SF 294 (LSB 1131XS (4) 88)

SENATE FILE 294

BY  CHAPMAN

A BILL FOR

An Act relating to state financing involving the state general fund expenditure limitation by revising calculation requirements for the limitation, creating a safety net fund, making transfers, and providing for related state personal income tax rate reductions, and including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 8.54, subsection 1, Code 2019, is amended by adding the following new paragraphs:
   NEW PARAGRAPH.  0b.  “Iowa wage and salary component” means the wage and salary component of the state personal income table for Iowa issued each quarter by the bureau of economic analysis of the United States department of commerce. For purposes of this paragraph and paragraph “c”, “quarter” means the calendar year quarter identified in the table issued by the bureau.
   NEW PARAGRAPH.  c.  “Wage and salary growth factor” means one-half of the percentage increase, if any, in the average of the second quarter Iowa wage and salary component issued immediately prior to the meeting of the revenue estimating conference held by December 15 in accordance with section 8.22A, subsection 3, and the Iowa wage and salary components for the three quarters immediately preceding such second quarter component, as compared to the average of the four quarters of the Iowa wage and salary component immediately preceding the oldest quarter used to calculate the first average.
    Sec. 2.  Section 8.54, subsections 2 and 3, Code 2019, are amended to read as follows:
   2.  a.  There is created a state general fund expenditure limitation for each fiscal year calculated as provided in this section. An expenditure limitation shall be used for the portion of the budget process commencing on the date the revenue estimating conference agrees to a revenue estimate for the following fiscal year in accordance with section 8.22A, subsection 3, and ending with the governor’s final approval or disapproval of the appropriations bills applicable to that fiscal year that were passed prior to July 1 of that fiscal year in a regular or extraordinary legislative session.
   b.  A wage and salary growth factor for the following fiscal year shall be calculated jointly by the department of management and the legislative services agency for use in the budget process for the following fiscal year in accordance with this section. The wage and salary growth factor calculation for the following fiscal year shall be issued concurrently with the meeting of the revenue estimating conference held by December 15 in which the estimates used to develop the adjusted revenue estimate for the following fiscal year are agreed to by the conference.
   3.  Except as otherwise provided in this section, the state general fund expenditure limitation for a fiscal year shall be ninety-nine the lesser of the following amounts:
   a.  Ninety-nine percent of the adjusted revenue estimate for the fiscal year.
   b.  The percentage derived from adding to one hundred percent the wage and salary growth factor calculated for the fiscal year multiplied by the final state general fund expenditure limitation for the prior fiscal year.
    Sec. 3.  Section 8.54, subsection 5, Code 2019, is amended by striking the subsection.
    Sec. 4.  Section 8.55, subsection 2, unnumbered paragraph 1, Code 2019, is amended to read as follows:
   The maximum balance of the fund is the amount equal to two and one-half percent of the adjusted revenue estimate for the fiscal year. If the amount of moneys in the Iowa economic emergency fund is equal to the maximum balance, moneys in excess of this amount shall be distributed as follows in the following order:
    Sec. 5.  Section 8.55, subsection 2, Code 2019, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  0a.  The initial excess, not to exceed the amount necessary for the safety net fund to reach its maximum balance, shall be transferred to the safety net fund created in section 8.57G.
    Sec. 6.  Section 8.55, subsection 2, paragraph a, Code 2018, as amended by 2018 Iowa Acts, chapter 1161, section 55, is amended to read as follows:
   a.  b.  The Following a transfer pursuant to paragraph “0a”, the remainder of the excess, if any, of the difference between the actual net revenue for the general fund of the state for the fiscal year and the adjusted revenue estimate for the fiscal year shall be transferred to the taxpayers trust fund created in section 8.57E.
    Sec. 7.  Section 8.55, subsection 2, paragraph b, Code 2019, is amended by striking the paragraph.
    Sec. 8.  Section 8.57E, subsection 2, Code 2019, is amended to read as follows:
   2.  a.  Moneys in the taxpayer relief fund shall only be used pursuant to appropriations or transfers made by the general assembly for tax relief, including but not limited to increases in the general retirement income exclusion under section 422.7, subsection 31, or reductions in income tax rates. 
   b.  No later than June 30 in each fiscal year, the entire balance of the taxpayer relief fund, if any, is transferred to the general fund of the state.
   c.  The moneys transferred to the general fund of the state in accordance with paragraph “b” shall not be considered new revenue for purposes of the state general fund expenditure limitation under section 8.54, but instead shall be considered as replacing a like amount included in the expenditure limitation for the fiscal year in which the transfer is made.
