DES MOINES — It has been nearly a decade since Iowans authorized their elected representatives to raise the state’s sales tax and infuse the proceeds into a wide range of environmental, conservation, natural resources and outdoor recreational initiatives.
Now, heading into a new legislative session in January, Gov. Kim Reynolds and the GOP-run Legislature appear to be considering a move on the voters’ mandate.
In 2010, 63 percent of Iowans who voted approved a constitutional amendment to create the Natural Resources and Outdoor Recreation Trust Fund — a permanent and protected funding source dedicated to improving the state’s water quality, protecting and conserving Iowa’s productive farmland, expanding natural areas including parks, trails, fish and wildlife habitat and providing recreation.
“I would say we’ve waited long enough,” Joe McGovern of the Iowa Natural Heritage Foundation told a seminar during last month’s Iowa Ideas conference in Cedar Rapids, an annual symposium held by The Gazette. “When we voted for this in 2010, we expected it to happen.”
“It is a long time coming,” agreed Rich Leopold, one of the architects on the committee in 2006 that started the push for what is now Iowa’s Water and Land Legacy, or IWILL. “I’m been working on this for 13 years,
Leopold, who later guided the initiative as director of the Iowa Department of Natural Resources, said he is “more excited than I’ve been in a few years now that we’re close” with Reynolds, legislative leaders and other key players increasingly listing it among session priorities.
“We’re working on it,” Reynolds said in a recent interview. “We’re bringing all of the stakeholders to the table and we’re trying to have that conversation and trying to find out where we can find common ground and if there’s the appetite to move this forward.
“We’re looking at that and we’ll just have to see what track that takes,” she added. ”It’s just what the art of the possible is, but the conversations are going good so far.”
While interest is rising as the Jan. 13 start of the Iowa Legislature’s 2020 session approaches, Senate Majority Leader Jack Whitver, R-Ankeny, said IWILL funding would have to be part of a net reduction in Iowans’ tax burden and the formula envisioned for allocating funds generated by a sales tax increase would have to be revised to reflect changing priorities.
Both of those could become heavy lifts. GOP leaders face members of their House and Senate majorities who philosophically oppose raising taxes, and also minority Democrats who view the sales tax as regressive and oppose changing the allocation formula that was part of the concept that voters approved.
“It’s a matter of trust with the voters,” said Sen. Rob Hogg, D-Cedar Rapids. “The formula was passed before the voters of Iowa enacted IWILL and we need to keep the trust of the voters by sticking to the formula that we currently have.
“I think most Democrats would vote for the sales tax increase if it was the formula that was in effect when the voters approved the constitutional provision,” he added. “But I can’t imagine Democrats helping Republicans raise sales tax for some new formula that hasn’t been approved by the voters.”
Under the Iowa Outdoor Recreation Trust Fund Amendment that was on the Nov. 2, 2010, ballot, the next time the Iowa Legislature approves a sales tax increase, three-eighths of one cent could be used in support of the Natural Resources and Outdoor Recreation Trust Fund.
The permanent, sustainable funding stream would commit 23 percent to natural resources, 20 percent to soil conservation and water protection, 14 percent to watershed protection, 13 percent to the resource enhancement and protection program known as REAP, 13 percent for local conservation partnerships, 10 percent for outdoor recreational trails and 7 percent for lake restoration.
Under current projections for fiscal 2021 issued by the state’s Revenue Estimating Conference, an additional one-cent increase to Iowa’s base 5 percent sales tax would generate a total of $547 million if implemented next July 1.
Of that total, about $170 million would be directed toward the Natural Resources and Outdoor Recreation Trust Fund. Absent legislative action, the Water Excise Tax included in 2018 water quality legislation that is projected to generate an estimated $31 million automatically would be repealed.
In addition to the base 5 percent sales tax, Iowa charges another penny for school infrastructure and many municipalities have additional local-option sales taxes.
Whitver said groups including the Iowa Farm Bureau Federation want the IWILL funding formula revised to focus more on water quality and natural resources than on recreation.
Sen. Ken Rozenboom, R-Oskaloosa, chair of the Senate’s Natural Resources and Environment Committee, said he’s looking at possible changes to the formula should the issue become live next session.
He did not rule out trying to address the IWILL funding formula as a stand-alone issue if that tax part of a bigger legislative package stalls.
“I have been working on it, but only in the context of reviewing the formula that was originally presented,” said Rozenboom, noting developments such as the Nutrient Reduction Strategy and increased focus on Iowa’s water quality have changed the IWILL context since 2010. “The formula is not acceptable to me and to many others. Maybe the basic outline of the formula is OK, but the way that the money is split up is just not something that I could support the way it is now.”
