♪♪ Tax cuts and tax reform continue to be priorities for the republican legislative majority.

We'll discuss what is still on the table this year with Senators Dan Dawson and Pam Jochum on this edition of Iowa Press.

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♪♪ For decades, Iowa Press has brought you political leaders and newsmakers from across Iowa and beyond.

Celebrating 50 years of broadcast excellence on statewide Iowa PBS, this is the Friday, March 31st edition of Iowa Press.

Here is Kay Henderson.

♪♪ Henderson: On this episode, we're going to be talking about taxes, income taxes, sales taxes, maybe gas taxes and even property taxes, which are not collected at the state level but by local governments.

Our guests are members of the Senate Ways and Means Committee.

Senator Dan Dawson, a republican from Council Bluffs is Chairman of that panel.

Senator Pam Jochum, a democrat from Dubuque is the ranking democratic member.

Welcome back to Iowa Press to both of you.

Dawson: Appreciate being here.

Jochum: Thank you, it's good to be here.

Henderson: Also joining the conversation are Katarina Sostaric of Iowa Public Radio and Erin Murphy of the Gazette in Cedar Rapids.

Murphy: So, Kay mentioned those property taxes, wanted to start with that.

And Senator Dawson, we'll start with you on this.

The House and Senate have each made proposals on how to address Iowans' property taxes.

We've heard concerns about property taxes being too high and the Senate and House are trying to address that.

Very different approaches.

We've just passed another key legislative deadline in the session.

The clock is kind of ticking towards adjournment.

Is something going to get done this session?

Or are you going to have to punt this to next year?

Dawson: Yeah, I believe something will get done this session.

As we described in the Senate all along, at least I have, this is going to be multiple bills over multiple years.

And while we have different bills, we hit the same topics.

The House is looking at debt or how cities put stuff on debt.

We're looking at assessments.

We know assessments are going to be an issue this year.

And we're also looking at how we do relief, how you actually help lower people's property taxes.

Different ways of going about it but we're not off on the topics, so that just comes down to the point of where is the agreement on some of this stuff.

But like we said before, all these decisions, they have to be thoughtful ones and there's always cause and effects, which is why we don't have one bill in the Senate, we have actually three different bills and there will probably be some more bills here, right.

But I think we have to start somewhere.

And I kind of give the local perspective a little bit -- last week in Pottawattamie County on Friday our assessor mailed out 50,000 plus assessment letters.

That's more than half the county got an assessment letter.

Average is about 20% increase of what you're going to see in the county, but those individual letters everywhere between 10% and 50% increase on assessments.

There is a legitimate fear out there people can actually afford this assessment spike.

And that is probably the fault in our system, it is not built to withstand some of these massive assessment, these real estate cycles that we've gone through.

And that is really where the crux of what we're trying to address, the first part I believe, how do we deal with assessment spikes.

Murphy: So, I want to get to Senator Jochum here on this, but real quick, what is maybe the most pertinent to you on this -- if this is going to be a multiphase, multiyear process as you have said, is there any specific element that you want to get done this session?

Dawson: Yeah, I think the topic of assessments we have to hit.

And we saw it at the beginning of the year with Senate File 181.

If we walk out and we don't have a legitimate solid proposal on how to deal with these assessment spikes, local governments will start to set their budget during the interim and we will come back in January and then we will have the same type of propaganda that we saw last January when we talked about the rollback miscalculation where we'll be accused of cutting budgets, laying off people, which wasn't the case at all.

It was functional lies what they were coming and telling us in the building.

So, we need to give them at least a blueprint so when they start to do their budget process over this interim we can come back and have those additional conversations.

But assessments have to be dealt with.

Murphy: Senator Jochum, a lot in there, but also I wanted to ask, this is an issue that, as we said at the top, Iowans are talking about, there is a recent Des Moines Register Iowa Poll that said 58% of Iowans are interested in reducing property taxes even knowing that could impact local services.

Is there pressure on democrats to support whatever proposal comes from majority republicans?

