DES MOINES — Senate Republicans pressed ahead Thursday with a plan for the state to take over the cost of mental-health services now covered by property taxes, as Democrats questioned the state’s reliability and a key House GOP leader expressed caution about taking on a new spending commitment.
Members of the Senate Ways and Means Committee voted 10-5 along party lines to advance an overhaul of mental-health financing by shifting the cost of regional services from Iowa’s 99 counties to the state.
The measure also would phase out the $152 million “backfill” to cities, counties and schools that was part of a 2013 compromise to replace local revenue they lost when commercial and industrial property tax rates were cut by 10 percent.
“The reality is the current system is not sustainable, and we have to do better for Iowans. This bill does provide better for Iowans,” committee Chairman Sen. Dan Dawson, R-Council Bluffs, said in pushing Senate Study Bill 1253.
The bill would gradually repeal local mental-health property tax levies and refashion the funding and management of the state’s mental health and disabilities services systems, with counties maintaining autonomy.
“I’ve never presented this as the perfect mental health system, but I do believe it is a better mental health system and, right now, it’s the only train in town to actually advance that conversation and try to equalize these regions and try to provide more funding for the system,” Dawson said.
Sen. Joe Bolkcom, D-Iowa City, said the state has not been a reliable partner in keeping its promise to adequately fund mental-health services or to launch a children’s mental-health system that still has not gotten off the ground.
He pointed to majority Republicans’ lackluster education funding commitments and efforts to hold state government agencies at “status-quo” budgets for a dozen years as harbingers for the future of mental-health funding.
“This bill is a shell game,” Bolkcom told his Senate colleagues. “It’s full of broken promises, property tax shifts, property tax increases — tax on schools, a tax on trees, a tax on private-land conservation.
“This proposal undermines, unfortunately, the reliable, predictable property tax funding that mental-health regions have depended on for years and replaces it with unpredictable and unreliable state funding,” he added.
“The total state takeover of the regional mental health care system will result in total state control over how the money is spent and what it is spend on. This is not a good change.”
The Senate bill eliminates the mental health property tax levy over a two-year period, with all county levies reduced to no more than $21.14 per capita for fiscal 2022 and reduced to zero beginning in fiscal 2023.
To replace the mental health levy, the state would provide for per capita appropriations to counties ranging from $15.86 for fiscal 2022 to $42 by fiscal 2025.
Beginning in fiscal 2026 and beyond, the previous year’s appropriation is multiplied by a growth factor indexed to sales tax growth for the preceding fiscal year — not to exceed 1.5 percent.
Speaking to reporters Thursday, House Speaker Pat Grassley, R-New Hartford, expressed caution about the bill’s “built-in escalator” and said, overall, “I want to see how that works into the whole budget picture.”
Senate Republicans issued an opening fiscal 2022 state budget spending plan of just under $8 billion, but Grassley said the numbers were more like suggestions that actually spending targets and much more work will be done by subcommittees as the session moves into its final scheduled month.
“I’ve said all along, since the beginning of session on this issue, that the state has to be very careful” in making long-term and growing funding commitments, the House speaker said.
The state, he said, is “on the hook” for increases in Medicaid and tax increment financing through the backfill. “most, if not all those things, we have very little say on how the money spent,” he said.
“So I think as we approach this reduction of the mental health levy at the local level, I just think we have to understand what does this thing look like — not necessarily today or two years from now — but five and 10 years from now, and is it another thing in which ... the state’s just writing a check, and we don’t have the ability to weigh in on how the money’s really spent?”
WHAT BILL DOES
The Senate bill also amends provisions related to county fund balances by requiring all county fund mental health balances to be pooled by the region.
The bill also would:
• Phase out the commercial and industrial property tax replacement funding for local governments and schools while adjusting the school foundation percentage to account for the lost revenue.
• Eliminate a property tax levy school districts use to finance educational and recreation infrastructure.
• Establish an additional elderly property tax credit for those above the age of 70.
• Remove the 2018 income-tax “triggers” already included in a previously passed Senate bill.
• Repeal the charitable conservation contribution income tax credit.
• Require the state to certify the management of property enrolled in the forest and fruit tree reservation property tax exemption program and renew the exemption every five years.
Dawson said there’s general agreement the current cap on property tax funding for mental-health services in not sustainable.
Senate Republicans have come up with a new stream of funding that will mean more money and a “growth factor” for the future with a per capita distribution model that will eliminate current disparities among varying county property tax levies.
“What we’re trying to do is equalize everyone to say no matter where you are at in Iowa, you’re region is going to receive the same support of funding and every individual is equal to that same support of funding,” the Council Bluffs Republican said.
“I don’t believe this undermines the reliability of the current funding stream right now because the reality is the current funding stream is capped, there is no growth and it’s not sustainable.”
The bill provides a state appropriation of $60 million in fiscal 2022 — $50 million goes directly to the regions on a per capita basis and $10 million goes to a mental health risk pool fund.
State funds would be distributed to the regions on a quarterly basis starting July 1.
In fiscal 2023 — the year the mental health property tax levy is completely eliminated — the bill commits the state to an additional $65.4 million in state general-fund appropriations for a total of $125.4 million. About $120.3 million would be distributed to the regions and an additional $5.1 million will go to the risk pool.
The bill also eliminates the commercial and industrial property tax replacement payments to most local governments over a period of four to six years as the state increases its share of funding for the mental health system.
And it increases the school aid foundation level from 87.5 percent to 88.4 percent, meaning schools would get an additional $65.4 million in state aid to offset the loss of the state’s backfill payment and the loss of the voter-approved Public Educational and Recreational Levy (PERL).