of the State speech that – what was called for in terms of a backfilling, in terms of a supplemental was not what was called for. He said – I think the clarification was that this would be a 2011 stimulus of some sorts for K-12 schools to come out of cash reserves. The reality is that we’re going to need a certain portion of our cash reserves to be able to balance our budget to be fiscally responsible. And so when we look at our budget this year, we’re one of the very few states in the country that have a so-called surplus, a reverse fund there. We’re not going to deplete it, but we may need to tap a couple hundred million dollars of that to balance our budget this year and those dollars will likely be needed to do that. So the cash reserve component for education, I respect where he’s coming from on that issue, but it’s probably something that the legislature will not do.
Borg: What about the two percent he recommended you take – you fully fund the two percent allowable growth that was enacted last year for K-12 schools. Will you do that, fully fund it?
McCarthy: It’s a possibility. The larger question is do you allow district to retain their authority. It’s more of an authority issue. Do you allow them to retain their authority in that regard? That’s one of the reasons we passed legislation last week to try to tell them to draw down on cash reserves prior to doing any sort of levying and taxes and encouraging them to tighten their belts as well, and they’re doing that. But the spending authority decision has already been made to allow them to keep that authority. In terms of our being able to fund it at the full level, to be frank with you, it’s going to be extremely challenging to do so.
Glover: One of the bases of the Democratic Party’s support is organized labor. In the last session of the legislature there was a package of labor backed bills expanding the scope of bargaining for public workers, that sort of thing. It didn’t pass last year. One of them failed by a single vote. Is there some reason to believe those are alive this year? Or area those let’s heave them overboard and wait for the election?
McCarthy: Every time I come on Iowa Press there’s a labor discussion and I usually get tarred and feathered when I leave.
Glover: Glad to accommodate you.
McCarthy: You can’t make anybody happy in this regard. It’s my personal opinion I never look at labor bills as a package because labor is not a monolith. There’s a variety of separate groups to push issues they believe are important for their members. It’s been my experience that these last three years in the majority, when we come in and view them as a package and when everything is on the table, nothing gets done. When we’ve come into the session as we did two years ago and said we’re going to try to look and see what certain corrections workers want and troopers want with regard to expanding bargaining power, color of uniform, for example, tool boxes for DOT workers – when we looked at that package, we were able to pass it. We were focused, we passed it and, unfortunately, that bill was vetoed. So looking at this year right now, we are starting to have some discussions in our labor committee to try to say let’s not go in and just have everything on the table. Let’s try to be more focused and move in more of a disciplined fashion in this regard. And we’re going to do that this year, and so there may be some opportunity, I think a very reasonable opportunity, that we can move some legislation that would be mainstream, reasonable, but some expanded power for our collective bargaining units in certain areas. So I think we’ll see some legislation in that regard.
Glover: What are you going to be focused on?
McCarthy: I don’t know for sure yet. You’ll probably see some movement – I know there are some discussions maybe on the senate side as some – it’s been referred to as choice of doctor. I think the legislature we’re looking at is really more shortening the appeal process, making these decisions a little bit friendlier to the worker. There might be some discussions on the senate side on that side. On the house side we may start to see some discussions as it relates to some expanded limited collective bargaining power for certain public sector workers.
Glover: And the choice of doctors, you mean that workers who are injured on the job would have broader ability to choose the doctor they want to treat them for their injury?
McCarthy: Yes. It may be a more limited fashion, it’s more reasonable that some businesses sign onto where it’s not just pure choice of doctor but one that in turn can generate support where the employer – employer and employee jointly choose a panel at some point and then prospectively in the future, employees could choose among that panel.
Henderson: President Obama said his focus is shifting to go jobs, jobs, jobs. Is there some sort of job creation package percolating in the Iowa legislature? Last year you passed the I-jobs initiative at the governor’s request. Is there something you’re going to do this year to address job creation in Iowa?
