Issue review : city property tax for fiscal year 2009.

This issue review provides fiscal year 2009 city taxable value, tax rate and property tax revenue statistics, with comparisons to FY 2008 and to FY 2001. A discussion of the impact of the residential rollback on the tax base of cities and the growth in tax increment financing, or TIF, is also included.

Issue review : impact on the insurance premium tax rate reduction .

In 2002, Senate File 2318, Insurance Premium Tax Reduction Act, the Iowa General Assembly approved a reduction in the insurance premium tax rate from 2 percent to 1 percent. The reduction was phased in at the rate of 1/4 percent annual increments over a five-year period, beginning with life and health insurance policy payments made on or after January 1st, 2003. Calendar year 2007 was the first year all premiums were taxed at 1 percent and fiscal year 2008 was the first full fiscal year at the 1 percent rate. Insurance premiums tax is paid only by insurance companies. The companies that benefit from the tax reduction are uniquely identified in government employment statistics. This allows for a unique opportunity to evaluate both the revenue impact and the employment impact of the tax rate reduction in Senate File 2318. This issue review focuses on the General Fund revenue impact of the rate reduction and the Iowa employment trends for the insurance industry since the rate reduction legislation was approved.

Issue review : streamlined sales and use tax agreement.

During the 2010 legislative session, Senate File 2375, or Streamlined Sales and Use Tax Administration Act, was approved by the general assembly. The act modified the Iowa sales use tax law to keep the state in compliance with the National Streamlines Sales and Use Tax Agreement. This issue review provides a brief update on the status of the agreement and its impact on Iowa.

Issue review : state and local tax revenue fiscal year 2001 to fiscal year 2010.

This issue review provides a historical perspective regarding state and local taxes collected each fiscal year in Iowa from fiscal year 2001 through fiscal year 2010. The issue review also compares the growth in state taxes versus local taxes as well as the growth in tax collections compared to the growth in Iowa personal income and Iowa employment.

Issue review : impact of federal income tax changes on Iowa general fund revenue.

Iowa law allows taxpayers to deduct federal income taxes from income prior to calculating state income tax liability. Due to the federal tax deduction, changes to federal income taxes enacted by Congress directly and automatically impact Iowa's revenue stream. While this issue is present every year, the impact on the budget process has been more pronounced over the past three years as federal tax reductions enacted during the early 2000s were set to expire, were extended, and are now set to expire again. This issue review examines federal deductability and the related issue of federal conformity.

Iowa Efficiency Review Report to Governor Chet Culver and Lieutenant Governor Patty Judge, December 18,2009

Public Works is pleased to present the following Iowa Efficiency Review Report to Governor Chet Culver and Lieutenant Governor Patty Judge. This report is the product of a collaboration between our consulting team and very dedicated Iowa state employees who worked with us to share ideas and cost‐saving proposals under very difficult circumstances caused by the national financial crisis that is affecting state budgets throughout the country. For example, during the course of this review, Iowa departments were also asked to develop across‐the‐board cuts to achieve immediate reductions in state spending. It is a credit to Iowa state government that departmental staff continued to work on this Efficiency Review Report despite these challenges of also having to develop across‐the‐board budget cuts to achieve a balanced budget. We hope that these ideas will set the stage for further future budget improvements from achieving efficiencies, eliminating outdated practices, increasing the use of information technology solutions and finding new sources of non‐tax funding. The Efficiency Review Team faced a second challenge. Statewide Efficiency Reviews usually take from nine to 12 months to complete. In Iowa, we worked with dedicated department staff to complete our work in less than 4 months. The Governor challenged all of us to work intensely and to give him our best thinking on efficiency proposals so that he could act as quickly as possible to position state government for success over the next several years.

