Managing change. Iowa Governor Terry Branstad rejecting tradition and status quo, ruffling political feathers. We're questioning Governor Branstad on this edition of Iowa Press.

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For decades Iowa Press has brought you politicians and newsmakers from across Iowa and beyond. Now celebrating more than 40 years of broadcast excellence on statewide Iowa Public Television, this is the Friday, February 26 edition of Iowa Press. Here is Dean Borg.

Borg: The federal government's letter this past week approving private firms for managing Iowa's Medicaid program is seismic, in the number of people affected, the dollars involved and the potential political fallout. But, Governor Terry Branstad's perseverance on administering Medicaid mirrors other political tightropes he has been walking, including letting voters know which presidential candidates are passing the ethanol litmus test. Governor, good to have you back at the Iowa Press table.

Branstad: Thank you. Good to be with you, Dean.

Borg: I'm making a commitment, this will be more civil than the most recent republican debate today.

Branstad: Well, that doesn't take much. But I'm glad to hear that. Thank you. I watched that last night.

Borg: I don't know about across the table, but I will introduce them. They're not making the same commitment. Des Moines Register Political Columnist Kathie Obradovich and Radio Iowa's News Director Kay Henderson.

Henderson: Governor, let's focus on the Medicaid transition. Are you open to a new oversight panel in state government, adding more ombudsmen on the state payroll to help people navigate this new system?

Branstad: Well, first of all, I think it's important to know what managed care is. Managed care is oversight. The old Medicaid system was a fee for services where you went to a provider and then the state Medicaid program just paid those providers. There was no management or oversight of it. The problem was one provider might, especially somebody that say has chronic disease, let's say that they have diabetes, they may be going to several different providers and different providers prescribing different things that are in conflict with each other. They end up going back to the hospital, their health gets worse. So the whole idea of managed care is to have better coordination. And we have three providers now so the employee, the Medicaid recipient is going to have that choice. We did agree last year with the legislature that there would be some additional ombudsmen that would oversee that, so you have an overseer overseeing the overseer. But I don't think you need to add a whole army of people to do that.

Obradovich: Well, the overseer is trying to make a profit, however. And you do acknowledge that there's some opportunity perhaps for people to get lost in the shuffle if they don't have somebody from the government who doesn't have a profit motive saying, no, this service really ought to be provided.

Branstad: Well, the managed care company actually is there to try to coordinate the services. What you have under the old system was you had the providers that are actually providing the services and you didn't have any oversight. Now you do have managed care companies doing the oversight, just like we have with the state employees insurance or what private insurance companies have. So the insurance company really oversees and manages the care for most people and that is exactly what has been done in most of the other states. And they do have some, but you don't need to have an army of 100 people to oversee the overseers.

Obradovich: That's not what the legislators are talking about. They're talking about a committee, a working group --

Branstad: Well, they already have their oversight committee. I guess my feeling is, some people in the legislature just want to torpedo this and they don't want to move forward with a modern managed care system. We've heard the politics of that. They even hired -- I'd like to know who is paying Chet Culver to attack what we're doing. He left the state in a mess with a $550 million shortfall in Medicaid because he used one-time money. So we've taken that out and we've got things going --

Henderson: Your voice is raised, are you peeved?

Branstad: Well, I just like to know who is paying for him. He's not doing this for nothing. But this is the politics of it. And my concern is we need to work together and focus on the health of Iowans and improving their health.

Henderson: So, for instance, one of the things that legislators want to do is have the state maintain the list of approved medications, especially of concern to epileptics. They're concerned that the managed care companies will try to switch their medications. Is that something you would agree to, to keep the list of --

Branstad: Well, now you're really getting into the weeds. First of all, let me say, I want people to get the right medications, I want them to take it timely, I want to see it managed and overseen so they're taking it. The biggest problem is when you have people not taking their medications or maybe taking twice as much as they should be, those are the kind of things that cause problems. So that is the idea of managed care is to manage that to make sure you have oversight to make sure people are doing the right thing.

Borg: I think what they're trying to say here is that yes, you have added managed care as managing and having an oversight that wasn't previously there. But, the worry is, is whether that actually is an overseer who is advocating for the patient.