    Sec. 9.  NEW SECTION.  8.57G  Safety net fund.
   1.  A safety net fund is created. The fund shall be separate from the general fund of the state and the balance in the fund shall not be considered part of the balance of the general fund of the state. The moneys credited to the fund are not subject to section 8.33 and shall not be transferred, used, obligated, appropriated, or otherwise encumbered except as provided in this section.
   2.  The maximum balance of the fund is the amount equal to two percent of the adjusted revenue estimate for the fiscal year.
   3.  Moneys in the safety net fund shall only be used pursuant to appropriations or transfers made by the general assembly to augment appropriations made for important education, employment, health, human services, and other programs to aid individuals and families with low income.
   4.  a.  Moneys in the safety net fund may be used for cash flow purposes during a fiscal year provided that any moneys so allocated are returned to the fund by the end of that fiscal year.
   b.  Except as provided in section 8.58, the safety net fund shall be considered a special account for the purposes of section 8.53 in determining the cash position of the general fund of the state for the payment of state obligations.
   5.  Notwithstanding section 12C.7, subsection 2, interest or earnings on moneys deposited in the safety net fund shall be credited to the fund.
    Sec. 10.  Section 8.58, Code 2019, is amended to read as follows:
   8.58  Exemption from automatic application.
   1.  To the extent that moneys appropriated under section 8.57 do not result in moneys being credited to the general fund under section 8.55, subsection 2, moneys Moneys appropriated under section 8.57 and moneys contained in the cash reserve fund, rebuild Iowa infrastructure fund, environment first fund, Iowa economic emergency fund, taxpayer relief fund, and state bond repayment fund, and safety net fund shall not be considered in the application of any formula, index, or other statutory triggering mechanism which would affect appropriations, payments, or taxation rates, contrary provisions of the Code notwithstanding.  To the extent that moneys projected to be transferred from the taxpayer relief fund to the general fund of the state pursuant to section 8.57E replace revenues reduced pursuant to section 422.5B, such revenue reduction shall not be considered by such arbitrator or in such negotiations in the application of such mechanisms that affect appropriations, payments, or taxation rates.
   2.  To the extent that moneys appropriated under section 8.57 do not result in moneys being credited to the general fund under section 8.55, subsection 2, moneys Moneys appropriated under section 8.57 and moneys contained in the cash reserve fund, rebuild Iowa infrastructure fund, environment first fund, Iowa economic emergency fund, taxpayer relief fund, and state bond repayment fund, and safety net fund shall not be considered by an arbitrator or in negotiations under chapter 20.  To the extent that moneys projected to be transferred from the taxpayer relief fund to the general fund of the state pursuant to section 8.57E replace revenues reduced pursuant to section 422.5B, such revenue reduction shall not be considered by such arbitrator or in such negotiations in the application of such mechanisms that affect appropriations, payments, or taxation rates.
    Sec. 11.  Section 422.5, subsection 1, paragraph a, Code 2019, is amended to read as follows:
   a.  A tax is imposed upon every resident and nonresident of the state which tax shall be levied, collected, and paid annually upon and with respect to the entire taxable income as defined in this division at rates as provided in section 422.5A reduced as provided in section 422.5B.
    Sec. 12.  NEW SECTION.  422.5B  Taxpayer relief fund —— rate reduction.
   For the tax year beginning January 1 immediately preceding July 1 of any fiscal year in which a transfer is made from the taxpayer relief fund to the general fund of the state pursuant to section 8.57E, subsection 2, paragraph “b”, each rate in section 422.5A shall be reduced, and rounded to the nearest one-hundredth of one percent, by the percentage that the amount transferred during the fiscal year from the taxpayer relief fund to the general fund bears to the actual net revenue for the general fund for the fiscal year immediately preceding the fiscal year in which such transfer was made. A tax rate reduction provided in this section only applies to the tax year which is the subject of the rate reduction and shall not affect tax rates in any successive tax year. The department shall draft the income tax form for any tax year in which rates are reduced under this section to provide information to taxpayers necessary to calculate the tax due.