2011 Road Use Tax Fund (RUTF) Study A report to the Iowa Legislature, per 2011 Iowa Code Section 307.31

The transportation system is in demand 24/7 and 365 days a year irrespective of neither the weather nor the conditions. Iowa’s transportation system is an integral and essential part of society serving commerce and daily functions of all Iowans across the state. A high quality transportation system serves as the artery for economic activity and, the condition of the infrastructure is a key element for our future growth opportunities. A key component of Iowa’s transportation system is the public roadway system owned and maintained by the state, cities and counties. In order to regularly re-evaluate the conditions of Iowa’s public roadway infrastructure and assess the ability of existing revenues to meet the needs of the system, the Iowa Department of Transportation’s 2006 Road Use Tax Fund (RUTF) report to the legislature included a recommendation that a study be conducted every five years. That recommendation was included in legislation adopted in 2007 and signed into law. The law specifically requires the following (2011 Iowa Code Section 307.31): •“The department shall periodically review the current revenue levels of the road use tax fund and the sufficiency of those revenues for the projected construction and maintenance needs of city, county, and state governments in the future. The department shall submit a written report to the general assembly regarding its findings by December 31 every five years, beginning in 2011. The report may include recommendations concerning funding levels needed to support the future mobility and accessibility for users of Iowa's public road system.” •“The department shall evaluate alternative funding sources for road maintenance and construction and report to the general assembly at least every five years on the advantages and disadvantages and the viability of alternative funding mechanisms.” Consistent with this requirement, the Iowa Department of Transportation (DOT) has prepared this study. Recognizing the importance of actively engaging with the public and transportation stakeholders in any discussion of public roadway conditions and needs, Governor Terry E. Branstad announced on March 8, 2011, the creation of, and appointments to, the Governor’s Transportation 2020 Citizen Advisory Commission (CAC). The CAC was tasked with assisting the Iowa DOT as they assess the condition of Iowa’s roadway system and evaluate current and future funding available to best address system needs. In particular the CAC was directed to gather input from the public and stakeholders regarding the condition of Iowa’s public roadway system, the impact of that system, whether additional funding is needed to maintain/improve the system, and, if so, what funding mechanisms ought to be considered. With this input, the CAC prepared a report and recommendations that were presented to Governor Branstad and the Iowa DOT in November 2011 for use in the development of this study. The CAC’s report is available at www.iowadot.gov/transportation2020/pdfs/CAC%20REPORT%20FINAL%20110211.pdf. The CAC’s report was developed utilizing analysis and information from the Iowa DOT. Therefore, the report forms the basis for this study and the two documents are very similar. Iowa is fortunate to have an extensive public roadway system that provides access to all areas of the state and facilitates the efficient movement of goods and people. However, it is also a tremendous challenge for the state, cities and counties to maintain and improve this system given flattening revenue, lost buying power, changing demands on the system, severe weather, and an aging system. This challenge didn’t appear overnight and for the last decade many studies have been completed to look into the situation and the legislature has taken significant action to begin addressing the situation. In addition, the Iowa DOT and Iowa’s cities and counties have worked jointly and independently to increase efficiency and streamline operations. All of these actions have been successful and resulted in significant changes; however, it is apparent much more needs to be done. A well-maintained, high-quality transportation system reduces transportation costs and provides consistent and reliable service. These are all factors that are critical in the evaluation companies undertake when deciding where to expand or locate new developments. The CAC and Iowa DOT heard from many Iowans that additional investment in Iowa’s roadway system is vital to support existing jobs and continued job creation in the state of Iowa. Beginning June 2011, the CAC met regularly to review material and discuss potential recommendations to address Iowa’s roadway funding challenges. This effort included extensive public outreach with meetings held in seven locations across Iowa and through a Transportation 2020 website hosted by the Iowa DOT (www.iowadot.gov/transportation2020). Over 500 people attended the public meetings held through the months of August and September, with 198 providing verbal or written comment at the meetings or through the website. Comments were received from a wide array of individuals. The public comments demonstrated overwhelming support for increased funding for Iowa’s roads. Through the public input process, several guiding principles were established to guide the development of recommendations. Those guiding principles are: • Additional revenues are restricted for road and bridge improvements only, like 95 percent of the current state road revenue is currently. This includes the fuel tax and registration fees. • State and local governments continue to streamline and become more efficient, both individually and by looking for ways to do things collectively. • User fee concept is preserved, where those who use the roads pay for them, including non¬residents. • Revenue-generating methods equitable across users. • Increase revenue generating mechanisms that are viable now but begin to implement and set the stage for longer-term solutions that bring equity and stability to road funding. • Continue Iowa’s long standing tradition of state roadway financing coming from pay-as-you-go financing. Iowa must not fall into the situation that other states are currently facing where the majority of their new program dollars are utilized to pay the debt service of past bonding. Based on the analysis of Iowa’s public roadway needs and revenue and the extensive work of the Governor’s Transportation 2020 Citizen Advisory Commission, the Iowa DOT has identified specific recommendations. The recommendations follow very closely the recommendations of the CAC (CAC recommendations from their report are repeated in Appendix B). Following is a summary of the recommendations which are fully documented beginning on page 21. 1. Through a combination of efficiency savings and increased revenue, a minimum of $215 million of revenue per year should be generated to meet Iowa’s critical roadway needs. 2. The Code of Iowa should be changed to require the study of the sufficiency of the state’s road funds to meet the road system’s needs every two years instead of every five years to coincide with the biennial legislative budget appropriation schedule. 3.Modify the current registration fee for electric vehicles to be based on weight and value using the same formula that applies to most passenger vehicles. 4.Consistent with existing Code of Iowa requirements, new funding should go to the TIME-21 Fund up to the cap ($225 million) and remaining new funding should be distributed consistent with the Road Use Tax Fund distribution formula. 5.The CAC recommended the Iowa DOT at least annually convene meetings with cities and counties to review the operation, maintenance and improvement of Iowa’s public roadway system to identify ways to jointly increase efficiency. In direct response to this recommendation, Governor Branstad directed the Iowa DOT to begin this effort immediately with a target of identifying $50 million of efficiency savings that can be captured from the over $1 billion of state revenue already provided to the Iowa DOT and Iowa’s cities and counties to administer, maintain and improve Iowa’s public roadway system. This would build upon past joint and individual actions that have reduced administrative costs and resulted in increased funding for improvement of Iowa’s public roadway system. Efficiency actions should be quantified, measured and reported to the public on a regular basis. 6.By June 30, 2012, Iowa DOT should complete a study of vehicles and equipment that use Iowa’s public roadway system but pay no user fees or substantially lower user fees than other vehicles and equipment.

