Reynolds' first Condition of the State: 'Focus on what we can afford' with tax reform

Tax reform should include an end to federal deductibility, a thorough review of tax credits and a focus on individual rate reductions, Gov. Kim Reynolds said in her first Condition of the State address Tuesday.

"It may take a multi-year effort, but we are going to completely reform our tax code," Reynolds said to a joint session of the House and Senate. "We’re going to make Iowa more competitive, and we’re going to continue to be a place where businesses — big and small — want to grow and expand."

Reynolds has been touting tax reform as a key priority since she took the oath of office last May. Action at the federal level, she said Tuesday, makes state-level changes even more critical.

A provision known as federal deductibility allows Iowans to deduct what they pay in federal income taxes from their state liability. When federal taxes go down, Iowans are able to make fewer deductions and end up paying more in state taxes.

"That’s not just a hypothetical. It’s what will happen if we don’t act," Reynolds said. "Therefore, I will be proposing a tax reform package that significantly reduces rates, modernizes our tax code, eliminates federal deductibility, and provides real tax relief for middle class families, farmers, and small businesses."

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But tax reform this year will focus on individuals, Reynolds said, referencing Iowa's continued budget problems. Revenue, though growing, has consistently failed to keep pace with projections.

"We have to focus on what we can afford," she said. "While I want to reduce our uncompetitive corporate taxes, this is not the year."

In addition, Reynolds promised a yearlong, bipartisan task force focused on analyzing "every" state tax credit and making recommendations before the start of the next legislative session.

"This will provide the opportunity to address our corporate tax rate with a better understanding of the larger picture," Reynolds said.

House Ways and Means Committee Chairman Rep. Guy Vander Linden, R-Oskaloosa, said he agrees with the governor generally on tax reform, but he said legislators may differ in the specifics as they move toward proposing legislation.

"I agree with her on principles of giving Iowans back their tax money," he said. "I personally don’t want to be tied to any one method for doing that. So she suggested federal deductibility. There are others, and we’ll take a look at the broad spectrum of those."

A historic first

It was Reynolds' first Condition of the State address as governor, and it was the first ever delivered by a woman.

“I loved that speech, and I loved being here for the first woman governor," said House Speaker Linda Upmeyer, a Republican from Clear Lake who is also the first woman in her position, becoming visibly emotional. "It was wonderful."

In a speech that also touched on a wide range of issues including water quality, sexual harassment, education and health care, Reynolds sprinkled in a healthy dose of optimism about the condition of the state and its people.

"Today, I’m proud to report to the people of Iowa and their representatives, that, because our ability to dream is infinite and the will of our people is great, the condition of our state is strong," she said.

Alluding to her rise to governor from a clerk in the Clarke County Treasurer's office, Reynolds said, "I hope that can be an inspiration to every waitress, every grocery checker, every overworked and stressed out mom, and the little girls who dare to dream: In Iowa, if you’re willing to work for it, those dreams can come true."

Democrats generally said they liked the bipartisan issues Reynolds touched on, including mental health, workforce training and addressing Medicaid. But they said they remain skeptical about her ability to deliver results in a bipartisan way.

“I thought she did a really nice job being optimistic about the state of Iowa," said Senate Minority Leader Janet Petersen, D-Des Moines. "But unfortunately she’s got a cloud hanging over her head with our state’s current budget situation. She has a lot of great ideas for our state. I’ll be interested to see how she’s planning to move those forward."

Reynolds only briefly alluded to the state's tight budget, but lawmakers will be tasked with closing a roughly $37 million budget shortfall for the current year's budget once the pomp and circumstance of the first week of session subside. Her office on Tuesday outlined a series of proposed a series of budget cuts and transfers that would close the gap, but ultimately it will be up to legislators to determine where to make cuts.

Comments on Medicaid

House Minority Leader Mark Smith, D-Marshalltown, said he was pleased to hear Reynolds state that "mistakes were made" in the transition to privatization of the state's Medicaid program and that "we will make this right."

"I may have started the clapping on that, because indeed, there have been mistakes," he said. "And it was good to hear that. The challenge now will be what she does to fix that."

Some Republicans also stood for an ovation when Reynolds admitted past mistakes in relation to Medicaid.

"We know that managed care can provide a sustainable program that is very successful in other states and provides very good care," Upmeyer said. "... Why we shouldn’t have that in Iowa, I think has been baffling some of us for a little while. So for her to move forward on this, I think it’s magnificent."

Reynolds also promised a continued focus on the Future Ready Iowa initiative, which aims to ensure 70 percent of Iowa workers have training or education beyond high school by 2025.

