July 2010

Who Me? Raise Taxes? Never!

by Amy K. Frantz

“I’m proud of the fact that we’ve balanced the budget three years in a row, without raising taxes on hardworking Iowans.”

            -Governor Culver, in his Condition of the State Address, January 2010[1]

“We have now completed the important work we set out to do this session, fashioning a balanced budget for our state.” Governor Culver said…“We’ve kept our promises, protected our priorities, balanced our budget and held the line on taxes,” Culver said.

            -Governor Culver, in a press release after acting on final bills of 2010 Legislature[2]

Iowa’s Governor Culver is fond of claiming that he has not raised taxes on hardworking Iowans. He has said it so many times he may believe it to be literally true.  But it is not.  Perhaps he has forgotten about his March 15, 2007 press release titled, “Governor Culver Signs $1 Per Pack Cigarette Tax Increase Into Law.”[3]  Perhaps he doesn’t think smokers are “hardworking Iowans.”

At any rate, there is another tax increase lurking in the future that Governor Culver will have to ignore if he wants to continue claiming that he has not raised taxes on hardworking Iowans. Many school districts around the state may increase property taxes on hardworking Iowans because the state budget, passed by the Democrat-controlled State Legislature and signed by Governor Culver, authorized school districts to increase spending by an allowable growth rate of two percent, but did not appropriate the funds needed to cover the cost of the entire two percent allowable growth.

Why is the state determining the amount of growth allowed in a local school district’s budget? Public Interest Institute described the school funding process in Iowa in “State Education Funding and School Enrollment in Iowa” from Iowa Economic Scorecard.

In 1971, the state government of Iowa established state school foundation aid, an annual amount of funds that the state sends to school districts to help with education costs…Each year the State Legislature determines, with the aid of the Department of Management, the “allowable growth” rate, which is how much foundation aid can grow in the following year. So, if the State Legislature determines…that allowable growth will be 2%, foundation aid will grow 2% in [the next] school year.[4]

If school districts do not receive funding from the state to fully fund the allowable growth, but have the authority to spend, they will look to local taxpayers, in the form of property tax increases, to make up the additional funds needed.

The Legislative Services Agency (LSA) is a non-partisan agency of the Iowa Legislature that helps Legislators draft bills, and “provides fiscal notes and financial analysis of legislation… [and] information that enhances the budget and policy-making function of the Iowa General Assembly.”[5]  The LSA recently released a report evaluating School Aid for Fiscal Year 2011.  Here is an excerpt from the LSA’s draft report:

The Department of Management has finalized the FY 2011 School aid amounts. The General Assembly capped the FY 2011 State school aid appropriation at $2,499.2 million in HF 2531 (FY 2011 Standing Appropriations Act). Based on the Department of Management’s official school aid amounts, capping the State school aid amount resulted in a State aid shortfall totaling $156.1 million (the additional State aid amount needed to fully fund an allowable growth rate of 2.0%). Despite the State aid shortfall, school districts maintain spending authority on the shortfall amount and have authority to spend those funds through loans or cash reserve funds, and may recoup them through property taxes in the future.[6]

“Iowans will pay $136 million more in school property taxes in the budget year that begins Thursday, [July 1, 2010] an increase of more than 7 percent from the year before,” reported Staci Hupp in a recent Des Moines Register article.  “The average total school district property tax rate in Iowa will rise 44 cents per $1,000 of taxable value, a 2.9 percent increase,” said Hupp’s article.[7]

In the case of a property tax increase, Governor Culver may not have increased the tax directly, but he and the Democrat-controlled Legislature gave school districts the authority to spend, without fully providing the funding to back up that authority.

Amy K. Frantz is Research Vice-President at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1] Governor Chester J. Culver, “Governor Culver’s Condition of the State as Delivered,” Press Release, Office of the Governor, Tuesday, January 12, 2010, http://www.governor.iowa.gov/index.php/press_releases/single/262/, (June 29, 2010).  Emphasis added by author.

[2] Governor Chester J. Culver, “Governor Culver Acts on Final 2010 Bills,” Press Release, Office of the Governor, Thursday, April 29, 2010, http://www.governor.iowa.gov/index.php/press_releases/single/535/, (June 29, 2010).  Emphasis added by author.

[3] Governor Chester J. Culver, “Governor Culver Signs $1 Per Pack Cigarette Tax Increase Into Law,” Press Release, Office of the Governor, Thursday, March 15, 2007, http://www.governor.iowa.gov/news/2007/03/15_1.php, (June 29, 2010).

[4] David Hogberg, “State Education Funding and School Enrollment in Iowa,” Public Interest Institute’s Iowa Economic Scorecard, October 2003, Volume 11, Number 4, pp. 1-2, http://www.limitedgovernment.org/publications/pubs/ies/IesOct03.pdf, (June 29, 2010).

[5] Dr. Don Racheter, “Iowa Government and Politics,” Public Interest Institute’s Iowa Civics Project, 2009, pp. 21-22.

[6] “School Aid – Final FY 2011,” Draft report, Legislative Services Agency, June 25, 2010, http://gallery.mailchimp.com/f3000b7f827960d4da4915902/files/FinalFY11_SchoolAid_062510_v1.1.pdf, (June 29, 2010).

[7] Staci Hupp, “Iowans foot bigger bill for school property taxes,” The Des Moines Register, Wednesday, June 30, 2010, http://www.desmoinesregister.com/article/20100630/NEWS02/6300362/Iowans-foot-bigger-bill-for-school-property-taxes, (June 30, 2010).