DES MOINES — Iowa Gov. Kim Reynolds proposed a sales tax increase, income tax cuts and making investments in child care, mental health and natural resources in her first speech of the 2020 legislative session.
Reynolds on Tuesday delivered her annual Condition of the State address to both chambers of the Iowa Legislature. Included in that speech was the announcement of the “Invest in Iowa Act,” a multifaceted budget bill that garnered much bipartisan applause.
The proposal would cut state income taxes by 10% for most Iowans and by 25% for low-income residents, according to Reynolds.
“One year ago, our top tax bracket was at 9%, one of the highest in the country,” she said. “With this, our top tax bracket will be reduced to 5.5% by 2023.”
The governor’s bill also would cut property taxes. The goal is to have a net reduction in taxes when combined with the 1-cent sales tax increase the bill also proposes.
The Iowa Constitution requires three-eighths of any sales tax increase to fund the Natural Resources and Outdoor Recreation Trust, commonly known as IWILL. However, the formula that determines how those funds can be used likely will be tweaked.
“The challenges we face today and tomorrow are different than those we faced (when the constitutional amendment was adopted),” Reynolds said.
The governor’s bill would earmark 58% of that trust fund — an estimated $100 million — for water quality initiatives, for instance.
Iowa Sen. Dan Zumbach, R-Ryan — who chairs the Senate Agriculture Committee — said he agrees with the spirit of that plan.
“The whole IWILL concept was sold as a water quality concept,” he said. “That’s how I would support it. The formula developed a decade ago is not an acceptable formula.”
All of this would be a “heavy lift in a short amount of time,” according to Iowa Rep. Lee Hein, R-Monticello, who chairs the House Ways and Means Committee. His committee would have to manage these tax issues.
“I’ll give (Reynolds) credit,” he said. “There’s a lot of bold priorities there. I’m all for reducing taxes if we can. … My first question for the governor would be, ‘When will we get the bill draft?’”
Reynolds also recommended doubling the current salary limit to be eligible for the Early Childhood Tax Credit. Now people who earn up to $90,000 per year would be eligible to recoup some child care costs.
Iowa Rep. Lindsay James, D-Dubuque, said that made her want to dance.
“Raising those tax credits and expanding accessibility to child care is crucial, so important,” she said.
Iowa Sen. Pam Jochum, D-Dubuque, loved that plan as well, especially as she introduced legislation to that effect in 2019.
“That was my bill,” she said. “It was contained in a bigger bill that we needed to pass last year, but at the last minute it was pulled out. But the committee chair said he would make sure it moved forward this year and kept to his word.”
But James — also a member of the House Ways and Means Committee — wondered how the state will fund that program while cutting taxes.
“When I hear ‘cut, cut, cut,’ the question is, how are we going to fund all of these other investments in our state?” James asked. “We have to be very careful.”
Reynolds’ plan also calls for significant funding reductions to several natural resource protection programs, such as the soil conservation cost share and Resources Enhancement and Protection, or REAP, grants.
The idea is that the IWILL revenue would fill in the rest.
“She basically took last year’s budget, took some of that off the general fund and plugged in IWILL,” said Iowa Rep. Chuck Isenhart, D-Dubuque, ranking member on the House Natural Resources Committee. “So far, I see no new programs, no real increase there. So there are two discussions — how do we pay for it and what are we paying for?”
One increase in Reynolds’ proposal is to the Department of Human Services, which pleased Iowa Rep. Shannon Lundgren, R-Peosta, who chairs the House Human Resources Committee. She said she also was excited to hear Reynolds call for funding the state’s new children’s mental health system.