The House and Senate ramped up a well-coordinated effort to begin moving major pieces of “must do” legislation this week. After a somewhat bumpy start to the session in regards to reaching agreement on budget-balancing legislation to cut over $100 million from the current budget, House and Senate leaders (along with the Governor’s office) have come together in a tightly choreographed schedule designed to streamline approval of some BIG issues.
 
K-12 School Funding Completed in Session’s First 30 days
This week the General Assembly and Governor wrapped up the school funding debate with House passage of SF 166 on Monday and with the Governor’s signature of the legislation Wednesday.
 
SF 166 increases state spending on K-12 schools in FY18 by $40 million (by far the largest spending increase for any budget line item in the upcoming budget year).

State Preemption of Local Ordinances
The House Local Government Committee began work on HSB 92, an act that preempts local government’s ability to enact ordinances regarding minimum wage, consumer merchandise, or packaging materials. The legislation was spurred by a number of local governments enacting minimum wage increases in excess of the state minimum wage.

Overview / Major Events
The House and Senate this week took the final step in implementing the agreement that resolves a number of key tax concerns regarding coupling with federal tax changes (signed by the Governor this week) along with setting the amount of new money for our K-12 schools in FY17 (beginning July 1, 2016).

WHAT GOT DONE?

• Governor Branstad officially signed HF 2433 this week, legislation to couple the Iowa tax code with federal changes on Section 179 expensing for the 2015 tax year, only. The bill also rolls back Department of Revenue rules on taxation of consumable supplies in the manufacturing process and replaces them with a less comprehensive set of rules.
• A House and Senate conference committee on school aid agreed to a basic increase in supplemental state aid to our K-12 schools at a rate of 2.25%. SF 174 passed the Senate on a 44-6 vote and the House on a 55-41 vote. The bill now goes to Governor Branstad and he is expected to sign it into law. This now allows local school districts to make decisions on local school budgets.
  

WHAT IS NEXT?
With the “must-do” tax policy and education spending issues resolved for this session, the General Assembly will now turn to work on the remainder of the state budget (including the first necessary step of setting joint House and Senate budget targets for each budget area). See below for a primer on the budget process moving forward.

Overview / Major Events
The House and Senate both took major steps forward in implementing the agreement reached last week that resolves a number of key tax concerns regarding coupling with federal tax changes along with setting the amount of new money for our K-12 schools in FY17 (beginning July 1, 2016).

     WHAT GOT DONE?

• Legislation passed both the House and Senate (by large bipartisan majorities) to match federal changes on Section 179 expensing for the 2015 tax year, only. (HF 2433: passed House 79-18 and Senate 50-0). The bill will now go to Governor Branstad and his signature is expected.
• Legislation passed both the House and Senate to rescind the recently adopted rules by the Iowa Department of Revenue regarding the taxation of consumable supplied. The bill both rescinded those rules and then replaced them with a scaled-back version of consumable supply taxation. The bill will now go to Governor Branstad and his signature is expected.
  

     STILL TO DO:

• Yet to be done is the agreement between House and Senate leaders to set state supplemental aid for K-12 schools in Iowa. The widely reported figure of 2.5% growth has yet to be approved in either Chamber and it is not known what the impact of the new revenue estimate (see below) will have on the ability to finalize and pass this piece of the agreement.

Overview / Major Events
Only one week remains until the second legislative funnel takes place and significantly reduces the number of policy bills still in play for the remainder of the 2016 legislative session. This week was dominated by extensive floor debate in both Chambers as legislators raced to get bills passed in time to be considered by committees in the opposite house by the March 11 deadline.

Next week expect a combination of committee meetings and floor work to round out the list of eligible bills. That said, the most significant policy decisions yet to be made are not even on the radar screen this week as negotiations on issues such as school aid, tax coupling, and water quality are continuing in private.

State Revenue Stagnant in February and Below Estimates for the Year
The Department of Management released the February state revenue numbers and the report shows revenue growth has recently stagnated—with year-to-date numbers now falling a full percentage point behind estimates.

General fund receipts for February 2016 grew only 0.7% over the same period last year. And, year-to-date receipts have grown by 2.7% while the Revenue Estimating Conference had pegged estimated growth at 3.7%. (And while one percentage point might not sound like much, each point is equal to more than $70 million.)

Overview / Major Events
The first legislative funnel of 2016 has arrived and all House and Senate policy committees have finished their first round of work for this session. The dust is still settling on those bills that made the cut and those that are dead for the year (will have a more robust picture of this in next week’’s newsletter).
 
The next funnel deadline occurs in only three weeks (March 11).  In the next three weeks those policy bills that cleared their committee of origin must be passed on their respective chamber floors and then passed out of a committee of the other chamber (meaning Senate Files must pass the full Senate and a House committee; House Files must pass the full House and a Senate committee) in order to remain eligible for the year.

Governor Branstad’s Water Quality Initiative Clears House Agriculture Committee
Governor Branstad made it clear in his Condition of the State message that his legislative agenda would consist of one main item, and that item is his initiative to find a long-term significant source of funding for water quality projects in Iowa. HSB 601 is the Governor’s bill and it cleared the House Agriculture Committee earlier this week and now will move to the House Ways and Means Committee.