Jochum: Sure, I think that democrats in general do want to try and lower the cost for Iowans.

We're taxpayers too.

I pay property taxes, income taxes, sales tax, just like everybody else and in my life I've had to learn to stretch a buck a long way to make ends meet on occasion.

So yes, we understand that that is a top issue for many voters and we hear that at the doors as well.

I think that we can find some common ground on this.

For example, I know on one of the bills that we were working on it was going to replace the Homestead Tax Credit, for example, with an exemption.

And when we ran the numbers on how that would work, that actually does benefit property taxpayers much more so than the current credit system that we have in our property tax system right now.

I also know we need to really be very focused on how this will impact those who are on a fixed income.

And if anyone needs some relief it's going to be those who are on a fixed income.

So, I think there is room for us to find some common ground.

And Senator Dawson and I have been able to work pretty well together to find that common ground, even though we know many times we're going to agree to disagree, but we also know there's times when we can find common ground.

I would hope we can figure out how we can unravel a very complex tax system because the property tax system is probably the most complicated of all tax systems that we have in Iowa and really get our arms around how it works, who it really benefits and make sure we are not shifting the tax burden onto somebody else.

Murphy: How about specifically you heard Senator Dawson talk about the assessment piece.

If there is a proposal that comes forward that caps how much those assessments can, the taxable assessments would be increased -- Jochum: I will certainly take a good look at that because I know that is part of it and those valuations increased dramatically over the last couple of years because of the pandemic and the cost of housing -- a home that you could buy for a quarter of a million dollars a couple of years ago went up to $400,000 all of a sudden and that is what those valuations are based on is what are the sale prices of those homes in those neighborhoods.

So, that I think has inflated the valuations and sooner or later that is going to settle down again.

I just want to make sure that when we start tinkering and tweaking with a massive complex system that we're doing it very prudently and very thoughtfully, that we don't end up shifting the burden around.

I know cities and counties are very distrustful, quite frankly, of state government because we have always promised backfills and other things and we have changed that property tax system only to renege on that promise down the road and it leaves them holding the bag.

So, we have a trust issue that we need to work on too with our cities and our counties and our local taxpayers.

Sostaric: Senator Dawson, your proposal to limit county and city levee rates really riled up local officials.

They're saying it would limit their ability to fund law enforcement, emergency services, quality of life initiatives.

What do you say to those officials and taxpayers who want or need those services to continue or get better even?

Dawson: Right, I would just respectfully ask some of those officials to look at the bill and look at the numbers.

What we do in that bill is we target two basic levees.

There's a lot of other things, your pensions, your insurance, that is all uncapped.

But we had to start somewhere and we have a system right now where back in the day we used to have hard caps on our levees and we have since gotten away, we created all these exceptions in the law to go past it and past it and now we're to a point where the hard cap is more of a best suggested practice as opposed to actually our hard cap.

And that is when the principles that we're trying to address get people back to there.

And we're doing it in such a manner that what we've done, I think what we've done with our state budget the law few years, we're asking them to take some revenue, fund services, but some of this excess revenue, use it to buy down your rates and get back to more of an even playing field there.

We've done it with our surpluses where we've bought down the income tax rate and that is what we want to do with property taxes.

When we have 50%, 20% valuation increases we're asking governments to do what we've done at the state level, use some of that to buy back down your levees and provide some property tax relief.

Sostaric: Senator Jochum, you mentioned you agree that the property tax system should be simplified.

Is this proposal from Senator Dawson, do you think it's not a good way to do that?

Jochum: Again, I would say that we are looking at that very closely.

What I would prefer that we would do is actually take the time to fully understand the complexity of the system and how shifting different things are going to impact public safety, educating our children, quality of life issues that you just mentioned, because that is what I also know people at the local level want, they want good schools, they want safe neighborhoods, they want quality of life to attract people to come to Iowa and live here.

That is what people want.

So, I think it's really important that we bring all those stakeholders to the table, to really get our arms around how to make it work more simply, more efficiently and to still meet the needs of public safety and education, all the things that people also want local government to do.