Branstad: Well, and that is their responsibility. And I would point to the fact that 30 some states are already doing this. We have already done it with the Hawk-I program. We've done it with mental health. So this is not new. We're just extending this now to the entire Medicaid population. So I believe that this is the modern way to deliver medical care. The old fee for services way was too expensive. And I understand the hospitals and some of the providers don't like the oversight that managed care provides. But frankly it is all designed to try to improve the health of the patients.

Obradovich: There's a lot of emotion involved in this, Governor. You talk about getting into the weeds, but the weeds are really affecting the lives of a lot of people and there's a lot of uncertainty here. Part of the question about oversight is in response to legislators hearing from lots of their constituents who are very upset about this.

Branstad: Well, unfortunately many of the hospitals and providers have tried to scare their patients. And this has been unfortunate. But I think now that we make the transition people will see this has worked effectively in other states, big states, big states like New York and California and Texas and Florida have had this for a long time and it has worked effectively in those states. And many of those states have democratic governors. But all of a sudden the democrats decided they wanted to make this a partisan issue. It's not a partisan issue. The focus needs to be on improving the health of Iowans. That is why we have set the goal to be the healthiest state and why we're trying to do all kinds of things to improve Iowans' health, including the people on Medicaid.

Henderson: Before we move away from health care related issues, a bill that would allow the limited use of medical marijuana has cleared a House committee. It is a scaled back version of a bill that cleared the democratically-led Senate last year. Are republicans in the House who are advocating for this wasting their time? Is it something that you might consider signing?

Branstad: Well, as I did last time when we dealt with this issue for epilepsy, I'm going to reserve judgment to see what it might look like in its final form. I have empathy for the families that are dealing with these health related issues. But I also want to make sure we don't have drugs getting into the wrong hands. So we need to handle this in a very careful way. But I'm going to monitor it and reserve judgment until I see it in its final form.

Obradovich: The House also has voted to conform Iowa Code to federal tax changes. That is something that you did not recommend and it's about $95 million worth of --

Branstad: Well, I did recommend that we couple with everything except accelerated depreciation and section 179 of the Internal Revenue code. And the reason for that was they made the 179 permanent. I didn't feel that we could afford to do that. The House has now done that only for one year and they're using the ending balance to be able to do that.

Obradovich: Is that something you can accept?

Branstad: I think we could accept it only for one year. We can't do it on a permanent basis --

Borg: Because you would lose too much revenue?

Branstad: We'd lose too much revenue and it would put us in a financial position that we couldn't sustain it for the long-term. So that is the reason why I have said, it will be tight and it will use up a lot of the surplus over and above what we have in the cash reserve and economic emergency account, but we could accept coupling for 179 for one year. We would couple with the other items on an ongoing basis, but the House bill only does this for the year that is already over, fiscal year, for calendar year 2015.

Borg: Kathie, just so we can clarify before you go on, this is making Iowa tax code conform to changes in the federal code.

Obradovich: Right.

Branstad: Which they did in December. And normally they had done it only for a year, but they did this permanently and that is why when I put the budget together I said, no we can't afford to do this permanently and so we didn't recommend coupling on 179. The House is saying now they're willing to, they want to couple with 179 for the year 2015 because people, that year is already over.

Obradovich: And if the Senate doesn't go along with this, there was a discussion also of a compromise that might be to go with your proposal but then do something more to help farmers and small businesses to the tune of maybe $45 or $50 million.

Branstad: I haven't seen that and I don't know if that makes it even more complicated. The problem you've got right now, and I've heard from a number of tax preparers, CPAs that are concerned because farm tax returns are due March 1.

Henderson: Is the Department of Revenue going to change that deadline?

Branstad: Well, I don't know at this point in time. I think that we need to get this resolved and I have indicated a willingness to go along with it for that one year but making it clear we can't do more than one year with the 179 coupling.

Borg: Because of the effects that it might have on school funding and everything else?

