January 15th, 2015 Governor Branstad s Budget Proposal

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1 January 15th, 2015 Governor Branstad s Budget Proposal The Governor s Budget spends $ billion in FY 2016, an increase of $346.7 million over FY 2015 or 4.95 percent. Branstad s FY 2016 proposal spends more money than the Revenue Estimating Conference s December ongoing revenue estimate of $ billion. The gap between ongoing revenue and the Governor s budget is approximately $146.4 million. For FY 2017, the Governor is proposing a General Fund budget of $ billion. This would be an increase of $184.2 million or 2.50 percent. Each of the past four years, the budget passed by the Legislature has spent less than what the Governor proposed. The FY 2016 budget will continue this trend. 90 percent of Iowa s budget goes to three areas - School aid ($2.9 billion), wages and benefits for state employees ($2.1 billion), and Medicaid ($1.6 billion). Inside This Issue: Governor Branstad s Budget Proposal 1 School Funding 1 Medicaid 2 First Crack at State Contracts 2 Bullying 2 IDALS and USDA Announce Program to Improve Iowa Water 2 Internet Access Takes Center Stage In Washington and Des Moines 3 Branstad Proposes Partnership for Workers, Employers 4 Governor Proposes Significant Changes to Medicaid Budget 4 Transportation Alternatives Program 5 Slight Increase in Iowa 529 College Savings Plan Tax Deduction 6 Closing Thoughts 6 Over the past decade, state revenue has grown by 4.1 percent annually, state spending on K-12 education grew by 4.2 percent, and Medicaid grew by 11.7 percent. 55 percent of the Governor s FY 2016 budget proposal is targeted to education. House Republicans are looking forward to working with Governor Branstad and Senate Democrats to put together a budget that keeps Iowa in a strong financial position. School Funding State Aid to Schools over the last four years (FY 11-15) has increased $402.3 million or 16.28%. If Education Reform dollars are included that number jumps to $452.2 million or 18.30%. If the Governor s plan for FY 16 is included that number jumps to $537.1 or 21.74%. That is a tremendous investment in our K-12 schools over the last 4-5 years especially considering statewide enrollment has been relatively flat. In FY 2016, according to the Governor, Iowa spends about $10,900 per K-12 student every year. That means in a class of 20, the taxpayers are spending almost $220,000 per classroom. The state s share of education funding is at its highest level in the last 30 years. Governor Branstad increases Supplemental State Aid by $50 million and provides the second installment of $50 million for the teacher leadership component of the 2013 Education reform law. AEA funding is once again be reduced by $15 million. This increase of $84.8 million raises State school aid funding to $ billion.

2 Implementation of this figure for FY 2016 means schools received an additional $537.1 million from the General Fund since FY 2011, a 21.74% increase over five years. Among the other K-12 education increases provided by the Governor in FY 2016 are $10 million for the High Need Schools program, a $1.5 million increase for the Reading Research Center, $1.0 for the Iowa Reading Corps, and $200,000 for bullying prevention. For community colleges, the Governor increases community college general aid funding by 1.75 percent or $3.522 million. For Iowa s private colleges, the Governor increases funding for the Tuition Grant program by $4 million. This is an 8.26% increase over the FY 2015 level. The tuition grant for students at for-profit colleges are increased by $200,000 or 10.1 percent. Medicaid To address the continual growth in Medicaid, the Governor is proposing major reforms. He expands the use of managed care in Medicaid and other cost containment initiatives, lowering state expenditures by $70.2 million in FY The Governor funds the rebasing of Medicaid rates for hospitals, nursing homes, and home health agencies. The Governor is not recommending a supplemental appropriation for Medicaid in FY Medicaid is the second biggest program in state government, and without major reform it will continue take funding away from other priorities like schools. First Crack at State Contracts Democratic Legislative Leaders have said that one of their priorities to give Iowa companies preference which it comes to landing state contracts. However, this is already state law. In fact, it is in the Code of Iowa in 4 different places and in the Iowa Administrative Code twice. Furthermore the House voted to include this idea in every budget bill during the 2014 session. So it is not only already state law, it is a bipartisan priority. Bullying Adults need to respond to bullying quickly and consistently. Teachers need the training and tools to intervene in simple and safe ways. Kids need to be empowered to stand up to it and help each other to stop it on the spot. Bullying isn t a partisan issue nor should it be. Everyone wants schools and kids to be safe. The Governor, once again, has tabbed protecting kids from bullying a priority. There will likely be