The same people that elected Dan and I are the same people that elected our city councils and our boards of supervisors and they answer to the voters the same way we do.

They have not increased the rate, the tax rate I should say.

What they're seeing is that fluctuation right now in valuations.

And none of us have any control over that, how the housing market is selling, how much homes are selling for or how much a small business property is selling for.

But anyway, I do think we need to just pause and really make sure we understand that system before we unravel the whole thing.

Henderson: So, there is a general levee established in 1975 and then there are now these special levees.

Are there some special levees that you would like to see done away with, Senator Jochum?

Jochum: You know, I'm not sure about that.

It's a good question.

I'm not sure which levees I would want to get rid of right now but I'll take a look at that, thank you.

Henderson: And you, Senator Dawson, are there some you want to get rid of?

Dawson: Well, that's what we have in our bill, right, we're consolidating a lot into the city or county's general operating levee.

For instance, I would just say our civic centers is something that back in the '90s and early 2000s that civic centers were something that was a newer thing and we didn't want to be paid out of the general levee so we created a special levee out there to try to fund these.

We're 20 years into the civic center endeavor now.

This is something that we're past the building, we're past the maintenance, that is more of a general fund operation as opposed to the separate silo out there.

That is just one example of how we have just siloed out all of these operations and we need people to be responsible for our overall budget in the end and that is the value I think of our proposal is consolidating these levees and giving locals more responsibility and more accountability in how they budget.

That is ultimately what we're trying to achieve in the end.

Henderson: Senator Jochum, one element that your colleague here proposed a year ago was taking the local option sales taxes that are collected in most areas of Iowa and making it a statewide sales tax and using that mechanism to finance what is called IWILL, which is the land legacy stewardship fund that was created by voters in 2010.

Democrats have generally supported finding a way to get that fund going.

Is this latest proposal something that democrats can get around, behind?

Jochum: You know, it's very creative I have told Senator Dawson that more than once.

It is a very creative way of saying that we have increased the sales tax by a penny by scooping all of those local option sales tax, claiming it as a state sales tax and then promising to send it back to the local communities.

The problem, again, goes back to local community's distrust of the state legislature on making good on returning that money and if they're going to be left holding the bag again on that.

And I think that is probably the biggest issue that we have right now rather than just doing it straight up and doing what the voters voted on, that we're collecting this local option sales tax, claiming it as ours, and then saying but we'll return it back to you.

And so people just aren't very trustworthy of it.

The other thing about the bill, though, is it also changes the formula on how those funds will be distributed once that penny kicks in or that three-eighths of a penny kicks in.

For example, the trails in the original proposal was trails whether they're biking, hiking or water trails, we get about 10% of that funding and the bill itself now reduces that to about 4% of the funding.

So, there's even a change in the formula that kind of reneges, in my opinion, on what voters thought they were doing and what they envisioned that IWILL was going to do when they voted for that in 2010.

So, although it is very creative I certainly still have some issues with it.

Murphy: Sorry, Kay, if you don't mind -- Senator, the political realities are that republicans have very strong majorities right now.

This thing is now 13 years old and hasn't happened.

Isn't this the best chance to at least get something done?

Jochum: It is a chance right now and we will see how it proceeds and whether the House is willing to accept that kind of a change.

But this is part of a much, those provisions are part of a much bigger tax package that is also sitting before us.

Henderson: Senator Dawson, how do you convince some of your republican colleagues who are a little reluctant to do this?

Dawson: Right.

Multiple things.

One, we have to take a look at what are we currently funding some of these watershed and conservation programs and our park programs out of right now?

It's the RIIF budget, our gaming revenues.

We had gaming expansion going on in Nebraska, which will cut into our RIIF budget eventually.

There is going to be a time when that line starts to drop on the gaming funds every year.

Henderson: That is because the Council Bluffs casinos are going to lose customers to Omaha.

Dawson: Correct, and the same for Sioux City as well too.