Road Use Tax Fund Efficiency Report, January 2012

In the November 2011 report issued by the Governor’s Transportation 2020 Citizen Advisory Commission (CAC), the commission recommended the Iowa Department of Transportation (DOT), at least annually, convene meetings with the cities and counties to review the operation, maintenance and improvement of Iowa’s public roadway system to identify ways to jointly increase efficiency. In response to this recommendation, Gov. Branstad directed the Iowa DOT to begin this effort immediately with a target of identifying $50 million of efficiency savings that can be captured from the $1.2 billion of Road Use Tax Funds (RUTF) provided to the Iowa DOT, cities and counties to administer, maintain and improve the public roadway system. This would build upon past joint and individual actions that have reduced administrative costs and resulted in increased funding for system improvements. Efficiency actions should be quantified, measured and reported to the public on a regular basis. Beyond the discussion of identifying funding solutions to our road and bridge needs, it is critical that all jurisdictions that own, maintain and improve the nation’s road and bridge systems demonstrate to the public these funds are utilized in the most efficient and effective manner. This requires continual innovation in all aspects of transportation planning, design, construction and maintenance - done in a transparent manner to clearly demonstrate to the public how their funds are being utilized. The Iowa DOT has identified 13 efficiency measures separated into two distinct categories – Program Efficiencies and Partnership Efficiencies. The total value of the efficiency measures is $50 million. Many of the efficiency items will need input, refinement and partnership from cities, counties, other local jurisdictions, and stakeholder interest groups. The Iowa DOT has begun meetings with many of these groups to help identify potential efficiency measures and strategies for moving forward. These partnerships and discussions will continue through implementation of the efficiency measures. Dependent on the measures identified, additional action may be required by the legislature, Iowa Transportation Commission, and/or other bodies to implement the action. In addition, a formal process will be developed to quantify, measure and report the results of actions taken on a regular basis.

Issue review : income surtaxes.

School districts can use income surtax as a replacement for local property taxes to fund specific, discretionary education programs. This issue review provides an overview of the local income surtax and the potential impact of allowing other local governments to replace property tax with income surtax.

