Vander Linden Update For January 21
Rep. Guy Vander Linden (R) (photo by Candace Allsup/Oskaloosa News)
FY 2017 Budget Overview
As the budget debate begins for FY 2017, it is important to understand the facts upon which the budget is built and the context in which the discussion occurs.
The difference between the FY 2016 and FY 2017 revenue estimates is $282 million (4% growth). The difference between FY 2016 actual spending and the FY 2017 revenue estimate is $153 million (2% growth). Therefore, revenue growth is $153 million and any additional spending ideas from the Legislature must fit within that $153 million figure. It is calculated by simply subtracting the FY 2016 Actual Spending Amount from the FY 2017 Revenue Estimate.
The 2016 Legislature arrives in January with several “built-in” spending increases totaling $207.8 million already approved by the Legislature and the Governor or required by the Code. They include things like Medicaid, the Teacher Leadership and Compensation System and the Business Property Tax Credit.
In addition to the “built-ins” the non-partisan
Legislative Services Agency projects the 2016 Legislature is facing several more anticipated increases totaling $68.6 million. They are almost entirely made up by state employee salary increases.
On top of the “built-ins” and “anticipated expenses,” there are the yearly increases in funding requested by various entities. Some of those are supplemental state aid for K-12 schools and additional funding for the Regents universities and community colleges.
All of that must fit within the $153 million of growth and within the overall on-going revenue amount that is projected to be collected in FY 2017. The process House Republicans are going through is finding a way to provide K-12 schools with the most responsible increase possible while not sacrificing other priorities like public safety and economic growth.
The Tax Coupling Bill
The tax coupling bill has an impact on the FY 2016 ending balance and the FY 2017 on-going revenue levels. Any agreement will impact discussions on school aid and budget targets.
House Republicans are discussing how to move forward on tax coupling with the Internal Revenue Code in tax years 2015 and 2016. That decision affects the revenues the Legislature will use while determining the FY 2017 state budget. The Governor has already recommended a plan for coupling that has a negligible effect on FY 2016 revenue while adding an additional $48.5 million to FY 2017. Until a decision on tax coupling is reached, the level of available revenue growth remains at $153 million.
One thing that can change the level of the state’s ending balance and the amount of on-going General Fund revenue is the coupling bill. The coupling bill updates Iowa law to conform with certain tax changes enacted by Congress. It is always important that this bill is passed quickly as tax preparers and accountants need to know what deductions Iowans can take on their 2015 income taxes.
The Governor’s plan is to not couple at all for tax year 2015. That means that taxpayers would not be able to take advantage of any of the tax extenders Congress just passed that have an Iowa component when they do their taxes this April.
The Governor then recommends permanently coupling with the IRC in tax year 2016 with the exception of Section 179 expensing or bonus depreciation. The Governor’s plan permanently leaves out those provisions. Section 179 expensing is an accelerated depreciation mechanism for business purposes and bonus depreciation is something similar to that except for larger expenses. The Governor’s recommended coupling provisions are estimated to have a negligible impact on FY 2016 General Fund revenues while increasing FY 2017 General Fund revenues by $49.2 million.
House Ways & Means Chair Tom Sands has a different idea that couples with everything except bonus depreciation in tax year 2015. It also does not add the permanency of the Governor’s plan. There is a $95.7 million impact on FY 2016 revenue. That money goes directly to taxpayers. Additionally, $86.5 million is added to FY 2017 on-going revenue with roughly $55 million of that available for appropriation under the state’s expenditure limitation law.
FY 2017 School Aid Background
House Republicans plan on acting quickly during the 2016 legislative session to set the FY 2017 school aid amount. During the 2015 session, House Republicans also acted quickly approving funding just two weeks into the session. Unfortunately, Senate Democrats refused to act on the bill until the spring.
In the last 14 state budgets, there has been an increase in Supplemental School Aid (SSA) every year except
FY 12 when no allowable growth rate was established.
State Cost Per Pupil (SCPP) is used as the basis for school aid funding. The SCPP serves as a basis for determining how much money the State sends to a school district each year for each pupil enrolled. There has been an increase every year since FY 2003 growing from $4,557 to $6,446 since FY 2003.
Total K-12 State Foundation Aid is the total amount of state general fund dollars sent to school districts as generated through the school funding formula. Since
FY 2003 that amount has increased almost $1.2 billion.
Over the last 5 state budgets, the total dollar increase for school aid is $563 million not including the $55 million vetoed by the Governor last summer.
In FY 2017 the following percentage increases equate to these total dollar amounts:
1% – $44.3 million
2% – $80.9 million
2.45% – $97.8 million (included due to this being the Governor’s recommended level as put forth in January of 2016)
3% – $117.1 million
4% – $154.7 million
