Transcript Implications of State Spending Cuts: Lilly French presentation

Implications of State Spending Cuts:
The Need to Maximize
Federal Funding and Generate
Revenue for Iowans
Lily French
Iowa Policy Project
Immediate Consequences of
Spending Cuts


In a recession, we need to “keep people employed
and buying things” – budget cuts reduce the total
level of spending within a state’s economy
Reductions in government spending on goods and
services, or reductions in transfer payments to
lower-income families, are damaging to the
economy because they reduce consumption
… this effectively prolongs the recession and delays
recovery throughout the state

Puts vulnerable families who depend on state
services at risk during tough economic times
Spending Cuts Hurt Our Future

Budget cuts result in more jobs lost in Iowa –
from the public and private sectors
Bigger hole to climb out of during recovery

Reduces resources for an increasing number
of economically vulnerable families
Family well-being in jeopardy and children fare
worse as adults = decreasing productivity of
future workforce
Revenue/budget problems carried into the future
Iowa Slow to Regain Jobs Lost
(Every Job Counts)
Job Growth Comparison – Iowa Nonfarm Jobs
Source: The State of Working Iowa 2008, Iowa Policy Project
Families’ Well-Being Declines
Foundation for Child Development in its 2009
Youth Well-Being Index Report concludes
“virtually all progress made in family economic
well-being since 1975 will be wiped out.”
Report shows impact of the current recession on
children will be dramatic and long-lasting
rising child poverty rates
declining # of children in households with at least one parent
with secure employment
declining median annual income for all families with kids
negative ripple effects on children’s social relationships,
community connectedness, health, and safety/behavior
Report available at: http://www.fcd-us.org/usr_doc/Final-2009CWIReport.pdf
Cutting Away Iowa’s Future
Children who fall into poverty during a
recession fare worse as adults
Earn less
Achieve lower levels of education
Less likely to be gainfully employed over their lifetimes
More likely to have poor health
Less productive workforce, decreased tax
revenue, and increased public spending
-- First Focus “Turning Point: The Long Term Effects of Recession-Induced Poverty”
Opportunities for Iowa

Expanded federal funding to help
struggling families in this time of
economic need:
– Child Care Assistance
– TANF Emergency Contingency Fund
– Supplemental Nutrition Assistance Program
Increasing Child Care
Assistance through ARRA



Iowa was awarded $18.1 million to
expand child care assistance
To date, only $2.4 million has been used
for that purpose
Remaining $15.8 million is being held for
DHS budget shortfalls in other programs
– Violates ARRA legislation intent
Child Care Assistance in Iowa
CCA Expansion to 200%
possible without state cost


Use remaining CCDBG stimulus funds to expand
CCA eligibility to 200% and institute adjusted copayment schedule
Cost of 200% (with adjusted co-pays)
Immediate Annual Tax Revenue
Cost to the State
$21.6 Million
- 6.8 Million
$14.8 Million
Existing ARRA CCDBG funds
$15.8 Million
First year of expansion would be fully covered by
existing ARRA funds designated for child care &
increased tax revenues
If no action is taken…
Lose an opportunity to make needed
program changes which reward work
and serve more families
Negative implications for CCDBG
reauthorization in 2010
– Sending message to Congress that Iowa does
not need additional child care services
(first reauthorization since 1996)
Additional TANF Funds
through ARRA

Iowa can draw down $65.5 million
from TANF Emergency Contingency
Fund for:
– Increased basic assistance = rising caseloads
– Increased spending on subsidized employment
or short-term non-recurrent expenses