a discussion on our bullying law this session and that discussion, as any changes to our bullying law, must include parents. IDALS and USDA Announce Program to Improve Iowa Water Quality On Monday, January 12, 2015, the United States Department of Agriculture (USDA) issued a press advisory announcing on Wednesday, January 14, 2015, there will be an unveiling of a new project which is part of USDA s new program, the Regional Conservation Partnership Program, that will partner with Iowa Department of Agriculture and Land Stewardship (IDALS) nutrient reduction strategy efforts. This project will promote farmer-to-farmer education and practice implementation through demonstration projects to help improve water quality and is one of two, which originate in Iowa. This project is one of more than 110 high-impact projects across all 50 states that will receive more than $370 million as part of this new effort. USDA s Natural Resources Conservation Service (NRCS) will join IDALS to unveil this new project. The announcement is scheduled to be made at the Wallace State Office Building Atrium at 3 P.M. on Wednesday, January 15, The NRCS is scheduled to be represented by State Conservationist Jay Mar who will be joined by Iowa Secretary of Agriculture Bill Northey and NRCS Assistant Chief Kirk Hanlin. In a related matter, Iowa Secretary of Agriculture Bill Northey issued a press release on Tuesday, January 13, 2015, that thanked Gov. Branstad and Lt. Gov. Reynolds for including $7.5 million for the Water Quality Initiative in their 2

3 budget proposal. This proposal continues their strong support for a voluntary, science-based approach to improving water quality, building on the $2.4 million and $4.4 million received from the general fund in fiscal years 2014 and 2015 to support water quality. The $7.5 million for the Water Quality Initiative would allow IDALS to offer cost share statewide to farmers trying new water quality practices, continue work in targeted watersheds to achieve measurable water quality improvements, expand urban conservation efforts, and develop new programs to help engage all Iowans in improving water quality. Branstad also included $6.75 million for conservation cost share in his budget which is at the current year s level. For over four decades, Iowa s soil conservation cost share program has encouraged the adoption of conservation structures and practices to protect and preserve our state s natural resources and improve water quality. Last year alone, the state s $9.5 million investment generated $13 million in matching funds from Iowa farmers and land owners to support conservation practices. The Governor s Budget request proposed that the Water Quality Initiative Funding be increased from $4.4-million general fund appropriation in the current fiscal year to a combined $7.5-million for fiscal year 2016 with an additional $3.1-million in Rebuild Iowa Infrastructure Fund moneys. This recommendation puts funding at the level of support IDALS sought for Water Quality Initiative program funding in its budget request to the Governor, but returns funding level for the program back to $4.4-million of general fund moneys in FY The Governor also proposes to provide the FY 2016 IDALS asking for $1.92-million for ag drainage well closure alternative drainage that will allow for the closure of eight additional agriculture drainage wells in the state to protect groundwater quality agriculture drainage wells in the state, but proposed no funding in FY IDALS had requested $1.92-million for both FY 2016 and FY 2017 and that would have allowed 17 ag drainage wells to be closed. Internet Access Takes Center Stage In Washington and Des Moines President Obama unveiled a series of measures this week aimed at making high-speed Internet access cheaper and more widely available. His announcement, made in Cedar Falls, focused chiefly on efforts by cities to build their own Internet networks as competitive alternatives to major web providers. The president said he ll urge the Federal Communications Commission to help neutralize state laws that effectively protect established Internet providers against municipal networks that want to build and offer services. Federal agencies will also expand grants for both municipal and rural providers. Wednesday s speech opens a different front in another issue that s before the FCC: net neutrality. The president s communique to the FCC marks his second since November when he asked the agency to apply strong net neutrality rules on Internet providers that would ban them from charging different prices for high-content web traffic from companies like Netflix. The video streaming service also urged the FCC last year to preempt the kinds of state laws that prevent municipal Internet networks from coming online in places like Colorado, for example, where a city must hold a successful referendum before undertaking such a project. Cedar Falls is one of many cities across the county that have built their own publicly operated network, and a high percentage of the city s households are subscribers. Nine Iowa cities offer similar