Return on investment. Some state legislators calling incentives for luring industry to Iowa overly generous. We're questioning Senate ways and means committee leaders democrat Joe Bolkcom and republican Randy Feenstra on this edition of Iowa Press.
Borg: When it comes to economic development some say it's a jungle out there. Consider Governor Terry Branstad's comment before a recent business development trip to California calling that state happy hunting grounds for luring away industry. States want jobs and the rippling revenue boost. But some are asking if tax breaks and other incentives might be excessive. We've invited Iowa Senate's tax experts, ways and means committee chairmen, democrat Joe Bolkcom, he is from Iowa City and the committee's top republican, Randy Feenstra of Hull. Gentlemen, welcome to Iowa Press.
Bolkcom: Thanks, Dean.
Feenstra: Thank you, nice to be here.
Borg: Talking about money today, you are the taxing people, a lot of interest there. Across the table Des Moines Register Political Columnist Kathie Obradovich and Radio Iowa News Director Kay Henderson.
Henderson: Gentlemen, we have a lot of tax issues to discuss but let's talk about one that hundreds of Iowans are paying at this very moment, the gas tax. Mr. Bolkcom, what is the prospect for a gas tax increase clearing the 2013 Iowa legislature?
Bolkcom: Kay, I think the gas tax is dead for this legislative session.
Bolkcom: I just don't think there's an appetite by legislators or the Governor to move ahead. I mean, gas prices have peaked up again and I just don't see much energy going towards this. I think the gas tax is dead for this session.
Henderson: Mr. Feenstra, there are many rural Iowans, the corn growers, the Farm Bureau, who support an increase in the gas tax. The Governor this past week said if property tax reform clears the legislature he would considering signing a gas tax increase. What is your calculation on the prospect for a gas tax increase? And would you support it?
Feenstra: I don't think this is a good time for the gas tax. I just filled up myself and it was at three dollars and sixty some cents. The federal government is also talking about a gas tax. Many Iowans live paycheck by paycheck and it really is becoming tough when you're filling up and if it goes over four dollars or around that, that's going to be really hard on Iowans. I think maybe there's another day, another time that we can look at it but surely not at this time.
Borg: But there was a lot of momentum, there was fuel in the tank if you can accept that metaphor for a gas tax increase. Did things change just here in the last few weeks, Senator Bolkcom?
Bolkcom: I mean, I think there's a definite case that Iowa's roads and bridges are crumbling. In my own community I drive around on some streets and I think geez, it's time to fix these streets and some highways, it's time to fix these highways. But I just don't think that there's the political will at this point. And, you know, at the legislative level we want to be sure that if members take hard votes around this, because the polling on this says most Iowans say don't raise the taxes, we need to make sure that Governor Branstad is actually going to sign a bill and we just don't have confidence about that.
Obradovich: Mr. Feenstra, another tax that Iowans are paying right now is property taxes. We are seeing, with the legislature not, if the legislature does not do anything again this year people are going to see their property taxes go up. What are the prospects this year?
Feenstra: I'm hoping that we can work collaboratively and get something done. We've talked about this topic for the last three years and every time within the session it fails. I think this is the year it has to get done. I'm a big supporter of Governor Branstad's plan to reduce commercial property tax, to fully fund the tax credits. I'm hoping that both sides of the aisle can work together and finally this year get something done for all Iowans and all businesses.
Obradovich: Well, Mr. Bolkcom, do you agree that this is the year, property tax relief?
Bolkcom: Well, I think we're, I think we're close. The Senate just approved its proposal this week out of committee. Four out of five Iowa businesses would see a 40% reduction in their commercial property taxes, that is the focus in the Senate. A tax cut for every business focused on Main Street with no shifting of taxes to residential taxpayers. And we'd like to continue to work on this. We have passed it in the past bipartisan. We heard some concerns from the Governor and republicans about making it a bigger proposal. We've answered that and increased the size of it. Our plan actually provides 90% of commercial property taxpayers would be better off under the Senate democrats plan than Governor Branstad's plan but we're going to continue to work on it. We all agree it is an issue and I'm optimistic about making progress.
Borg: I opened the program saying business incentives. You've been particularly, Senator Bolkcom, explicit in your criticism of the Orascom fertilizer incentive given in Lee County in southeast Iowa. That is a done deal isn't it? I mean, what is the point now that you're trying to make? Are you trying to intimidate future incentives like that?