    Sec. 13.  Section 422.16, subsection 1, paragraph a, Code 2019, is amended to read as follows:
   a.  Every withholding agent and every employer as defined in this chapter and further defined in the Internal Revenue Code, with respect to income tax collected at source, making payment of wages to a nonresident employee working in Iowa, or to a resident employee, shall deduct and withhold from the wages an amount which will approximate the employee’s annual tax liability on a calendar year basis, calculated on the basis of tables to be prepared by the department and schedules or percentage rates, based on the wages, to be prescribed by the department, and calculated without regard to the rate reductions provided in section 422.5B. Every employee or other person shall declare to the employer or withholding agent the number of the employee’s or other person’s personal allowances to be used in applying the tables and schedules or percentage rates. However, no greater number of allowances may be declared by the employee or other person than the number to which the employee or other person is entitled except as allowed under sections 3402(m)(1) and 3402(m)(3) of the Internal Revenue Code and as allowed for the child and dependent care credit provided in section 422.12C. The claiming of allowances in excess of entitlement is a serious misdemeanor.
    Sec. 14.  EFFECTIVE DATE.  This Act takes effect July 1, 2020.
    Sec. 15.  APPLICABILITY.  The following are first applicable to calculate the state general fund expenditure limitation for the fiscal year beginning July 1, 2020:
   1.  The sections of this Act amending section 8.54.
   2.  The sections of this Act amending section 8.55.
    Sec. 16.  APPLICABILITY.  The following apply to tax years beginning on or after January 1, 2021:
   1.  The section of this Act amending section 422.5.
   2.  The section of this Act enacting section 422.5B.
   3.  The section of this Act amending section 422.16.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to the state general fund expenditure limitation by revising calculation requirements for the limitation, creating a safety net fund, making transfers, and providing for related state personal income tax rate reductions.
   The bill amends Code section 8.54, relating to the state general fund expenditure limitation, to provide an additional method for calculating the limitation. Under current law, the limitation is 99 percent of the adjusted revenue estimate for the following fiscal year based on an estimate approved by the revenue estimating conference in a meeting held by December 15. The new calculation method in the bill is based on the growth in the average wage and salary component of the state personal income table for Iowa issued each quarter by the bureau of economic analysis of the United States department of commerce. Under the new method, the department of management and the legislative services agency are directed to apply the component issued for the quarters of a two-year period to jointly calculate a wage and salary growth factor percentage. One-half of this percentage amount, combined with 100 percent, is applied to the amount of the state general fund expenditure limitation for the prior fiscal year (fiscal year in progress). The lesser amount identified by the two methods is required to be used as the state general fund expenditure limitation in the budget process for the following fiscal year.
   Under current law, if a surplus is anticipated for the general fund of the state at the close of a fiscal year, any excess remaining, after the surplus is applied to bring state reserve funds to their maximum balances, is transferred back to the state general fund for the following fiscal year. The original state general fund expenditure limitation for that following fiscal year is required to be readjusted to reflect the amount of excess anticipated to be transferred. The bill strikes the current law requirements for the excess in Code sections 8.54(5) and 8.55(2) and instead requires the excess to be transferred to the safety net fund created by the bill, up to the maximum balance for the safety net fund which is established at 2 percent of the adjusted revenue estimate for the fiscal year, and then entire remainder to be transferred to the taxpayer relief fund.
   The bill creates a safety net fund separate from the general fund. Moneys in the fund must only be used pursuant to appropriations or transfers made by the general assembly to augment appropriations made for important education, employment, health, human services, and other programs to aid individuals and families with low income. Moneys in the safety net fund are treated similarly to other reserve funds under Code section 8.58 and exempted from automatic application in triggering mechanisms which affect appropriations, payments, or taxation rates, and cannot be considered by an arbitrator or in collective bargaining negotiations under Code chapter 20.
   Moneys transferred to the taxpayer relief fund are required to be transferred to the general fund of the state by the end of the same fiscal year and treated as a replacement of revenue resulting from the individual income tax rate reduction provided for in the bill.
   For tax years beginning January 1 immediately preceding July 1 of a fiscal year in which a transfer is made from the taxpayer relief fund to the general fund, the rates for each of the nine tax brackets of the individual income tax are required to be reduced by the percentage that the amount transferred to the general fund bears to the state’s actual net revenue for the preceding fiscal year. Tax rate reductions only apply for one tax year and do not affect tax rates in any successive tax year. Withholding agents and employers are prohibited from factoring in such an individual income tax rate reduction in their calculation of appropriate employee withholding amounts during a tax year. Under the bill, the tax year beginning January 1, 2021, is the first tax year to which the individual income tax rate reduction may apply.
   The bill takes effect July 1, 2020. However, the provisions affecting calculation of the state general fund expenditure limitation are first applicable for the budget process for FY 2020-2021.