There are some casinos looking at going into the northern portion up in there.

So, my question to the building is how are we going to fund these programs out of a budget that is going to start declining pretty soon?

We have to migrate off into another more stable revenue just for the current programs we're funding right now, which is what IWILL would help do.

Secondly, this is something that the voters ratified by a large margin years ago.

And what we're trying to do is fund some of these programs with smart tax policy.

And that is the other portion where I say multiple ways to convince my colleagues.

We will, this is nothing a new idea, there are other states that do a standardized sales tax across the state and they remit some of those monies back to the locals.

That's what we're doing, that is what we've already done here in this state when we used to have the save penny back in the day and before we took it statewide it was individual school districts out there that enacted their own penny.

It eventually got to the point where it was so widespread we just took the save penny statewide.

And that's what we're trying to do here, right.

We have probably less than 50 taxing entities out of 1,050 across the state of Iowa that are not doing a local option sales tax.

I've joked before if I do one thing on this I want to actually strike the option portion in code and call it local necessity because there is no local government that is going to give up their sales tax anymore.

They all use it for basic operating procedures.

So, is there a way to have smart tax policy where we streamline it so all of the out-of-state vendors know what the sales tax rate is?

Because we can collect more for these local and rural areas by doing it this way than what they're currently getting right now.

So, looking at a budget shortfall potentially down the road with gaming funds, better tax policy and funding our needs, that's why I think this is a perfect marriage here of our proposal.

Jochum: Can I just say the other thing about the way the bill is currently designed is not only has it changed the formula but also when we voted for that 13 years ago we actually said this would be a supplement to the current funding that we have on trails and water quality and all those issues and many times this is supplementing, not supplementing but supplanting the current funding.

So, if we can get to a point where we can guarantee that we are not going to renege on that commitment to send that money back to local governments, that we can go back to the original distribution formula for water quality, trails and all of those things and if we actually are going to make this in addition to current funding rather than replace current funding it probably would have some legs and some strong support.

Murphy: And real quick because we've got to move on to other kinds of taxes, Senator Dawson, I would just be curious if you could address real quick that funding formula, because I've heard that from other people as well, the concern that the bill does create some money for water quality funding but the way it changed that formula that people have concerns with, how do you feel about that?

Dawson: Yeah, I would say that -- and this is where I'll give a lot of the groups credit, to be quick here on this.

A lot of people understood the political realities, you have the conservation groups, the trails groups, the hunting groups all came together and said that the current formula is not going to pass.

And so these groups came together with the leadership of the Governor and said, how do we redesign the formula?

Every one of those categories will actually receive more money from what currently is being funded right now if this was to be implemented, maybe not as proposed back then, but more money is still more money in the end.

And this is something where I really credit the coalitions out there because they have stuck to this, they are coming to the table and I give all those groups who come to the table credit versus some of those groups who just would rather be defiant opposition on the outside.

As we have said in committee all along, if you're willing to come to the table there is always a conversation.

If you're a no, you're not at the table.

Sostaric: Senator Jochum, your colleague has proposed a bill that would eventually eliminate the state income tax.

Democrats have been very opposed to this.

Why?

Jochum: Oh, good question.

So, the income tax system is really based on the ability to pay.

And as I said when we started the conversation, when you're going to do tax cuts, you need to ask two questions.

Who is it going to benefit?

And will this actually be a real cut or is it just simply shifting the burden to somebody else?

So, when you move away from an income tax system, which is progressive based on the ability to pay, and you move into using a sales tax to fund government services, we call that a very regressive tax because regardless of how much income you have you're going to pay that sales tax on all those taxable items.

It has the greatest negative impact on people who are middle class and working poor.

And this isn't numbers coming from me but the National Conference of State Legislatures have done analysis of sales tax and have indicated that 75% of the income earned by middle income and lower income people will go to pay for the sales tax on those taxable items that they have to purchase.

On the other hand, the top income earners will spend about 16% of their income on those same taxable items.

So, it's not a fair tax system to shift from an income to a sales tax system.