services. FCC Chairman Tom Wheeler wrote last year that the public interest would be served if the FCC moved to preempt state laws that ban or restrict competition from community broadband. The FCC s congressional charter gives it the authority to stimulate broadband deployment, a broadly worded commission that could also be used to authorize its equally controversial net neutrality rules. Meanwhile, existing Internet providers are pushing back. In August, AT&T warned the FCC that public investments in municipal networks will only diminish private-sector investments that could both expand and enhance web access. And any move from the FCC to neutralize state laws would almost surely meet fierce--and perhaps successful--legal resistance from established providers. 3

4 President Obama s visit coincides with the U.S. Department of Agriculture announcing a multi-million dollar loan program to help rural carriers build broadband in unserved or underserved areas. It also coincides with Governor Branstad s Connect Every Acre initiative, which he announced during Tuesday s Condition of the State Address. His proposal would provide a 10-year property tax exemption for broadband infrastructure in place on or after July 1, A $5 million grant program would also help spur broadband access to farms, school and rural communities. Branstad Proposes Partnership for Workers, Employers Business leaders continue to urge state legislators to support and expand programs designed to develop more highly skilled employees. On Tuesday, Governor Branstad used his Condition of the State address to join the chorus by asking the legislature to pass a bill creating the Center for Human Capital Enrichment. The new public-private partnership would research best practices, study data and make recommendations to help improve both the quality of Iowa s workforce and the way stakeholders utilize their human capital. The private side of the partnership would be represented by the Human Capital Enrichment Council, an advisory body that would represent the needs of employers and the education sector. The council members would also include the state auditor and the directors of Workforce Development, the Department of Education and the Economic Development Authority along with other lead policy agencies. It would also include the 21 largest private employers in the state, such as Rockwell Collins and Principal Financial. An operations team comprised of state employees from those lead policy agencies would comprise the public side of the partnership. This Operations Team will ensure the council has the resources available to carry out its mission. The governor proposed a prototype of the initiative last fall during his reelection campaign as a way to help Iowans align their existing skills or educational opportunities with the needs of Iowa businesses. Governor Proposes Significant Changes to Medicaid Budget On January 13th, Governor Branstad released his FY16 and FY17 budget proposals. The Governor s proposal includes major reforms to the Iowa Medicaid program. It also includes cost containment initiatives that will save over $70 million in FY16. Below are some of the changes the Governor is proposing in his FY16 Medicaid budget: Cost Containment - The Governor has proposed $70 million in cost containment initiatives. The largest one is a proposal to modernize the way Medicaid services are delivered by transitioning the Medicaid program to a managed care model. This switch will save the Medicaid program $51 million in FY16. The Governor has also proposed implementing a waiting list for the intellectual disabilities waiver. This will result in a $6 million savings. Other cost containment initiatives include payment reform. The Governor has proposed to increase the nursing facility assessment fee to 3%. This will save almost $4 million. Finally, the Governor has proposed that the University of Iowa fund the state share of Disproportionate Share Hospital (DSH) payments. This will save $4.5 million. FMAP - The budget includes an increase of $56 million to reflect a change in the Federal Medical Assistance Percentage (FMAP) rate. Rebase - The budget includes a total of $42.8 million to rebase nursing facilities, hospitals, and home health services. Mental Health Redesign - The budget proposes to eliminate mental health equalization. Mental Health Institutions - The budget recommends eliminating the Clarinda and Mount Pleasant MHIs and transferring control of the campuses to the Department of Corrections. This will save $8.2 million in FY16 and FY17. 4