McCarthy: A couple of things and I’ll just comment very briefly without being critical of the federal government. But they have the luxury to do what we can’t do. I don’t know if it’s even a luxury. They print money and they borrow money and we don’t do that. We have to operate with a balanced budget in Iowa and it’s much more challenging. We did pass the I-jobs initiative, which was really largely focused on flood recovery. We have 1400 projects underway in 99 counties right now, so that’s exciting. And then this year the third phase of that, $100 million of bonding is set for us to decide how we spend that money in conjunction with the executive branch. We look at having an initial $100 million for the final phase of flood recovery and infrastructure work and that will be something that will help create jobs. And then our Department of Economic Development, we’re still looking at tax credits that work. And what we’ve said is, you mentioned earlier on these tax credit issue, we may sunset or eliminate certain tax credits. But if there are some that are actually working, providing some return in jobs, we may take some of that savings to help our budget, but others put it in and expand tax credits in areas that are working. Roger Thomas, our chair of economic growth committee, is working on a package, and we actually will be having a press conference on that a couple weeks from now.
Glover: And it wouldn’t be an official Iowa Press program if we didn’t talk a little politics. Just this past week the U.S. Supreme Court issued a ruling where it struck down restrictions on the ability of both big businesses and big unions to pour money into influencing political campaigns. How big of a deal is that? And what does that mean for politics in this state?
McCarthy: I think it’s very, very troubling. It’s very concerning. And all of us are advocates for the first amendment, for freedom of speech. This 5-4 decision on the court, it would allow multinational Fortune 500, Fortune 100 companies to come in late with massive amounts of money in order to protect their bottom line. You can say that’s free speech. You can say that’s the first amendment like the 5-4 majority of the court said. But it’s going to have a destructive influence on our political process.
Glover: Is there anything you can do about it?
McCarthy: Right now – and we’ve received word very recently from the Iowa ethics board – and I’ve also talked to Attorney General Tom Miller – we believe there’s still a sliver of hope that the decision only directly dealt with independent expenditures of corporations as opposed to our current limit. We have a prohibition in Iowa on corporate contributions directly to candidates, and we think right now that even though there’s a lot of side opinion and language in the decision – it didn’t directly go to strike our corporate prohibition. And we’re going to try to do everything in our power to keep our Iowa law on corporate contributions directly to candidates. Unfortunately, the independent expenditures now, that’s clearly been lifted. And it’s a troubling sign and I’m disappointed to read the statement of the Republican Party Chair of the United States, Michael Steel, who said victory for democracy.
Glover: Who does it help?
McCarthy: I think – and I know republicans were hesitant to say we’re not sure if it helps republicans. I think it does help the Republican Party. It makes it more challenging for us. The fact of the matter is republicans tend to do more for big corporations. That tends to be where their focus is at. Big corporations tend to give more money to republicans. Now they can do it directly. Just write the check or go up on TV and advocate expressly for or against a particular candidate. And we tend to not be the party of big corporations, by and large, so I think it has a potential to help out the Republican Party.
Borg: But it does have an effect on the labor union money that you tend to have a favoritism in.
McCarthy: Yeah, I’m not quite sure. It really doesn’t, in my view, the reason is that we get – labor unions have PACs and they disclose it and there’s money that’s given to our accounts now and they’re not looking at changing anything they do currently. The corporate money, it would have been much more restrictive. McCain-Feingold, the bipartisan piece of legislation said it’s not good for our democracy to come in the last thirty days and saturate the airwaves with companies who have billions of dollars in profit. Those are big corporations. That’s not unions, believe me. That’s been struck by the court decisions. You can do it in the last thirty days now unlimited, saturate and buy up all the time. It’s a very troubling, troubling decision and it’s bad for our democracy.
Henderson: Representative McCarthy, you live in Des Moines and, as such, live in the third congressional district. You’re represented currently by Leonard Boswell, a democrat who intends to seek re-election. It also strikes me that you have a unique perspective on the republican race for the chance to face off against Leonard Boswell in November because you used to be one of the students, if you were, of Mr. Gibbons.
McCarthy: I haven’t spoken to Jim Gibbons in many, many years. I have kept in contact with his younger brother, Joe. And Joe Gibbons was the assistance coach for our wrestling team at Iowa State and actually my training partner on a day-to-day basis.
Henderson: And in case people don’t know, you were an Iowa State University wrestler.