She highlighted a number of proposals intended to grow Iowa's skilled workforce, including:

Calling on the Legislature to pass the Future Ready Iowa Act, which she said "creates opportunities for Iowans of all ages and experiences — opportunities to get the skills they need for a rewarding career";

Spending $500,000 to expand work-based learning opportunities and $1 million to expand Iowa’s current apprenticeship program;

Creating the Employer Innovation Fund, which will match funding spent by the private sector on training programs;

Creating a new scholarship for Iowans who decide to pursue up to a two-year degree in a high-demand field;

Creating a new grant program for people who started pursuing a four-year degree but never finished.

K-12 education funding

Reynolds said she is proposing to increase funding to schools by $54 million this year — an increase of about 1.5 percent over the current year. Last year, legislators approved a $40 million increase.

Her budget director, David Roederer, said she also plans to maintain $35 million in funding schools previously have received to maintain smaller class sizes but which is set to expire this year.

"I think it’s going to be hard to get that (1.5 percent increase) with the budget constraints that we have," said House Education Committee Chairman Rep. Walt Rogers, R-Cedar Falls. "But I think that’s a good goal to start with."

He said he appreciated that Reynolds touched on issues of school choice, but said he had hoped for her to go further in her support.

To help grow rural Iowa and retain young Iowans, Reynolds said, she will launch a new initiative to be led by acting Lt. Gov. Adam Gregg focused on expanding broadband access.

The goal, she said, is to keep young Iowans and grow the next generation of community leaders.

"While I love our capital city and everything it offers," Reynolds said, "I believe the heart, soul, and spirit of Iowa will always remain in our small towns and rural communities. From Decorah to Manning, Le Mars to Mount Pleasant and everywhere in between, we are defined as Iowans who dream big in these small places."

But the first bill she hopes to sign, Reynolds said, is a water quality bill.

Last year, Republican lawmakers in the House and Senate passed competing bills that would have addressed water quality. Reynolds has declined to publicly support one bill over the other, arguing instead for legislative compromise.

"Let me assure you," Reynolds said. "Passage of this monumental legislation does not mean the water quality discussion is over. Rather, it ignites the conversation to implement and scale practices that will continue to make an impact on water quality."

Health care proposals

On health care, Reynolds referenced problems Iowa has had in maintaining robust individual marketplaces through the Affordable Care Act.

"I continue to call on Congress to repeal and replace the Affordable Care Act," she said. "But we can’t wait for Congress to fix it."

She called on the Legislature to find a solution that gives farmers, small-business owners and their workers access to affordable insurance.

In addition, she cited the need to provide compassionate mental health care and discussed partnering with Des Moines University and the National Alliance on Mental Illness on an existing initiative that trains new doctors to identify and treat patients with mental health challenges. Her budget will include new money for this program, she said, calling it "a significant step forward."

Reynolds also discussed fighting opioid addiction in Iowa.

"This issue is very personal to me," said Reynolds, who has battled alcoholism. "To the thousands of Iowans impacted by addiction, I’ve been there. I understand your struggles. My family understands your struggles. I know that life can be so much better"

She called on the Legislature to pass legislation "to reduce the number of opioids prescribed in Iowa" as well as increasing use of a prescription monitoring program, supporting enhanced intervention and expanded medicated assisted treatment options.

Progressive groups protest Reynolds' vision

A group of progressive Iowans delivered a less rosy view of the state than Gov. Kim Reynolds in her first Condition of the State speech on Tuesday.

In the Capitol Rotunda later Tuesday, speakers at “The People’s Condition of the State” claimed that previous action by the state’s GOP leadership had harmed the working class, attacked reproductive rights and cut services for vulnerable Iowans who rely on Medicaid for health care. The event was sponsored by Progress Iowa, labor unions and faith groups.

“I heard our governor today speak about Iowa as a place where it does not matter if you are rich or poor, or male or female. And I would like to say on this I disagree,” said the Rev. Debbie Griffin, pastor of Downtown Disciples in Des Moines. “It does matter.”

Griffin noted that the governor’s address included stories of everyday Iowans who had worked hard to achieve their goals.

“I heard our governor share compelling stories about people who lived their dreams, people who worked hard and rose above in order to succeed,” she said. “And while those are compelling stories, I know stories, too.”

The pastor said Iowans routinely are denied quality of life, opportunity and freedom because of their gender, their gender identity or their incomes. And working hard is not an answer to those challenges, she said.

“It does matter that they are not able to reach for those dreams that our governor was able to reach for,” she said, “because when you are working two and three jobs you do not have the access or the ability or the time or the luxury or the privilege of working your way to the top.”

Connie Ryan, executive director of the Interfaith Alliance of Iowa, urged activists to stay informed and active throughout the 2018 legislative session.

“It’s going to be a tough session,” she said. “And we need each of you to use your voices so we can retain the Iowa we know and love.”

— Des Moines Register reporter Kevin Hardy