And I'm not even sure what the sales tax would end up costing or what it would have to go up to, to make up the difference.

I know there has been a lot of bragging about the amount of surplus we have in the state budget.

But I can also say that every state in the country is bragging about the size of their surplus.

So, where did it come from?

It came from a couple of different sources, one of which was billions of dollars that flowed into our states under both the Trump and Biden administrations with pandemic monies.

The other thing is that as you all know as reporters, Iowa's laws says we cannot spend more than 99% of the revenue projections that the Revenue Estimating Conference sets out.

And we have been actually at about 82% to 83% of our spending limitation.

So, when we underfund schools and we underfund natural resources and public safety, money flows into those other accounts and the surplus continues to build.

Murphy: Senator Dawson -- Sostaric: We're running out of time.

Senator Dawson, to Senator Jochum's point, income taxes fund such a large portion of state government, how would you fund state government services without raising the sales tax if the income tax were to go away?

Dawson: Well, our proposal we have here as we know we will have over $3 billion in the taxpayer relief fund by the end of this next year.

The letter of the law is those monies have to be used for tax relief.

So, our proposal is to do what we have done all along, right, manage our budget and with additional revenues each year draw down our income tax rate.

So, I call it accelerate the current tax cuts going from 3.9% to 3.5% by '26, going further to 2.5% by 2028 and then after that we use a ratcheting mechanism.

When money is filled from the taxpayer relief fund we slowly ratchet it down, and this would be over the course of a few years, this isn't something where we'd raise the sales tax and just slam down the income tax rate all of a sudden.

But it's what we've done the last few years.

I go back to 2018, one of the most biggest falses I heard on the floor in 2018 when we started this tax cut endeavor was bobsled to bankruptcy, we would turn to into Kansas.

I think we've proven over the last six years now, five years and what we've done on our income tax rates that we haven't turned into Kansas, we're not on a bobsled to bankruptcy, we've been responsible with our budget, we've taken excess revenues to thoughtfully buy down these rates and that is what the proposal is before us.

Henderson: I want to ask you about a property tax related issue at the county level.

There are county compensation boards, Senator Jochum, that are recommending pay for county elected officials.

Should those boards go away?

Jochum: I don't know if they should go away, Kay, but I do think that they need to have some reforms.

And I understand there's probably three or four different bills floating around right now.

I have not had the time to look at those yet.

It's in the local government committee.

But I do think there need to be some changes in our compensation boards.

I do agree with that.

Henderson: Senator Dawson, keep them or delete them?

Dawson: County compensation boards are basically an escape hatch for political accountability.

This is how our county elected officials there send representatives to a board to basically lobby for their own salary and then you're basically stuck with these results in the end by this independent board.

I would like to see more accountability on the supervisors, whether they get rid of them entirely or give them a lot more ability to draw down these proposals, something needs to happen with these compensation boards.

Henderson: 30 seconds.

Murphy: In about 30 seconds we have left, another complicated issue so I apologize for that.

How much longer can we rely on a the gas tax for a revenue source for Iowa's roads and bridges?

Senator Dawson, real quick we'll start with you, given the way that cars are becoming more fuel efficient?

Dawson: Yeah, that is a conversation that is going to continue going down the road.

We haven't done a good long study yet.

But as we go to more EV, more fuel efficient cars, we will be in a situation at some point in time of declining revenues no different from the gaming revenue.

How do we fund this?

Murphy: And in 10 seconds, Senator Jochum?

Jochum: And the gas tax was increased a few years ago, that was part of the package that in five years the legislature had to review it to find out how, whether or not that was how we were going to fund our road system long-term.

So, that's where we're at and that's what we need to do.

We need that study done.

Henderson: We are at the end of our conversation on these issues today.

Thanks to both of you for joining us.

Jochum: Thank you.

Dawson: Appreciate it, thank you.

Henderson: You can watch every episode of Iowa Press at iowapbs.org.

For everyone here at Iowa PBS thanks for watching.

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