McCarthy: I bounced around. I was at Drake University and then Iowa State and then finished at Wartburg, but wrestling was a good sport. It taught me a lot. I’ve said before that Coach Gibbons – I think wrestling should be – the topic of wrestling should be sacrosanct and it should be something we don’t talk about in politics. And so if I were to look to hire a coach, I’d be perfectly happy to have Coach Gibbons as my coach. But if I’m looking for my congressman, I’m voting for Leonard Boswell.
Glover: One of the elections that you’ll be most directly involved in is control of the Iowa legislature. I presume you’re out there recruiting candidates, putting together a campaign plan. You run the house on a 56-44 margin. You control the senate by a 32-18 margin. Can you maintain both of those margins in November?
McCarthy: I think we will. And let me be very blunt with regard to this national – we’re in right now. We saw the Massachusetts senate race. The voting electorate kind of moves in cycles, but they tend to be four, five, or six month cycles usually. And right now it’s not a good time to be an incumbent. . It’s not a good time to be a democrat. I readily admit that. I talked to a political expert I respect recently, and he said the good news and bad news for democrats is – the bad news is if the election were held today it probably wouldn’t be very good for democrats. The good news is the election is not held today. If you remember back in 1994 when that sort of dynamic that we’re in now hit in November and there was – democrats were wiped out nationwide. It was just four or five months later that Bill Clinton was in a standoff with Newt Gingrich and the republicans and the government shut down briefly and democrats started moving back up. There was an even keel in terms of the viewpoint of the public that lasted four or five months. I really believe as we get this Congress, which is kind of – people say it’s like making sausage. When the federal government – when Congress gets out of session and we get some sort of health care compromise and then this economy, which we were absolutely staring into the brink of a Great Depression a year ago, starts to turn the corner next summer and fall, I think you’re going to see this sort of mood right now, this extreme pessimism start to dissipate a little bit. And we’ll have a really good fighting chance to keep control – just ten more seconds – largely also because we recruit good candidates that match our districts locally and we have always historically in the house these last fifteen or so years bucked the national trend. Whether it’s Bill Clinton winning Iowa and the Iowa house loses the majority down ballot or Bill Clinton beating Bob Dole, Iowa senate loses the majority, John Kerry losing to Bush, we pick up seats down ballot, we’ve always kind of done something a little different than what the national trend has done.
Henderson: You’ve mentioned health care being critical at the national level for the perspective of democratic activists, voters in general, but polls show that the proposal that’s advancing in Congress is not popular with the public. How can democrats win by Congress passing the health care reform plan?
McCarthy: I think once it’s passed and people start looking at the proposal and realizing that the American Medical Association and AARP and all these other non-partisan groups have supported it and what it’s actually going to do is make our health care system better, it will become more popular. What the public doesn’t like, they don’t like the fighting and this constant fighting and partisan bickering and this deal making that’s occurring to get votes. And the public – they wanted to have us work together nationwide. Unfortunately, I don’t blame – they just want to get the job done and want us to stop fighting at the national level.
Glover: Top of the ticket, Governor Chet Culver up for re-election, not formally announced, but we all know he’s running. Is he in trouble?
McCarthy: I don’t think so. The polling would indicate right now that he’s in a challenging position just like a lot of democrats are around the country. But I think the fate is less tied to Chet Culver the man than it is to this kind of state we’re in right now of anti-incumbency. And I really believe that we’re looking at – we’re in a stabilization period right now in Iowa, but I believe this spring or summer you’ll start to see a recovery and the water cooler conversations will change from this kind of pessimism that exists right now to more of an optimism next summer and fall. He’s a tenacious campaigner, and when this recovery starts to turn around I think his fate will change dramatically as well.
Borg: We’re out of time. Thanks so much for spending time with us today.
McCarthy: Thank you very much.
Borg: On the next edition of Iowa Press we’re getting an update on a major segment of Iowa’s economy. Iowa Agriculture Secretary Bill Northey will be here. He’s a republican from Spirit Lake, an active farmer also administering a state office. You’ll see our conversation with Agriculture Secretary Bill Northey at the usual times, 7:30 Friday night next week and 11:30 Sunday morning. And a reminder too that our Iowa Press staff gets your comments directly by Internet. The e-mail address at the bottom of your screen now is email@example.com. We’d really like to hear from you. I’m Dean Borg. Thanks for joining us today.
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