Officially into overtime, week 17 ended with many negotiations left to be had.  Rank and file legislators were not called into the Capitol on Monday (5/3) or Tuesday (5/4) as there was no floor work or committee blocks scheduled. The Senate convened for floor action on Wednesday (5/5) and the House on Thursday (5/6) and Friday (5/7), completing work on a number of bills and sending them down to the Governor. Throughout the week leadership continued to work on budget, tax cuts, and a number of other policy issues; as of Friday (5/7), there was no final agreement between the chambers.

No floor action commenced during week 18 and committee work was limited to the Senate Ways and Means and Appropriations committees; the majority of the rank and file legislators were not on hand for the entire week. The focus of the week was closed-door negotiations between House and Senate leadership teams as they attempt to reach a final agreement on the tax proposals and ultimately a path to adjournment. Both chambers adjourned on Thursday, May 13 and are expected to return on Monday, May 17 in order to take up the competing tax proposals or any deal that may be cut between the leadership teams between now and next week.

Tax Bills

On Wednesday, May 5, Governor Reynolds announced a proposed compromise on taxes.  The Governor’s tax plan includes:

• Eliminating the triggers to implement the 2018 tax cuts
• Phasing out the inheritance tax
• Shifting payment for mental health from the county to the state

The Governor estimates that her proposal will result in around $200 million in tax cuts. 

Both the House and the Senate introduced their own tax plans on Wednesday.  The plan proposed by the Senate is essentially the Governor’s tax plan. 

The main point of contention remains the Senate proposal to shift mental health funding from the county to the state, which involves cutting property taxes and phasing out the backfill. House leadership maintains that the House Republican caucus has concerns about the state picking up the tab for the mental health system. 

Currently, Iowa’s mental health system is funded by county property taxes.  The state’s regional mental health system is run by 14 regional authorities that are supported by county property taxes.  The Senate plan would phase out the counties’ mental health property tax levies over a two-year period, ending them by the fiscal year that begins July 1, 2023.  Proponents of the bill estimate this would shift $100 million annually away from property taxpayers and onto the state’s general fund.  Under the Senate proposal, this money would go into a Mental Health and Disability Services regional service fund under the Department of Human Services and be distributed to the regions on a performance-based contract.

The Senate proposal would also 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 proposal phases out the payments by 2027. Local governments that have seen increased valuation in their property tax bases would see a faster phaseout than those that have not.

Some agreement has been reached, both the House and Senate proposals contain provisions that will eliminate the triggers to implement the 2018 tax cuts.  Earlier this legislative session, the Senate passed SF576 (Inheritance Tax/Tax Triggers) unanimously.  Both agreements also contain provisions on repealing the inheritance tax, with differences in the time period for the phase-out (the Senate version repeals the inheritance tax over three years, the House version repeals the inheritance tax over nine years). 

Ultimately, nine provisions appear the same in both the House and Senate proposals (Income tax Triggers, Child Care Tax Credit, Housing Trust Fund, High Quality Jobs, Investment Tax Credits and Innovation Fund, Telehealth Parity for Mental Health, Energy Infrastructure, Disaster Recovery Housing Assistance, Bonus Depreciation) and an additional four provisions appear in both proposals with slight differences (COVID Grants, State Inheritance Tax, Workforce Housing, and Brownfield).

See a complete comparison of the House and Senate proposals in the chart below.

What is the status of the tax plans?

The House moved their tax plan HSB278 (now HF893) unanimously out of subcommittee (3-0) and the full House Ways and Means Committee on Thursday, May 6 (22-0).  House Democrats voted in favor of the tax proposal, stating that is better than the competing Senate proposals.  The House version of the bill is slated to be considered by an Appropriations subcommittee and then the full Appropriations Committee on the morning of May 17.

The Senate Ways and Means subcommittee met on SSB1276 (now SF619) on Monday morning.  After extensive input by the public, the subcommittee advanced the bill on party lines.  On Tuesday afternoon the full Ways and Means Committee advanced SSB1276. The bill was then renumbered as SF619 and referred to and taken up by the full Appropriations Committee that same afternoon.  The bill advanced through both committees on a party-line vote.  The Senate version of the bill contains many of the proposals from Governor Reynolds.