Branstad: Well, school funding is the biggest item in the budget, but it affects the entire budget. And so if all of a sudden you knock $100 million revenue out of the budget for ongoing years that obviously has quite an impact. And that is the concern we have. We also are not coupling with accelerated depreciation. But we're coupling with all the other changes in my recommendation.

Henderson: You have recommended a general 2.45% increase in state assistance to K-12 public schools.

Branstad: Supplemental state aid, yeah.

Henderson: I'm wondering if as you look at tax returns and how much taxes the state is collecting overall if the state can afford that?

Branstad: Well, my budget was based on the revenue estimating conference's December revenue estimate. And it appears that the revenue is going to be maybe even a little bit below that.

Henderson: So can the state afford it?

Branstad: Well, I believe we can. We project out for five years and I don't think we can afford to go more than 2.45%. But remember we're also doing another $50 million for the third step in the teacher leadership program. We're providing over $5 million for STEM and also for early childhood, the reading resource center. And next year we're intending to provide another $9 million for the third grade reading program for the kids that are not up to speed in reading by the end of third grade.

Obradovich: Given the slowdown of farm income though, are you biting off more than you can chew?

Branstad: Well, that's the reason why I put five year projections together and why we have a very, we have a very prudent conservative budget approach that we have taken and that is why I've cautioned Senate democrats, you can't increase the level of spending at 4%, that's not realistic. The 2.45% was a real stretch to get to there. And I believe we can do that, but that means we have to be very careful in spending and controlling spending in other areas, plus obviously we have to do the managed care for Medicaid.

Borg: Kathie, there's a big relationship too between water quality and some school funding.

Obradovich: Speaking of the water quality issue, that has gotten a slow start in the legislature and I know that it has been described as your number one priority. Are you prepared to hold legislators' feet to the fire and maybe even keep them here longer than they intended to be if they don't send you a bill?

Branstad: Well, it's the biggest, boldest proposal I probably have ever made as Governor because what it does, it addresses two big issues, school infrastructure, we presently have a law that expires in 2029. My recommendation is extend that to 2049 and then have the first $10 million in growth go to school infrastructure and the growth over and above that go to water quality. Over this period of time between now and 2049 it generates $20.7 billion for school infrastructure and nearly $4.7 billion for water quality and it does it without raising taxes, just extending the existing sales tax. Now, it's a new idea. It is a bold idea. It has now been approved by the agriculture committee in the House. They adopted some amendments which we worked with Ron Jorgensen to address an issue that rural schools are concerned about their transportation costs above the state average. And then another issue involving school funding that Davenport has addressed. So we're saying --

Obradovich: Are you prepared to take this to another election cycle then because it's a new idea? Are you willing to let this ride for a year?

Branstad: Well, like I said, it's a big, bold idea. We're going to work through the process. We're meeting with school leaders, we're meeting with agriculture leaders, we're meeting with business leaders, we're trying to build a broad-based coalition. I met again when I was in D.C. with Secretary Vilsack, he is very supportive of this and there's opportunity to get federal dollars as well. And so I'm hopeful to get it done this session. But it is an issue that needs to be addressed, it's critical and we should not be putting it off.

Obradovich: Critical because schools won't be able to bond for much longer if that school infrastructure is extended?

Branstad: As Paul Gausman pointed out to me, the superintended in Sioux City, they'd like to do a 20 year bond and pay it back with sales tax but this expires in 12 years so they really can't do that. So they want to have that extension. If we extend it out to 2049 it would take care of that, plus it would give us a reliable long-term source of funding for water quality for our Nutrient Reduction Strategy as well.

Henderson: What is your anecdote to the heartburn this has caused republican legislators who feel as if they are reneging on a promise made to voters who voted for this money to be used for schools, number one, and extending a tax that they had intended to expire?

