A couple of the of the most persistent political talking points of those criticizing Iowa’s last several budgets are:
1. We are shortchanging K-12 education funding and are consequently falling behind other states in our support for kids, and
2. The reason our budgets have come up short the past couple years is because of tax credit giveaways to big corporations.
K-12 School Funding
There was recently an interesting study released by the liberal Center for Budget and Policy Priorities, which analyzed each state’s funding from 2008 to 2015 and adjusted these figures for inflation to determine whether each state had increased funding or not. The study found that twenty-nine states were providing less funding to schools than they were in the fiscal year preceding the last recession (2008).
Iowans who have been subjected to the repeated claims by the media about how woeful our support for education has been, would assume that Iowa is amongst the twenty-nine who have cut funding during this seven-year period. These folks will be surprised to learn that the Center’s study not only finds that state funding to Iowa schools increased during this time, but the increase in our state funding was the fourth highest in the country at 20.6 percent growth. Iowa’s growth in school funding is only surpassed by Alaska, Illinois, and North Dakota.
The Center for Budget and Policy Priorities study found that state school spending in Nebraska rose by 3.1 percent during this same period. Kansas experienced 6.5 percent growth. The study found that South Dakota reduced its funding to schools by 11.8 percent, while Wisconsin saw a decrease of 10.6 percent. What about Minnesota, the state often held out as the example of what Iowa should be doing with education? State funding to their schools grew during this time by just 1.5 percent.
The budgets we have passed since the period covered by this report have continued to increase, and this past year we also made several changes to school governance that have provided schools much more flexibility, allowing them to make local decisions to do what is best for their districts.
The issue of tax credits is complex, and I think a good argument can be made that we have too many tax credits and special exemptions in our tax code meant to offset our high rates, which are some of the highest in the nation. But this has been a long-term problem in Iowa, and it has nothing to do with our unexpected budget shortfalls the past few years.
As part of the process for forecasting state revenue, the Department of Revenue issues a Contingent Liabilities Report three times a year. This report gives the Revenue Estimating Conference and state policymakers a snapshot view of the amount of tax credits issued each year, how much of these credits have been redeemed in a year and a projection of the amount of outstanding tax credits yet to be claimed and how much is expected to come in each year. The revenue predictions we use to build each budget already have all the tax credits built in.
The October report found that the amount of tax credits claimed in Fiscal Year 2017 currently sits at $322.5 million. This is $22.5 million less than what was claimed by Iowa taxpayers in Fiscal Year 2016. It is also significantly less than the Department of Revenue’s last projection in March, when they expected that $406.5 million of tax credits would be claimed by taxpayers in 2017.
The tax credit with the largest amount claimed was the Earned Income Tax Credit, which paid out $69.4 million in FY 2017. Next largest is the Historic Preservation and Cultural and Entertainment District Tax Credit, which had $45.7 million claimed in FY 2017. These two credits have experienced significant growth in the last few years. In contrast, many of the business or “corporate” tax credits have been declining.
The largest of these is the Research Activities Tax Credit. In FY 2017, $41.4 million was claimed by qualifying businesses, down from the previous year’s level of $53.9 million.
Our budget problems the past four years have been because we have been building budgets on revenue forecasts that are too rosy. Clearly the cause has not been tax credits.
If you have any questions or concerns, please contact me.
Home phone: 515-382-2352