After the House bill moves through Appropriations on Monday, both bills will be eligible for consideration by their respective chambers.  House and Senate leadership have continued to meet over the last two weeks to come to an agreement on a final tax bill for 2021. Two things are clear: 

1. a massive tax reform will be passed this legislative session, contents TBD
2. a tax deal is the pathway to adjourning sine die

Floorwork  (Week 17)

On Wednesday, May 5, the Senate gaveled in and debated and sent seven bills to the Governor, including Banning Covid Passports (HF889).  HF889 is a leadership bill that came over from the House on a 58-35 vote in week 16.  The bill prohibits state and local governments from noting on an ID that the ID holder has received a COVID vaccination and prohibits businesses and governments from requiring proof of vaccination before a person can enter.  Businesses and local governments can be disqualified from receiving state contracts or grants if they do require proof of vaccination.  The most controversial provision of the bill that drew a lot of attention is the exemption for hospitals and health care facilities.  The Senate passed the bill 32-16 without debate (two Democrats voted with the Republicans and one Republican voted with the Democrats).

The House finalized work on the Racism Training bill (HF802) on Thursday, May 6, which has been a hot topic this legislative session.  The bill has bounced between chambers, returning to the House with a Senate amendment that specifies the content on racism and sexism that is prohibited from use in trainings and curriculums in schools, colleges, and state and local governments and clarifies that teaching about slavery and racial discrimination is not prohibited.  The House concurred with the Senate amendment and sent the bill to the Governor on a party-line vote (53-35).

The House convened again on Friday, May 7 and sent nine additional bills to the Governor, most of which returned to the House with Senate amendments.  This concluded floorwork for the week for both chambers.  Before adjournment on May 7, leadership relayed to the chamber that negotiations between the House and the Senate were ongoing and that it was unlikely there would be floor action the following week (week of May 10).

As there was no floor action, during Week 18 (the week of May 10)-both chambers met for various gavel-in, gavel-out sessions (the Iowa Constitution has a limitation that the Legislature cannot adjourn for more than three consecutive days during the legislative session) as negotiations between leadership and the Governor’s Office continued behind the scenes.

Budgets/Appropriations

The House completed a fair amount of budget floorwork on Thursday, May 6, sending the second budget bill to the Governor and four versions of House budget bills to the Senate.  The House concurred with the Senate Transportation, Infrastructure, and Capitals budget bill (SF592) which appropriates a total of $397.76 million for FY 2022 from the Road Use Tax Fund and the Primary Road Fund.  The Transportation budget is typically the least controversial of all tax bills and was passed unanimously by the Senate and the House; the bill now goes to the Governor for her signature.

The House also approved four appropriations budgets after extensive debate that led to an adjournment just before midnight on Thursday, May 6.  The House sent to the Senate their versions of the Ag & Natural Resources budget (HF860), the Rebuild Iowa Infrastructure Fund (RIIF) budget (HF862), the Education budget (HF868), and the Economic Development Budget (HF871).

On Friday, the House approved the Block Grants/COVID Funds budget bill (HF895). The Legislature budgets for the federal block grants every two years; the bill this year also includes federal COVID relief funds.

The House and the Senate still need to agree on an overall number for the FY2022-2023 budget as well as joint targets for every budget.  There are major funding differences between the chambers.  Once the tax negotiations have been finalized, the FY 2022-2023 budget can come together. Differences in General Fund appropriations are noted below:

Status of Appropriations bills:

What’s next?

Both chambers are slated to return next week to take up work on the tax proposals and/or any deal that has been reached on the tax proposals and the remaining budget bills.  Once an agreement is reached on the final tax proposal, the FY 2022-2023 budget can come together and chambers can focus on closing down the 2021 legislative session.  Differences on a few lingering policy issues need to be resolved in addition to finalizing the FY 2022-2023.  Ultimately, a tax deal is the pathway to adjourning sine die. 

If there is an agreement and enough votes in each chamber, it is possible for the legislature to adjourn by the end of next week (week of May 17); if not, the 2021 session crawls into the last week of May and potentially into June.

Tax Plans (SF619 v. HF893)

Executive Branch Update

On Monday, May 10, Governor Reynolds signed seventeen bills into law (see chart below).  Another 52 bills have advanced through both chambers but have not yet been reported as enrolled/sent to the Governor.  The Governor has already signed a total of 104 bills during the 2021 legislative session.