Branstad: Well, first of all, circumstances change. We go back to 1998 when I was Governor before, that is when we authorized local option sales tax for schools. Sioux City was a big proponent of that but it was a statewide deal. Marvin Pomerantz led the effort in Polk County. It was passed but it was a vote of the people and it was only for 10 years. Well then I wasn't in office but in the year 2008 and the rural schools, rural counties that most of the money went where you bought the item. So if you had a big shopping center or you had a lot of sales tax receipts, urban counties, their schools got most of the money. So the legislature changed the law and they eliminated the local option vote and they said, okay, we're going to extend it for 20 years this time instead of 10 and it's going to be statewide and it will be distributed on a per student basis to all the school districts in Iowa but it expires in 2029. Okay, so now I've suggested that we extend it from 2029 to 2049. The schools would continue to get everything they're getting today. So this year it is estimated they're going to get $488 million. By the year 2049 it would be up to $788 million.

Borg: With inflation.

Branstad: Right. Well they get the first $10 million of growth and then the growth over and above that, which is estimated to be 2.85% would go to water quality. So this is a way we can address both school infrastructure and water quality and do it without raising taxes. Now it does extend the sales tax. I suppose there's some people that would like to see that expire. Others would like to see it extended. I guess my feeling is this is a compromise that addresses two really critical issues in our state.

Borg: I want to go onto another topic that is entirely different and that is the minimum wage. We saw an eruption of the patchwork that is starting to erupt in Iowa right now at the Board of Regents meeting this week where Larry McKibben, a Regent, objected to the extra costs that he thought the Johnson County increase in the minimum wage was going to make on the University of Iowa costs. But the basic question there is, Linn County is also considering what Johnson County did, enact the minimum wage for that county. Is it wise for you at this point to take a leadership and say as Governor I'm recommending an increase in the minimum wage to prevent this patchwork that is erupting?

Branstad: Well, first of all, I do think it would probably be better if it were made on a statewide basis. But I understand we have a legislature that is divided and there's not a consensus on that issue. So I have indicated a willingness to consider it. But I just don't perceive that there is a consensus in the legislature between the parties on addressing increasing the minimum wage.

Obradovich: Speaking of another area where there's not much consensus right now, the republican presidential nomination. How do you feel about the future of the Iowa Caucuses if Donald Trump becomes the republican nominee?

Branstad: Well, I'd be more concerned, well, I don't know. I feel like Donald Trump made a mistake in not participating in the debate before the Iowa Caucuses. He was ahead in the Iowa Poll. And he also I think learned a lesson about the ground game and need to have an organization and I think he went to New Hampshire and did, with regard to a ground game, what he didn't do in Iowa. So I think he learned some things from that experience and so we'll see what happens. Obviously --

Obradovich: There's talk of a brokered convention.

Branstad: A lot of people think, well, I hope to be a delegate but obviously that is up to the republican delegates to the convention. But I hope to be a delegate.

Obradovich: And do you have a thought on how you would vote if you get to be a delegate if there is a brokered convention?

Branstad: Well, it is too early to know and I don't think that's going to happen. I was an alternate to the convention in Kansas City, which is the last really close one between Ford and Reagan. In fact, I actually spoke on behalf of the Reagan delegates at that convention and of course Gerald Ford won. We lost to Jimmy Carter --

Obradovich: Ted Cruz won the Iowa Caucuses though.

Borg: Is there a way --

Branstad: The new system is that the delegates will be apportioned according to the results of the caucuses. So Cruz will get the --

Obradovich: So will you have to vote for Ted Cruz?

Branstad: Well, no, I can vote for -- it depends. We'll have to vote according to, so there will be so many for Cruz, there will be so many for Trump, there will be so many for Rubio and --

Borg: Governor, you said earlier, before the Iowa Caucuses, which way you weren't leaning. Which way are you leaning right now as far as a candidate?

Branstad: Well, I'm still reserving judgment. I did watch the debate and I think it's going to be interesting to see how this Super Tuesday goes next Tuesday because that could well determine the direction to a great degree on what happens in the nominating process. I don't think it's going to come down to the convention because I think the primaries and caucuses are such that I think it will, we already see it's down, we had a lot of candidates here in Iowa, it is now down to five.

Borg: Is Donald Trump good for the Republican Party?