Caseload increase will draw $10.5 million;
leaving $55 million still on the table
Draw Down Options with
No State Cost
1) Count DHS flood recovery funds as MOE.
2) Partner with United Way, homeless prevention
organizations, and/or food banks – counting their
expanded food and crisis housing services as MOE.
3) Partner with Iowa Community Action Agency
Association to count utility company contributions.
4) Expand County General Assistance Programs.
5) Partner with private sector to offer gift certificates
or vouchers to needy families at discounted rate to
the state.
If no action is taken…
This is a use or lose opportunity; Iowans
will not benefit from the additional funds
Negative implications for TANF
reauthorization in 2010
– Congress will analyze how the additional
TANF funds were used (or not used) as an
indicator of state needs in reauthorization
Food Assistance in Iowa
Expansion of SNAP
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Iowa is able to expand Food
Assistance through “Categorical
Eligibility”
Since 1999, states have been able to
set their own asset and gross income
policy via categorical eligibility.
– Many states have already taken
advantage of this option.
State Option For Food Stamp Asset Test
WA
MT
ME
ND
ID
OR
MN
VTNH
MI
WI
SD
NY
MA
CTRI
WY
PA
IA
NE
OH
UT
NV
CA
IL
CO
KS
IN
OK
NM
VA
MO
KY
NC
AR
SC
MS
HI
TX
DC
MDDE
DC
WV
TN
AZ
NJ
AL
GA
LA
FL
AK
Uses Higher Asset
Test than Federal (3)
Updated 12/7/2009
Uses Federal Asset Test (18)
No Food Stamp Asset Test* (21)
No Food Stamp Asset
Test for Most (2)
Plan to Implement (7)
*Virgin Islands and Guam have also eliminated the asset test.
Note: Information based on state agency reports to CBPP.
USDA says “Yes” as well
“In these times of rising caseloads and
shrinking State budgets, expanded
categorical eligibility can benefit
States by simplifying policies, by
reducing the amount of time States
must devote to verifying resources,
and by reducing errors. It can benefit
families hurt by the economic
crisis…”
-- USDA Memo to Regional Administrators
September 30, 2009
How Iowa could benefit from
categorical eligibility…
Provides additional resources to a greater
number of working families
Provides a direct infusion of cash into Iowa’s
economy, as benefits are spent quickly and
locally on food
– DHS estimates $12.4 - 24.7 million in economic
benefits from raising the income limit to 160% FPL
– DHS estimates $20.3 - 33 million in economic
benefits from dropping asset tests with the income
limit increase to 160% FPL
Reduces state workloads
2010 Reauthorization
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What we do now not only determines how
much support Iowans struggling through
this recession will receive… but impacts the
future funding for our state
Up for Reauthorization Next Year:
– Child Care Development Block Grant
– Temporary Assistance for Needy Families
– Supplemental Nutrition Assistance Program
• Business tax credits in FY2010: $421 m.
• Profit-shifting loophole: $50-$100 m.
• Gov’s FY 2011 budget proposal eliminates
8 credits, caps credits at $185 million, and
eliminates refundability of RAC for
companies with over $20 million in sales =
$52.5 million in additional revenue
Good Start; More Can Be Done!
Responsible Responses Look at Revenue
(Taxes)
Tax
expenditures,
incentives,
and
loopholes
have grown
dramatically
and largely
unchecked
over time
… do not account for all the budget deficits but definitely contribute to them.
Most business credits are intended to
stimulate economic development
• Do they work?
• Are they the only way, or the most costeffective way, to promote growth?
• How can we tell a good from a bad one?
Make Iowa a place where businesses will
want to locate and where their
employees will want to live.
• Education: Provide a skilled workforce,
good schooling for workers’ children
• Infrastructure: Sound, well-maintained
system of roads, water, sewer
• Quality of Life: Public safety, recreation,
health care, arts and entertainment
When is that justified?
• Developing industries: Tax credits for ethanol and
wind power
• Limited duration to get an industry off the ground, to
the point where growth is self-sustaining
What to avoid:
• Paying businesses to do something they would do
anyway
• Giving subsidies when there are not adequate
revenues for essential services
• Subsidies to business reduce revenues
and hence the state’s ability to perform its
traditional functions that provide the
foundation for economic growth:
education, infrastructure, and quality of life
• In budget deficits, unnecessary subsidies
are not just a waste of money: they harm
state economic growth
What Can You Do?
• Support recommendations of the Tax
Credit Advisory Panel, endorsed in
Governor’s proposed FY 2011 Budget
• Urge greater transparency – fill likely lead
to more revenue in future
• Urge the adoption of Combined Reporting
Tax Credit Panel Recommendations
• Transparency ... recommends the Revenue Estimating Conference
list types and amounts of tax credit claims included in its tax receipts
calculations for each meeting.
• Transferability ... recommends eliminating transferability (“sale”) of
all state tax credits.
• Return on investment ... recommends Panel members develop a
process for calculating a return on investment for each tax credit.
• Sunset tax credits ... recommends five year sunset for tax credits.
• Cap tax credits ... recommends moving all business-related tax
credits under the $185 million cap created last session.
• Eliminate some credits ... recommends eliminating 8 tax credits,
most notably the film tax credits. Most of the other credits are either
not being used, or the panel has determined they are not necessary
because of changing economic conditions.
• Eliminate refundabililty of the Research Activities Credit ...
recommends eliminating Research Activities Credit refunds for
companies with gross receipts in excess of $20 million per year.
• Tax loopholes are real, and can be plugged.
• Iowa tax law allows multi-state companies to do
business here, make money here, and shift the
profits out-of-state to avoid Iowa taxes.