Bolkcom: Well, let me say, Dean, Senate democrats have been always supportive of good, robust economic development programs for job creation. In a bipartisan ways over the years legislators have made Iowa a leader in the Midwest in the kinds of economic development incentives and tax credits in the region. And I think that said we want to make sure that those investments are accountable, that they make sense, that we don't get taken to the cleaners. Clearly we're really happy for the jobs in Lee County, the development in Lee County, the investment in Lee County that is really important to southeast Iowa. Lee County has been particularly hurt by the recession, these are important jobs to bring to the state. But I think the case of Orascom in the negotiations here we put way more money on the table than we needed to. There were federal incentives worth more than $300 million that were not taken into consideration in my judgment and Iowans all across the state are just scratching their head about how we could be putting --
Borg: So you're just particularly critical of that particular incentive?
Bolkcom: That's -- I'm particularly critical of this economic, this specific economic deal and think that we have given away the farm on it.
Henderson: Mr. Feenstra, there are republicans in your own party who are reluctant to, in their words, pick winners and losers, on the part of the government. House republicans were even reluctant to forward extra money to the Iowa Economic Development Authority to give out as grants and loans. Last year they finally capitulated. What about the debate within your own party about business incentives?
Feenstra: Well, I think it really comes down to what we really need, we need fundamental -- fundamental tax reform. It just came out, the 2013 study came out from the Iowa Tax Foundation or from the Federal Tax Foundation that said we ranked 41st out of 50 for having the worst tax climate of all the states. And the reason was our complicated system and also picking winners and losers. So I think we have to address that and look at our income tax system. Right now we have South Dakota that does not have income tax. We have Kansas, Oklahoma, Nebraska, all looking at eliminating their income tax. So I think we have to be on the cutting edge also and instead of picking winners and losers down the stretch we've got to create a strong foundational plan and maybe eliminate corporate income tax and regular income tax.
Henderson: Just a general question, Senate democrats have proposed a credit, republicans favor rate reduction. Those have been the corners in to which you have drawn for the past two years. It is basically the same makeup of the statehouse now. Why are either of you expressing any optimism that a deal can happen this year? Mr. Bolkcom?
Bolkcom: Yeah, well, I think there's a great deal of overlap in the two proposals. Again, principles, we all agree something needs to happen. Ours is focused on Main Street businesses, four out of five 40% reduction. We ought to be focused on the plan --
Henderson: But doesn't somebody have to capitulate here?
Bolkcom: Well, we ought to focus on the plan that gives the most relief for the most number of businesses. Our plan would provide relief to 100,000 commercial property owners across this state. It is focused in all 99 counties. One of the challenges I think of the current economic development strategies is that we're putting all our eggs in one basket, the notion of giving a foreign company $100 plus million worth of tax incentives and the Governor's property tax plan gives tens of millions of dollars of benefits to out of state companies. There's a theme there. The big guys do well, the little guy gets a little bit of the crumbs. Our effort is to try and put resources all over this state, in all 99 counties and it also focuses on a host of other issues, on workforce development, cutting taxes under the earned income tax credit, providing access to health care under Medicaid for Iowa families. You know, it's more than just the tax policy of the state that is going to grow and make our state prosperous.
Obradovich: You know, you've been fighting for 30 years, not you personally, but the legislature has been fighting for 30 years about property tax relief and a lot of the reason why you can't come to a resolution has been in the past interest groups on either side. This time it seems to come down to more of a philosophical question. And I kind of wonder, is it also a matter of trust? You offer tax credits as democrats because you don't necessarily trust the state to keep money flowing to local governments. Republicans offering a direct tax relief because they don't necessarily believe that there's any other way to make sure the taxpayer is protected. Aren't you reaping what you've been sowing over years of shorting somebody one way or another when the state gets short of money, Mr. Feenstra?
Feenstra: And you're exactly right. This all started in 1979 when we detached commercial and residential and ag and so we kept commercial is now way at 100%, they pay 100% of their total valuation and that is why I think you've got to look at the framework of the problem. Okay. A tax credit is simply saying, okay, there's a problem and we don't want to deal with the framework which is the issue. And that's where Governor Branstad's plan says, okay, the framework is the role back issue and what we have to do is start rolling back commercial property taxes and then lock the ag, residential and commercial all together down the road whether it be three years, five years or whatever it might be. That, to me, is the fundamental flaw that started in 1979.
Obradovich: Instead of trying to work around trust issues, Mr. Bolkcom, why not keep the commitments that the legislature has made in the past?
