Government Relations Report: A Preview of Iowa's 86th General Assembly

General
The 2013 Iowa legislative session will gavel in on Monday, January 14, the first of the two-year 86th General Assembly.  For the most part, the 86th General Assembly will look very much like the last with a split legislature. Democrats will still control the Senate by a narrow margin, while Republicans continue to hold the House, but by a slightly slimmer margin than in the past two years. With chambers of opposing parties and a Republican governor, compromise will be essential to a successful session. A number of issues from the last legislative session will be back this year, including property tax reform, education reform, and mental health reform. Also expected bills to establish the State health care exchange and comply with new Medicaid standards required by the Affordable Care Act, to increase the gas tax and to modify the State’s corporate income tax.

Leadership
Due to redistricting in 2012, there were many retirements in both the House and the Senate, several primary and general elections which matched incumbent against incumbent, and many candidates new to elected position at the State level. Consequently, the election brought new faces to both chambers. Leadership in the Senate remains largely the same as last session. Democrats remain in control of the Senate by the same narrow, two-person majority. Senator Mike Gronstal will serve another term as Senate Majority Leader. Following the retirement of longtime Senate President Jack Kibbe, the Senate Democrats elected Senator Pam Jochum as the first female Senate President. The majority of the committee chairs will remain the same. New chairs include Senator Tod Bowman (Transportation) and new Senator Janet Petersen (Government Oversight). Senate Republicans also elected Senator Bill Dix as their new Minority Leader.

Redistricting brought significant turnover in the Iowa House, with Democrats picking up seven seats. Republicans still hold a 53-47 majority and have announced a huge turnover in committee leadership. Representative Kraig Paulsen will continue as Speaker of the House, and Representative Linda Upmeyer will continue as Majority Leader. Representative Steve Olson was appointed Speaker Pro Tem last May, upon the retirement of Representative Lance Horbach. Representative Chris Hagenow will take over as the new Majority Whip, with new Assistant Leaders Jeff Smith, Joel Fry and Walt Rogers joining returning assistant leader Matt Windschitl.

Retirements and losses of several House Republicans have left big holes in the leadership team. The chairs of nine House standing committees either retired or were defeated. Of note is the retirement of longtime Appropriations Chair Scott Raecker, whose anticipated successor, Nick Wagner, was defeated. New chairs include Chuck Soderberg (Appropriations), Peter Cownie (Commerce - previously State Government Chair), Chip Baltimore (Judiciary), Ron Jorgensen (Education), Mary Ann Hanusa (Economic Growth), Pat Grassley (Agriculture), Josh Byrnes (Transportation), Greg Forristall (Labor), Guy Vander Linden (State Government), Jason Schultz (Local Government). House Democrats will again be led by Minority Leader Kevin McCarthy.

Budget
In the first of the two-session General Assembly, budget negotiations take center stage. In 2011, the Governor called for the legislature to pass a two-year budget. Negotiations became so contentious that talks broke down, and session went well beyond the scheduled 110 days to June 30. This year, budget negotiations could prove to be just as difficult as in 2011. The Governor is again calling for a two-year budget to be passed, and interest groups are already vying for a piece of this year’s anticipated $800 million surplus. Both Speaker Paulsen and Minority Leader McCarthy have publically warned against appropriating the surplus to new programs. The State’s revenue estimating conference warns that the increased State revenues are not a certainty in the future.

Property Tax
The past two legislative sessions have been marked by the acrimonious debate over property tax reform. While those debates centered on a reduction in commercial and industrial property taxes, the Governor as well as business groups have begun to call for more comprehensive tax reform to include a reduction in personal and corporate income taxes, as well as an increase on the total amount of tax credits the State can issue. A small but vocal minority continue to push for decoupling of the State’s agriculture, commercial and personal property tax system. Senate Democrats would prefer to concentrate any tax cuts on small and medium sized businesses. Democrats have also rejected proposals that do not provide reimbursement to local governments for lost revenues, which they contend would cause a shift of taxes onto residential taxpayers.  In the past, the Governor’s and House Republicans’ plans have cut commercial property taxes without providing reimbursement to local governments, but the Governor has pledged to include funding for local governments in this year’s proposal.