• Cost: $50 to $100 million in additional revenue
every year.
• Almost all of this tax avoidance comes from
large, multi-state corporations headquartered
outside Iowa (ex: Wal-Mart, Toys R Us).
• “Combined Reporting” prevents profit shifting by
combining the profits of all the company’s
subsidiaries.
• Levels the playing field for local firms
• Proposed by Governors Vilsack and Culver
• Used in 16 states for over two decades
• Recently adopted in 7 more states, for a total of
23, including NE, KS, MN, IL & WI
• Current bill: SSB 3122 (Jochum, Feenstra, Quirmbach)
Voter Views
Key findings:
 Iowa voters generally believe the wealthiest Iowans and
multistate corporations benefited most from tax cuts
over the last 20 years;
 More than six in 10 Iowa voters believe those same
groups — wealthy individuals and big companies — do
not pay their fair share of taxes in Iowa; and
 By large margins, Iowa voters believe small businesses,
the working poor and middle-income Iowans either pay
too much or about the right amount in state taxes.
www.iowafiscal.org
Do Iowans want tax reform?
It’s not even close. Despite the tirades at the
Statehouse last spring, Iowans overwhelmingly
back the kind of reform that died without a vote.
www.iowafiscal.org
Voter Views
Key findings:
 Iowa voters do see several acceptable ways to raise
revenue in this budget crisis; some involve targeted tax
increases;
 Four options carried over 60 percent of respondents —
including a temporary income-tax increase for
households earning over $250,000; and
 Iowa voters do not favor general increases in income
tax or property tax, but could support a penny increase in
the state sales tax.
www.iowafiscal.org
So, what would Iowans accept?
A majority of Iowans consider the following
options acceptable ways to avoid more cuts:
1. Raise ‘sin’ taxes
2. Temporarily raise income tax on high earners, those making
over $250K
3. Limit film tax credit
4. Limit research activities credit
5. Crack down on shifting profits to out-of-state subsidiaries
(also known as combined reporting)
6. Raise sales tax by 1 cent
7. Tax profits from sale of business
8. End agland prop. tax credit for nonfarmers
9. Expand sales tax to more services
www.iowafiscal.org
Notable points behind numbers
Voters’ support for targeted tax
moves follows sound economic policy
National research shows, and recognized
economists agree:
cutting state spending is more likely to deepen
recession and delay recovery
than raising selective taxes, particularly those
affecting more affluent taxpayers
www.iowafiscal.org
Conclusions
• Iowa’s current budget situation is the product
of a severe recession and a decade of tax
policies that cut revenues by over $1.5 billion.
• We need to address the long term structural
deficit and lingering equity issues.
• Everything should be on the table: Closer
scrutiny of tax credits and loopholes, and
increased transparency, are needed.
• Will everything be on the table, or will
corporate tax breaks get a pass?
• Will essential services be cut in order to
preserve millions of questionable tax
credits to wealthy corporations?
• Will Iowa maximize the federal dollars
available to us?
Keep in Touch!
For more information:
Lily French, Iowa Policy Project
(319) 338-0773
[email protected]
Victor Elias, Child & Family Policy Center
(515) 280-9027
[email protected]
Or check our website:
www.iowafiscal.org
Data from Iowa Voter Survey
Who ‘wins’ in recent moves?
Iowa voters have clear ideas on
who has benefited from tax cuts for individuals
and businesses over the last 20 years.
78%
75%
www.iowafiscal.org
Who pays what they should?
More than 6 in 10 Iowa voters believe the
wealthiest Iowans and large corporations
do not pay their fair share of taxes in Iowa.
www.iowafiscal.org
So, what would Iowans accept?
Supermajority-supported revenue options:
www.iowafiscal.org
So, what would Iowans accept?
Firm majority revenue options:
www.iowafiscal.org
Facts on Spending &
The Roots of the Revenue Crisis
Realities for Response
6.3%
5.3%
General Fund is a
smaller share of Iowa
economy than it was in
the 1990s.
www.iowafiscal.org
Realities: Real Spending Down
• The lion’s share of state government
costs are personnel costs, and health
insurance costs are a major component
• Rapid rise in health insurance
premiums has led to the cost of state and
local government services rising faster
than the consumer price index:
68% vs 47% from 1994 to 2009
• Result: General fund spending,
corrected for inflation, has actually fallen
since 2000
www.iowafiscal.org
Realities: Real Spending Down
• The lion’s share of state government
costs are personnel costs, and health
insurance costs are a major component
• Rapid rise in health insurance
premiums has led to $2,371
the cost of state and
$2,089
local government
services rising faster
$1,985
than the consumer price index:
68% vs 47% from 1994 to 2009
• Result: General fund spending,
corrected for inflation, has actually fallen
since 2000
www.iowafiscal.org
Revenue Roots of Crisis
• Tax Cuts over the past 10 years
• Increasing use of business tax credits
• Increasing exploitation of loopholes in
the corporate income tax
• Declining sales tax revenue — Iowa tax
code has not been modernized to address
shifts in spending to internet sales and
untaxed services
www.iowafiscal.org
Realities for Response
Revenues growing more
slowly than economy
www.iowafiscal.org
Revenue Roots: Tax Cuts
• Reductions in taxes on retirement
income, mostly benefiting higher income
seniors (1996, 1999, 2006)
• Cuts in inheritance and estate taxes
(1998, 2003)
• 10% income tax cut (1998)
• Hospital sales tax exemption (1999)
• Utility exemption in the sales tax (2001)
• Insurance premium tax cuts (2004)
www.iowafiscal.org
Revenue Roots: Tax Cuts
• Reductions in taxes on retirement
income, mostly benefiting higher income
seniors (1996, 1999, 2006)
Effective
• Cuts in inheritance and estate
taxes
(1998, 2003)
Cost:
• 10% income tax cut (1998)
20%
of
• Hospital sales tax exemption (1999)
General
• Utility exemption in the sales
tax (2001)
• Insurance premium tax cuts (2004)
Fund
www.iowafiscal.org