Branstad: Well, it depends upon your perspective. He has brought a lot of new people in. He has generated big crowds. He is certainly an unconventional candidate. And I have just said I'm going to reserve judgment and one thing that I am concerned about is advocating and supporting Iowa and Iowa jobs and that is why I came out strongly and said we need somebody that supports ethanol. And I was again disappointed last night again Cruz attacked ethanol. There's 43 ethanol plants in Iowa, a lot of jobs related to ethanol and it's important to farm income and renewable fuels, be it ethanol, biodiesel, wind energy, all important for the state.

Borg: I'm going to have to call time on ethanol. Kay?

Henderson: You and Steve King had a dust up before the caucuses. Is Steve King good for the Republican Party or should he face a primary challenge? Are you recruiting someone to run against him?

Branstad: I'm not involved in recruiting anybody. But the last three times I have run for Governor I've had primaries and primaries are not necessarily bad. I think they can be a good test --

Henderson: So it would be good for Congressman King to have a primary?

Branstad: Well, I think it's up to the candidates. This is a free country and people have a right -- like I said, I've had primary contests in '94 and 2010, 2014 and I have found that if you do the job well and you focus on representing your constituents and advocating and focusing on the future and what you want to do that you have no reason to be concerned about primaries.

Obradovich: Is this dust up over the caucuses enough of a concern that you would support a primary challenger against Steve King?

Branstad: I'm not going to be involved in any primaries. I'm going to support whoever the republican nominee is. But I think it's a free country and certainly people have the right to run for office. And, like I said, I'm used to having primary challenges and I've fared pretty well under those circumstances.

Obradovich: When you ran for Governor again you presented some five-year goals. This is the first time we've seen you here since the five years has elapsed. Creating 200,000 jobs, increasing family income, reducing government spending, how do you feel that you have fared on those five-year goals?

Branstad: We have made great progress. In terms of creating jobs we have exceeded the 200,000. I think we're at about 220,000. Even if you look at net jobs we're up over 110,000. Our unemployment rate has dropped from like 6.8% when I made that statement down to 3.4%. We're the sixth lowest unemployment in the country. With regard to reducing the size of government, I think your newspaper had an editorial that pointed out that we have reduced that by about 14.4%, very close to the 15% that I predicted, that I suggested we could do in the executive branch of state government. In terms of personal income gains, I think it has been 18 something percent, not quite as much as we had hoped but we've had some real headwinds here lately with the situation --

Borg: Two more goals to go and 30 seconds.

Obradovich: I think you're out of goals.

Branstad: Well, I think we've hit most of them but the good news is we've got a Governor that is a goal-oriented Governor that focuses on the future and we have made great progress in jobs, reducing the size and cost of government --

Henderson: Are you going to run again?

Branstad: I love what I'm doing. We'll wait until 2018 to make that decision.

Borg: Oh, did you just say whether or not you're going to run again?

Branstad: I just said I'm going to wait until 2018 like Bob Ray did when I was Lieutenant Governor. I love this job and I'm going to keep working hard every day to serve the people of Iowa and do as well as I can.

Borg: Thank you, Governor, for being with us.

Branstad: You bet.

Borg: Iowa Press going to be stepping aside for the next couple of weeks, well actually three weeks so that Iowa Public Television can bring you some extra special programming and that includes the Iowa High School Girls Basketball Final and after that a couple of weeks our annual Festival programming. So watch for those special programs and we'll join you again on March 25th. That is after spring officially arrives. I'm Dean Borg. Thanks for joining us today.

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Funding for Iowa Press was provided by Friends, the Iowa Public Television Foundation. I'm a veteran. I am a builder. I'm a volunteer. I am a teacher. I'm a banker. I'm an Iowa banker. No matter who you are there is an Iowa banker who is ready to help you get where you want to go. Iowa Bankers, allowing you to discover the genuine difference of Iowa banks. Iowa Communications Network. ICN's Broadband Matters campaign advocates for access to high speed broadband in all corners of Iowa for education, public safety, health care, government and economic development. Information is available at broadbandmatters.com. Iowa Community Foundations, an initiative of the Iowa Council of Foundations, connecting donors to the causes and communities they care about for good, for Iowa, for ever. Details at iowacommunityfoundations.org. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. The Arlene McKeever Endowment Fund at the Iowa Public Television Foundation, a fund established to support local programming on Iowa Public Television.