Bolkcom: Well, I think you're going to find this year in a bipartisan way we're going to fully fund the tax credits that have been passed by past legislatures over the years. I think we need to look for common ground on what we agree upon. I think we can all agree that Main Street businesses deserve and need a tax cut, Main Street businesses where we give a tax cut that money is going to stay in Iowa, where we don't have agreement on the commercial property tax proposal is. The Governor spends hundreds of millions of dollars on large out-of-state corporations where when they get that tax cut those dollars are going to leave Iowa. That is a legitimate policy difference between us. The other piece of our plan we would say because we fully fund this credit we are not going to, it's not going to result in a residential property tax increase or cuts in vital local services. That is a big difference between the Governor's plan and ours.
Henderson: Mr. Feenstra, you earlier mentioned income taxes. And most polling data shows that Iowans are far more concerned about income taxes than commercial property taxes. Is there a prospect that this legislature will agree on some kind of income tax cut? House republicans have advanced a flat tax. Democrats favor increasing the earned income tax credit, a mechanism for providing tax relief for low income Iowans. Is this going to happen or is this another instance in which the two parties are not going to agree?
Feenstra: I would love to see it happen. I can only hope it does. I think everybody understands we have the most complicated income tax system in the country. Okay. So we've got to A, simplify it and I think that is something that we can work on. I'm developing a bill that is being worked on, hopefully will be drafted in the next couple of weeks, that takes the brackets from nine brackets down to three brackets and also reduces amount of income tax for every Iowans. So, again, I think working collaboratively I'm hoping that we can get something done in this session.
Obradovich: Mr. Bolkcom, what is the priority? The Des Moines Register did a poll earlier this month and the tax cut that rated the highest was taxes cut for lowest income Iowans, which the closest thing in the legislature right now is the earned income tax credit, the democrats have forwarded. But, you know, you've got several sort of half-baked plans, none of which seem to have majority support in the legislature. What really is the priority here?
Bolkcom: Well, I don't think we have half-baked plans. We have a plan that says working people that make less than, households that make less than $45,000 a year pay a disproportionate share of Iowa income taxes. We have very low filing thresholds and we need to give a tax cut to those families. We've moved a bill out of subcommittee this week, we'll be seeing it in the Senate, it increases the earned income tax credit. I would note that the 200,000 families that are going to receive this benefit if we can get the Governor's support on this, are home to almost 40% of our kids. Those are kids living in a lot of households in poverty and we need to support those families.
Obradovich: And is that the priority over property taxes?
Bolkcom: I think both of those are priorities for our caucus.
Obradovich: But if you had to pick one?
Bolkcom: I think, for me personally I think it's time to provide some help to those struggling families that are the backbone of our communities working with kids in those households. We need to support those kids.
Obradovich: Mr. Feenstra, what is the priority for republicans?
Feenstra: Well, I think we want comprehensive income tax reform and that's what you're going to see with our bill coming out. It handles the child tax credits but it does more than that. It removes some of the credits and deductions that are there and goes to a more simplified system. Ours is a three tier system. I think the House is a one tier system. But at the end of the day it is simplification and then also a reduction for every Iowan.
Obradovich: And that's not the Governor's priority, however. His is squarely on commercial property tax relief.
Feenstra: Yeah, I don't think --
Obradovich: So how do you reconcile that?
Feenstra: Well, I think both things are important. I go back to the study that was done. I mean, we have very high property taxes, we have very high income taxes, it hurts all Iowans, families but it also hurts jobs. If we want to create jobs in Iowa then we have to have a system that maintains our current business and then creates new jobs and has companies like Orascom coming in.
Henderson: There was a tax proposal that actually cleared a Senate committee, subcommittee which would raise the state sales tax by three-eighths of a cent to finance environmental programs. Mr. Bolkcom, doesn't that sort of break the contract that was made when this proposal originally advanced, which was if the sales tax is ever raised by a penny, three-eighths of that would be dedicated to the environment?
Bolkcom: Well, the sales tax proposal is out there, it's a worthy proposal. I don't really see support for it. Our focus has been on workforce training, funding our local schools, making sure that people that don't have health care get health care, providing a tax cut to people making less than $45,000 a year. Those are the things that are going to strengthen our communities and make the state more prosperous. Certainly tax policy is important but as we talk to local businessmen and business leaders they need skilled workers. The Senate this week proposed a major initiative around providing skills to workers throughout the state.
Obradovich: Several other states have been looking to raise tax revenue and one of the ways that they have been looking at it is online Internet poker. Iowa has had a proposal, there's been some discussion. What do you think are the prospects for that, first of all, Senator Bolkcom? And second of all, you know, is that a good idea?