Health Insurance Exchanges
The Affordable Care Act, passed by Congress in March 2010, requires that a health insurance exchange be established in each State. While some States immediately began the process of setting up an exchange, others waited to see if the ACA would be struck down by the Supreme Court or repealed. With the Supreme Court decision in 2012 to uphold the individual mandate, and the reelection of the President Obama, it appears that at least for now the individual mandate and health insurance exchanges are here to stay. Iowa has not started the process of setting up a health insurance exchange. The Governor did meet the deadline to declare intent to establish a state-run exchange and recently announced that Iowa will pursue a State-federal Partnership Exchange model. The partnership model gives states the ability to partner with the federal government to assist it in establishing and operating the statewide health insurance exchange required by the Affordable Care Act. Iowa will continue to regulate insurance plans and retain control over the Medicaid and HAWK-I programs while the federal government will provide the exchange “framework”, including web portals and interfaces. More information regarding Iowa’s exchange will likely become available in the first several months of 2013 when the federal Department of Health and Human Services will begin reviewing and approving state submitted partnership blueprints.

Questions remain on how the State will address the Medicaid funding and standard requirements established by the Affordable Care Act. Democratic Senator Jack Hatch will again lead the charge for increased Medicaid funding, however the Governor is an outspoken opponent of expanding the Medicaid system.

Education Reform
Education reform was one of the Governor’s top priorities last session, however many of the Governor’s reforms were not included in the final compromise bill. Last year’s legislation included a retention requirement for third graders who are not reading at grade level, established a panel to study online education, and requires that students in teacher-preparation programs take assessment tests. Although he signed it, the Governor criticized last year’s plan for using one-time State money instead of budgeting from the State’s general fund. The Governor announced he will introduce a $177 million education reform bill in the 2013 session. Among other issues, the Governor’s plan includes eliminating allowable growth, which requires lawmakers to vote on education funding increases largely paid for by local taxpayers. That system would be replaced with a formula to increases State funding for education based on achievement, shifting education costs from local taxpayers to the State general fund. The Governor also indicated he will advocate for a change in teacher pay, and how the State authorizes charter schools.

Mental Health Reform
After extensive interim study of the State’s mental health care delivery system during the summer and fall of 2011Last year, lawmakers were able to pass a bill to change the way mental health services are delivered in the State. The bill regionalized administration of the State’s mental health system, and instituted a plan to reduce the county mental health levy. However, the funding system is still based on a complicated formula involving a person’s “legal settlement,” as opposed to their county of residency, and funding is still at critically low levels in many counties. Last session’s mental health reform efforts in the House were led by Representative Renee Schulte, a moderate Republican who worked across chamber and party lines to secure a compromise in the House. However, Schulte was unsuccessful in her bid for reelection. A new House champion will have to come forward for mental health reform to be successful this year. Senator Jack Hatch will continue to be the leader in the Senate for mental health reform.

Other Issues
Another perennial issue in the Iowa legislature is the attempt to increase gas tax for improvement to Iowa roads. Last year, the chairs of the Transportation Committees in both the House and the Senate introduced legislation to increase the gas tax as well as registration fees on hybrid vehicles; however those bills never made it to the floor for debate. Both 2012 Transportation Committee chairs retired at the end of the 2012 session which will further frustrate the attempt to pass legislation increasing the gas tax. Both Republican and Democrats in the House have called on the Governor to lead the effort to pass a gas tax increase. The Governor has stated that he would sign legislation to increase the gas tax, but has not recommended it as part of his legislative agenda for this year. Without political cover from the Governor, it is doubtful that House Republicans will bring any gas tax legislation to a vote.

Tort Reform
The Democrat majority in the Senate will make any significant business oriented tort reform unlikely. During the summer several groups met to discuss meaningful but modest changes in the areas of workers’ compensation, litigation lending and agents’ liability. We may see legislation introduced in all these areas.

Conclusion
Overall, the 86th General Assembly could be a rerun of the last general assembly. The main focus in 2013 will likely be on budget negotiations, with numerous players vying for the State’s large budget surplus and an equal number of legislators attempting to curb any appropriation of it to fund new programs. Several Republican representatives are advocating a return of part of the surplus to taxpayers. Many constituent bills will be filed in the first weeks of session, but we expect most of them to die in the funnel (the legislature’s process to force bills to a vote or have them die) as the focus shifts to the budget and the various reform bills. For any legislation to pass there must be significant compromise between the House, Senate and the Governor. While lawmakers will tackle big issues this session, this is probably not a session during which we will see surprises.