2002 Legislative Positions

Iowa is currently facing a revenue shortage. The combination of excessive tax cuts (over $3 billion in the last six fiscal years) and a downturn in the economy has resulted in our inability to pay for state services currently being provided. The special session of the Legislature in November, 2001, modified the Governor’s 4.3% across the board budget cut. Still, services that Iowans depend on are being cut. For example:

1. Fewer OSHA and workers’ compensation employees;
2. Fewer Iowa state troopers (currently short 25);
3. Shortage of $7.8 million for K-12 education, which will lead to support staff layoff, postponing textbook purchases, less classroom resources;
4. Shortage of $5.1 million for community colleges, which will lead to tuition increases and elimination of classes;
5. Human services cuts;
6. Lay-offs of public workers.

The Iowa Federation of Labor, AFL-CIO supports adequate funding to preserve Iowa’s public services and support initiatives important to Iowans. We must determine our needs and priorities and see that funding is made available to meet them. Rather than institute across the board cuts, we should consider the following:

1. Use the $40 million "rainy day" fund to temporarily cover the shortage until a long-term solution can be implemented.
2. Institute a moratorium on new economic development grants until we have a means of determining whether they create a positive return for the state.
3. Renegotiate contracts with state contractors who are providing services or workers to the state.
4. Raise revenue by temporarily rescinding some of the tax cuts that have been passed in the last 6 years; for example, Iowa could reinstitute the 1997 income tax rates for those earning $70,000 or more a year.

Further, if some cuts are to be made, we should:

1. Avoid across the board cuts.
2. Give consideration to the fact that a one dollar cut for some state departments causes a two dollar cut in available revenue because some agencies use state revenue as a match to receive federal dollars.
3. Give consideration to agencies and divisions thereof that produce revenue.
4. Avoid cuts that will cause local government to raise taxes (i.e. property tax replacement).

The Iowa tax system is overall a regressive system. That is, the poor and the middle class pay a higher percentage of their income in taxes than the rich. Recent tax cuts, such as the 10% across the board income tax cut or the cut in estate taxes, have primarily benefited taxpayers in higher income brackets, making the system even more regressive. (An exception to this pattern was the phased elimination of the sales tax on utilities.)

In spite of the current budget crisis, there are various proposals to cut taxes even further in the 2002 session of the Legislature.

The Iowa Federation of Labor, AFL-CIO supports a progressive tax system. Such a system bases taxes on ability to pay and would cause people with lower incomes to pay a smaller percentage of their income in taxes than people with higher incomes.

The Federation opposes taxes that treat one source of income differently than another. A dollar of income, no matter what its source, is equal. It should be treated equally by the tax system.

Finally, the Federation opposes tax cuts when the budget is in crisis.

There is a shortage of funding for Iowa schools. In the 2001 session of the Legislature, money was borrowed from the tobacco fund to subsidize teacher salaries. Several years ago the Iowa Legislature passed a law that allowed counties to pass a one cent local option sales tax to fund school infrastructure. While some counties have enacted such a tax, others have not. Counties with an adequate retail base are able to generate significant funding through a sales tax; others, especially in rural areas, cannot generate any meaningful revenue by this means. The Iowa School Board Association is proposing that the state increase its sales tax by one cent and dedicate the revenue generated by the additional penny to a school infrastructure fund, to be distributed on a per pupil basis to each school district. This one cent imposed by the state would replace the local option taxes that various counties have enacted.

The Iowa Federation of Labor, AFL-CIO supports a re-vamp in the school foundation formula to address funding problems in the K-12 education system. A new school foundation formula should generate necessary revenue that will provide adequate funding for infrastructure, technology and for salaries for teachers and other school employees. We oppose stop-gap, piece-meal approaches.

The Federation also supports a study to identify ways to deliver education in a more efficient manner. Specifically, Iowa should explore school mergers, long distance learning and sharing arrangements.

The Iowa Federation of Labor, AFL-CIO recognizes the inequities that are caused by the current infrastructure funding mechanism. However, the IASB proposal is ill-advised because:

1. Increasing the sales tax hurts low-and middle-income families.
2. Earmarking tax revenue eliminates it from the appropriations process.
3. Under this proposal, money would go to districts automatically based on student population, rather than on demonstrated need. Even if it is needed now, the additional money generated by a one cent tax may not always be needed for school infrastructure.
4. Sales tax revenue that accrues to school districts automatically could allow marginal districts to continue to subsist. A merger could be more rational and cost effective.

Governments fund a variety of economic development programs, including property tax abatements, corporate income tax credits, enterprise zones, tax-free low-interest loans, Tax Increment Financing (TIF), infrastructure assistance, and training grants. The purpose of these programs is to create good jobs by encouraging existing firms to expand in Iowa and enticing new businesses to start up or relocate to Iowa.

The Iowa Federation of Labor, AFL-CIO supports disclosure and reporting of direct and indirect subsidies to businesses. We are concerned that the money spent on economic development may not be achieving the goals it was intended to achieve. In spite of spending over $1 billion per year in grants and tax breaks, Iowa’s wages still rank 38^th in the country.

In order to determine the effectiveness of any subsidy, Iowa should, on an annual basis, collect, analyze and publish the data necessary to evaluate whether these programs are working.

Such data should include, but not be limited to the following:

• Public funds received, business by business, for each economic development program.
• Tax credits, by business, by credit
• Property tax reductions and abatements
• Number of net jobs created and hourly wage
• Value of tax expenditures

With regard to taxes, the state should conduct studies to determine the costs as well as the benefits of tax expenditures, such as those conducted in Nebraska, Minnesota and Wisconsin.

Recipients of all economic development subsidies should be required to meet quality standards, including jobs that pay at least twice the minimum wage and provide health care. Firms with a record of labor law violations or union busting should be disqualified.

Regarding venture capital, we are currently analyzing these proposals to determine their effects.

The amount of money in Iowa’s unemployment trust fund is over $793 million. Employers continue to contribute at low rates. At the same time, less than half of unemployed Iowans are receiving benefits. Thousands of individuals who are totally or partially unemployed through no fault of their own are denied unemployment benefits due to technical regulations.

The Iowa Federation of Labor, AFL-CIO supports legislation that would change the current formula for qualifying for unemployment compensation in order to allow more Iowans who are unemployed through no fault of their own to receive benefits.

Such legislation includes:

• Changing the base period earnings requirement. Currently, a worker’s base period earnings must be 1-1/4 times the high quarter earnings.
• Backdating job insurance claims to the last week of the prior quarter if the individual lacks qualifying wages in the current quarter.

The minimum wage was last increased in 1997 when the Congress increased it. Iowa, by statute, adjusts its wage to the federal level.

Currently, the Congress has legislation pending to increase the minimum wage, but no action has been taken. A state can have a minimum wage higher than the Federal rate. An estimated 60,000 Iowans would get wage increases if the minimum were increased.

The Iowa Federation of Labor, AFL-CIO supports an increase in the minimum wage in Iowa.