Bolkcom: Yeah, I know there's been some work around legalizing Internet poker. I know colleagues that have worked on that. I have not been much involved on the notion of how we're going to tax Internet poker. We do and are making efforts to tax online purchasing on the Internet, the streamlined sales tax. A lot of purchases go on that put Main Street Iowa businesses at a disadvantage. I think there's probably more opportunity there than around the Internet question on poker.
Obradovich: Senator Feenstra, do you think Internet gambling has a chance this year?
Feenstra: I don't think so. I mean, it just creates more social problems and the people that are trying to support it say we can regulate it more. But I look at it and say it creates more regulatory problems.
Obradovich: With tax revenue generally, I mean, we have 30 years of the Iowa Lottery, almost 28 years of casino gambling in some form or another and the legislature has often treated this money as if it is one time money. You know, you say it's only going to be for infrastructure, you segregate most of it from the general fund but it seems like gambling is here to stay in Iowa after over 30 years. Isn't it time to say, you know, we can treat this money like any other revenue stream for the state?
Borg: Senator Feenstra?
Obradovich: Senator Feenstra?
Feenstra: Oh, I think we have to be very careful with the revenue coming in from gambling. Obviously it goes up and down and I don't think we want to say hey, we want to do all these special programs with gambling money. I think that is where we pay our taxes and that is where sales tax comes in and so forth. I think we need to segregate and continue to look at that as somewhat one time money.
Obradovich: And Senator Bolkcom, do you agree?
Bolkcom: Well, I think, you know, that we've got a couple of communities voting on whether we should have some more casinos in Iowa for economic development. I think Senator Feenstra and I agree on this, it's a failed policy. We need a skilled workforce that is available to Iowa businesses to fill the gap, the skills gap we currently have. That is our top priority, one of our top priorities this session. We need to fund our local schools. We need to do some catch up on that. We need to fund our clean water programs and prevent soil erosion. There are a lot of things that we should be doing and can be doing to increase the state --
Borg: Well, let's go back to this revenue stream that Kathie talked about. Increasingly the state is depending on that. Senator Feenstra seems to say, well, it's been frosting on the cake. And you're saying --
Bolkcom: I'm not for expanding gambling in Iowa. I think it is a failed way to raise money, it targets working poor people principally. I mean, it is regressive tax on people. I get that people, it has created jobs and it has made for economic vitality in some communities, I'll give you that. But the notion that we need to expand more gambling as a way to grow jobs I think is a failed strategy in the long run for Iowa.
Henderson: Gentlemen, just stepping back, a discussion about Iowa's incredibly complicated tax system. Isn't the real issue here, Mr. Feenstra, that Iowa has too much government? That you're not reducing the number of counties in Iowa, you're not talking about reducing and consolidating school districts. Wouldn't that go a long way to reducing some of the property tax problems in this state if there was more sharing of services?
Feenstra: Well, I think you have to be very careful. I mean, a lot of that is local control. So if schools want to consolidate that is between the school board members and the schools and also with counties. Now, I'm firmly behind efficiencies, all right. I think there's a lot of things that we can do to make efficiencies that maybe we don't need all these bricks and mortar buildings and stuff like that. However, I still am firmly behind the fact that if we can change our income tax system and be competitive we wouldn't have the situation that brought us into the questioning of Orascom and stuff like that, which is a wonderful economic vehicle.
Borg: We have just a minute left, Senator Feenstra, and I'll ask you too Senator Bolkcom. With all the uncertainty at the federal government right now, is it time to put a hesitancy here on talks of tax revision and tax cutting at the state level?
Feenstra: I think we have to be very careful on our budget coming up. I think the Senate democrats, their budget is 11%, spends 11% over last year and now we heard today that the fiscal cliff is upon us. That is going to be millions of dollars that are not coming into our pocket. Half of our budget, $6 billion comes from the federal government so we've got to be very careful.
Borg: Senator Bolkcom?
Bolkcom: Yeah, I share the same concern. We need to be cautious. We have a reserve, a reserve that can help if federal money dries up in certain areas. But the Senate's proposal I think has just been 94% of state revenues, we're allowed to spend 99%. It's a modest increase.
Borg: Thank you gentlemen.
Borg: Well, during the next couple of weeks, Iowa Public Television Festival will be bringing you special programming and these are extraordinary programs often requiring extra time for your enjoyment and we're going to step aside so you can enjoy these extra length programs. So Iowa Press won't be seen for the next couple of weekends but we'll resume in mid-March, regular times beginning March 22nd. For today, I'm Dean Borg and thanks for joining us.