5 Transportation Alternatives Program Yesterday, the Iowa Transportation Commission had its monthly meeting where they approved $1 million in total funding for various statewide Transportation Alternatives program projects. The Transportation Alternatives program was approved in federal law through the Moving Ahead for Progress in the 21 st Century Act (MAP-21) in The purpose of this program is in its name: to provide funding for a variety of alternative transportation projects. Many of these programs were eligible under separate funding schedules, but the TAP replaces funding from before MAP-21 to combine them into one funding source. Some of these programs include: trail funding, community improvement activities, safe routes to school, among others. The program is funded through contract authority from the Highway Trust Fund s Highway Account, which is subject to the same obligations and limitations as the overall federal-aid. Each fiscal year, an amount equal to 2% of the total amount authorized for federal-aid highways must be reserved for the TAP. There are also set-asides, suballocations and transfers of fund provisions defined throughout the program s description. Each state s funding is determined by dividing the total among the states based on the proportionate share from the FY 2009 Transportation Enhancements funding, with the amount for TAP being set aside from the State s National Highway Performance Program. More detail about TAP s governing authority, funding provisions, eligible programs as well as all reference to the program s general code provisions can be found here. In Iowa, most of the program funding goes to metropolitan planning organizations and regional planning affiliations for the selection of local projects, and is available to: cities, counties, school districts or others through an annual application procedure. The following projects received approval this year: Iowa s Living Roadway Projects Program (Trees Forever) - $200,000 Iowa Safe Routes to School Partnership (Iowa Northland Regional Transportation Authority and Iowa Bicycle Coalition) - $157,893 Lewis & Clark Multiuse Trail Implementation Phase 1 (Iowa Department of Transportation) - $230,607 Native Grass and Wildflower Seed for County Road Rights of Way (University of Northern Iowa and UNI Integrated Roadside Vegetation Management) - $336,500 Urban Youth Corps (Iowa Department of Transportation) - $75,000 Other Commission Actions: The Commission also approved funding for the Recreational Trails Program projects, for a total of $1,204,133 for the following programs: Gypsum City OHV Park Phase 3 Trail Construction (Iowa Department of Natural Resources and Webster County Improvement Corporation) - $195,559 Iowa DNR AmeriCorps Trail Crew (Iowa Department of Natural Resources) - $280,000 Mitchellville to Prairie City Rails to Trails Corridor Acquisition (Jasper County Conservation) - $450,599 Raccoon River Valley Trail to High Trestle Trail Connector Phase 1 Acquisition/Construction - Perry to Bouton (Dallas County Conservation Board) - $119,575 Snowmobile Trail Grooming Equipment Purchase (Iowa Department of Natural Resources and Iowa State Snowmobile Association) - $240,000 Support for Program and Bicycle/Trails Summits (Iowa Department of Transportation) - $18,400 Also, the Commission approved funding for Iowa s Clean Air Attainment Program for the following projects (total $3,929,782): #2 Green/#6 Brown/#3 Blue Service Expansion & Bus Expansion (Ames Transit Agency) - $860,734 Adaptive Traffic Signal Control System - 50th Street/60th Street (West Des Moines) - $397,960 Express Routes #92, #93, #98 Service Improvements (Des Moines Area Regional Transit Authority) - $227,453 5

6 I-380 and Boyson Road Interchange Improvements (Hiawatha) - $1,000,000 Smart Transit: Midtown Loop (Grey Line) and Feeder (Express) (Dubuque dba The Jule Transit) - $442,735 University of Iowa/Iowa City Bike Share Program (University of Iowa and Iowa City) - $135,300 US Hwy 6 Adaptive Traffic Control System Implementation (Clive and Urbandale) - $665,600 Windsor Heights Transit Station and Park & Ride (Des Moines Area Regional Transit Authority and Windsor Heights) - $200,000 Slight Increase in Iowa 529 College Savings Plan Tax Deduction Starting in tax year 2015, each Iowa taxpayer will be able to deduct up to $3,163 in contributions per beneficiary account from state taxable income. A married couple with two children could deduct up to $12,652. The deduction is increased annually for inflation and was at $3,098 for tax year College Savings Iowa is a way for parents, grandparents, and others to invest in a college education for a future student. The beneficiary of a 529 plan can withdraw the investment tax-free to pay for qualified higher education expenses. Those expenses can include tuition, books, supplies, and room and board at any eligible university, community college, or technical training school. Those wishing to invest in a plan do not have to live in Iowa, but can only take advantage of the Iowa income tax deduction if they are residents. For more information visit: Closing Thoughts We have been very busy during the first week of session. We have already heard from many of you on a wide variety of topics, and for that, I am deeply appreciative. Please keep your helpful thoughts, suggestions, and concerns coming. As we get into the meat of the session, many more topics will come to the forefront. I hope you keep in touch. And if you d like to watch us in the House online at : Contact Information At the Capitol: Home: Telephone: (515) Telephone: (515) chip.baltimore@legis.state.ia.us chip@chipbaltimore.com 6