Sen. Charles Isenhart, D-Dubuque, ranking member of the House Environmental Protection Committee, said he prefers the Legislature approve the elements of IWILL as originally envisioned and ratified by the voters, but he did not rule out possible modifications if they were accompanied by accountability measures to track how the money is spent.
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“I’m a realist. Not everything is born perfect. Improvements can always be made and certainly you can hold that possibility out,” said Isenhart. But he preferred holding off on making major formula changes until the program has been in place for several years so changes could be based on experience.
“The bottom line is that any tax increase that comes out of the Legislature is going to have to be bipartisan in the final vote and a bipartisan bill whatever it looks like needs to include both Republicans and Democrats at the table when it’s negotiated,” he said.
“So any changes to the formula, if Democrats aren’t included in that discussion, if it’s just something that’s plopped in front of us on day 99 of the Legislature or even day one of the Legislature, the prospects for that kind of bill would be dim simply because we were left out of the discussions,” he added.
House Speaker-select Pat Grassley, R-New Hartford, said on Iowa Public Television’s “Iowa Press” that Republicans who hold a 53-47 edge in the House “are probably all over the board” on the IWILL issue, given there a number of proposals “floating around” and “so many unanswered questions.”
Senate President Charles Schneider, R-West Des Moines, said elements of a potential IWILL legislative package are “definitely being talked about” in the context of Senate Republicans’ push to make Iowa’s tax climate more competitive and continue to drive down tax rates.
“It’s definitely at the top of the conversation and I could see it happening,” he said.
Raising the state sales tax likely would be viewed in the context of a full penny increase rather than a fraction, so discussions have focused on how the state would use the other five-eighths not directed to IWILL.
If the base state sales tax would be increased to 6 percent, Whitver ruled out using the proceeds to cut corporate income taxes — saying Iowans would be paying the higher sales tax, so that should be offset by lowering the individual income taxes they pay.
“If we’re going to adjust the sales tax at all, we need to be drastically driving down some of those other areas and I think income tax is where Senate Republicans have been focused because that is what is creating this pro-growth, pro-jobs environment that we have right now in the state of Iowa,” Whitver said.
Some Democrats viewed a sales tax hike as regressive because it places a disproportionate burden on Iowans with lower or moderate incomes and makes them pay for environmental problems they did not cause. But Isenhart noted benefits of the original IWILL formula also would disproportionately benefit lower- and moderate-income people.
“Everyone should benefit from this,” said McGovern. “People are not going to move to this state because manure is applied appropriately, but they’re going to stay away if it’s applied wrong. They are going to come to this state and they are going to want to stay here if we have things to do after work. Outdoor recreation is extremely important. I think it has a role in that.”
Another possible use of increased sales tax revenue would be to finance new adult and children’s mental health initiatives that were approved without dedicated funding streams. Part of the proceeds might go for having the state take over some of the program costs now financed with local property taxes as a way to fund expanded services with more statewide uniformity.
“There’s definitely going to be a conversation about what we need to do to provide reliable, sustainable, long-term funding for mental health services in the state of Iowa,” Whitver said. “I believe something like mental health services should be something the state is paying for, not property taxes, and so I think that there is room for conversation about getting that off the property tax levy at the local level. We can have a conversation about that and whether it fits into this tax reform bill — I don’t know.”
Legislators also have started discussions for revamping the hundreds of millions of dollars in tax credits currently offered by the state.
Whitver said there are “a lot of ideas floating around” making it “way too early for me to speculate on what a package might look like and what that bill would look like. There’s just so many moving parts to it.”
Reforming the tax code is hard, the Senate majority leader said, and it gets further complicated when combined with environmental policy, mental-health changes, tax credit changes and shifting tax burdens in an election-year session.
“That’s a very time-intensive conversation that needs to be had,” he said.
Ingrid Gronstal Anderson of the Iowa Environmental Council said getting funding started for the IWILL program next session would be “a game changer” for Iowa and her group is “getting signals” it could happen.
“I think a lot of environmental groups and the folks who have worked on IWILL to begin with thought it would take a little while but not a decade,” she said.
Leopold said he believes there is “some room for interpretation along the way” with the funding formula and hoped that issue would not become a sticking point that stalls progress.
“The thing is we can lose every year. We only have to win once. Once we win, the tap is turned on and you can’t turn it off. Once it’s instituted and funded, it keeps going. So we only have to get once. We do get concerned that it gets back-burnered again, but it’s a constitutional amendment so it’s not going away,” Leopold noted.
Not everyone is convinced that 2020 is the year for a deal, however.
“My expectation is there will be some people talk about it,” Hogg said, “but I would be shocked if Republicans raised the sales tax in an election year, especially if they’re going to change the formula.”