Vander Linden Capitol Update For February 26, 2015
Rep. Guy Vander Linden (R) addresses those on hand at Eggs & Issues January 24, 2014. (photo by Candace Allsup/Oskaloosa News)
Collective Bargaining Reforms
Key collective bargaining reforms that would help control rising costs for school districts are:
• Allowing an arbitrator to choose between two impasse points, not just an either/or scenario. The reason to avoid arbitration is that, given what an arbitrator is currently allowed to consider, management is likely to lose. The playing field is tilted in favor of labor and against the folks funding the eventual agreement – the taxpayers. Giving the arbitrator power to consider points between two parties allows for a level playing field at the arbitration level of contract negotiations.
• An arbitrator, during binding arbitration, should be allowed to compare public wages and benefits to those in the private sector. Currently, an arbitrator compares wages to other public sector employees. Those public sector employees are often represented by the same unions and thus the comparison amounts to comparing a union to itself. By including a comparison to the private sector wages and benefits, an arbitrator could look at the entire spectrum of facts and maintain parity between the public and private sectors.
Iowa’s collective bargaining law has no requirement for arbitrators to consider the impact a proposed pay increase will have on the state budget and the taxpayers. Arbitrators only have to look at the state’s authority to raise or levy taxes to pay for the proposed pay increase. They have no responsibility to look at the current tax rates in relation to the state’s ability to fund a proposed increase. The playing field is wildly tipped in favor of public-sector unions and against the taxpayers.
Caution Signs? Daily Revenue Numbers Continue to Lag Behind REC Forecast
With the announcement that the Revenue Estimating Conference will hold its spring meeting on March 19, many within the Capitol Complex are starting to take a closer look at the latest economic data in an effort to read the tea leaves and decipher what action the REC will take. A quick look at how state revenue currently stands would raise a lot of questions and concerns.
When the REC met in December, the three-member panel revised their estimate for the current fiscal year to show that revenue would grow 5.7 percent (+$368.1 million) over the final FY 2014 numbers. The overall number, $6.8571 billion, was significantly lower than what had been projected in March of 2014. The drop came about due to lower than projected FY 2014 revenue and changing economic conditions, in particular the ag sector.
Personal income tax, the revenue source which accounts for nearly two-thirds of annual General Fund revenue, was projected to grow by 5.7 percent – $227 million. Through February 24, actual revenue has grown by 4.8 percent – $116 million. While this is lower than the REC projection, this category is somewhat hard to predict as people who owe after completing their income tax calculations are not likely to pay until it is due on April 30.
Sales and Use Tax Collections currently are outpacing the REC projection. In December, this category was projected to grow by 4.4 percent. Through February 24, sales and use collections are running about 1 percent ahead of the forecast.
The concern about what direction state revenue is headed comes from two separate General Fund components. Throughout the fiscal year, collections from corporate income tax have lagged behind the previous year. This category started the year already in negative territory, due to an accounting error at the beginning of FY 2014 which credited around $20 million of sales and use tax revenue into to corporate income tax line. Even with this factored in, the REC still projected that corporate income tax revenue would grow by 3.8 percent in FY 2015. That hasn’t happened yet. As of February 24, corporate income tax collections were running 5.2 percent below FY 2014 levels. This amounts to being $16 million behind last year.
The other component that is beginning to be a concern is the amount of tax refunds paid out by the state. The REC had forecasted that this amount would go down by 5.4 percent. While the amount of refunds paid back to taxpayers is below last year’s levels, the difference is only negative 1.6 percent.
Overall, the General Fund is experiencing growth of 4.9 percent through February 24. That’s a good showing when compared to the situation facing several of Iowa’s neighboring states, but it is still behind the REC projection and the FY 2015 budget amount of $6.9946 billion.
Economic indicators from the private sector also are giving caution signs. Iowa’s largest manufacturing company – John Deere – reported a 17 percent decline in sales and a 43 percent drop in profit. Regional economic forecasts continue to predict growth, but at a slower pace.
The combination of these factors raises the potential that the Revenue Estimating Conference will be forced to revise their FY 2015 and FY 2016 revenue forecasts downward. Currently, the REC is projecting $200 million in new revenue above the level of the FY 2015 budget. Passage of the IRC update bill provides nearly $20 million in additional revenue in FY 2016. But that bill will also reduce the state’s FY 2015 ending balance by almost $100 million, as Iowans take advantage of the tax provisions approved by Congress and President Obama.
While Iowa’s economy appears to be still growing, the record pace of just a few years ago has disappeared. Anyone expecting to find a pot of new gold under the REC’s March estimate is likely to be very disappointed and may discover that there is less to spend than there was in December.
School Funding Bill Heads to Conference Committee
Senate Files 171 and 172, setting school aid for the FY16 (2015/16 school year) were sent to conference committee this week to find a final compromise. The Senate is proposing a 4% growth amount while the House and the Governor have advocated for 1.25%.
The House originally passed school aid bills nearly 4 weeks ago, passing House File 80 and 81 which both set school aid growth at 1.25%. The Senate chose to ignore those bills for several weeks and instead sent over their own 4% proposals just last week.
The House continues to support a 1.25% proposal, which would provide an additional $100 million in state dollars going to the K-12 education system next year. In this figure is included $50 million for the state’s new Teacher Leadership Compensation (TLC) system designed to fundamentally change how teachers cooperate and grow in their profession. Additionally, just under $6 million of the funding will provide property tax relief to millions of Iowans.
The House proposal continues the legislature’s trend of providing significant increases to the state’s K-12 system, bringing the 5 year total increase to over $570 million, a nearly 22% increase.
While state revenues increased this year providing the legislature money to increase some appropriations for FY16, a number of built-in expenses and prior commitments via legislative action in past years leaves around $200 million available for additional expenditures for the upcoming year. The House proposal, which fits in line with the Governor’s proposal, for school funding for next year would spend half of that new available revenue on the state’s K-12 education system.