Issue review : multimodal transportation funding.

Funding for non-road multimodal transportation is a means to provide for future transportation needs and alternatives to provide safe and efficient transportation options. The state supports multimodal transportation in the annual infrastructure budget. Most of the state's appropriations for these non-road modes of transportation are provided from the Rebuild Iowa Infrastructure Fund, or infrastructure-related funds such as restricted capital from tax-emempt bond proceeds. Projects that have received funding include commercial and general aviation infrastructure, public transit infrastructure, freight rail, and passenger rail. In addition, recreational trails that encourage walking and cycling are considered part of multimodal transportation. This issue review provides a general overview of the multimodal transportation grant programs that are funded by the state and administered under the Department of Transportation, or DOT. Other means of state funding for multimodal transportation, a sampling of federally funded programs and how other states fund some of their multimodal transportation programs will be briefly discussed.

Issue review : Instructional support program funding inequities.

School districts may receive funding for the instructional support program subject to school board or voter approval. Program funding is based on a formula that includes a local funding provision, property tax and income surtax and a state aid component. When initially implemented, state aid was distributed through a formula designed to provide property tax equity and equalize the property tax burden between school districts. Since the initial year of the program, the state aid portion has not been fully funded and in fiscal year 2012, no state dollars were appropriated for the program. The result of underfunding the state-aid portion of the program has led to an inequity in the amount of funds school districts receive from the program. In fiscal year 2012, the portion of actual program funding for school districts ranged from a low of 52.6 percent to a high of 92.8 percent. This issue review examines the inequity in more detail.

Issue review : Secure an Advanced Vision for Education, or (SAVE) funding, fiscal year 2011 report and analysis.

During the 2010 legislative session, House File 2531, Fiscal Year 2011 Standing Appropriations Act, was enacted and required school districts to report the specific use of sales tax dollars for school infrastructure purposes to the Department of Education. The Department published SAVE SILO annual report reflecting data for fiscal year 2011. This issue review provides a summary and additional analysis of that information.

2016 Road Use Tax Fund (RUTF) Study

A key component of Iowa’s transportation system is the public roadway system owned and maintained by the state, cities and counties. In order to regularly evaluate the conditions of Iowa’s public roadway infrastructure and assess the ability of existing revenues to meet the needs of the system, the Iowa Department of Transportation’s 2006 Road Use Tax Fund (RUTF) report to the legislature included a recommendation that a study be conducted every five years. That recommendation was included in legislation adopted in 2007 and signed into law. The law specifically requires the following (2016 Iowa Code Section 307.31):  “The department shall periodically review the current revenue levels of the road use tax fund and the sufficiency of those revenues for the projected construction and maintenance needs of city, county, and state governments in the future. The department shall submit a written report to the general assembly regarding its findings by December 31 every five years, beginning in 2011. The report may include recommendations concerning funding levels needed to support the future mobility and accessibility for users of Iowa's public road system.”  “The department shall evaluate alternative funding sources for road maintenance and construction and report to the general assembly at least every five years on the advantages and disadvantages and the viability of alternative funding mechanisms.” To comply with this requirement, the Iowa Department of Transportation (DOT) prepared a 2011 RUTF Study (www.iowadot.gov/pdf_files/RUTFStudy2011.pdf). This study relied heavily on the work of the Governor’s Transportation 2020 Citizen Advisory Commission (CAC), established by Governor Terry E. Branstad to assist the Iowa DOT as it assessed the condition of Iowa’s roadway system and evaluated current and future funding available to best address system needs. The 2011 RUTF Study ultimately led to the passage of Senate File 257 in the 2015 legislative session that was signed into law on February 25, 2015. The major component of this bill was the increase of the state fuel tax rate on March 1, 2015, in order to meet the critical need funding shortfall identified in the study. With the recent increase in the state fuel tax rate, jurisdictions across Iowa are now putting those additional funds into road and bridge construction projects. With one full construction season complete following the increase in funding, it is difficult to accurately assess the long-term impact on construction needs. Therefore, this 2016 RUTF Study focuses on the actions taken since the 2011 RUTF Study and on alternative funding mechanisms.