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Legislative Update 05/27/2016

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It's clearly a budget. It's got a lot of numbers in it.

Legislative Update

Friends,

Labor Day has come and gone; our summer is all but done.  Much has happened this year with the presidential politics and a political season that seems to be dragging out.  While the legislative season typically lasts from January to April for Iowa, there have been a few things that I wanted to keep you informed of over the interim.  First, I think it is very pertinent for you to know the status of our State Revenue compared to what the Revenue Estimating Committee projected.  Second, I wanted to let you know the status of the new Medicaid Program.  Below you will find the status of these two important issues for Iowa. 


State Revenue Up, But Not Enough to Keep Pace with REC Projection
 
State revenue grew in August, but only enough to offset July’s shortfall.  That’s according to the August revenue memo put out by the Legislative Services Agency.  This seriously affects the amount of money that we can budget for in the upcoming session, and makes it more important to be conservative in our budgeting practices. 
 
For the month of August, state revenue was $16.1 million higher than what was collected in August 2015.  This 2.2 percent revenue increase raised the FY 2017 revenue growth to a level $500,000 higher than where it was through the first two months of FY 2016, a growth rate of 0.04 percent.  According to LSA, revenue has to grow 7.1 percent to meet the March 2016 REC estimate.  This would be an increase in state revenue by $483.5 million. 
 
In the tax categories, personal income tax collections grew by only $300,000 when compared to August 2015.  Sales tax collections did rebound from July’s timing issue.  Sales tax was up $20.3 million in August, an increase of 6.1 percent over August 2015.  Corporate income tax collections, which are a small portion of General Fund receipts in August, were $10.1 million for the month.  This is $2.3 million less than what was brought in during August 2015.
 
How does the current standing of tax revenue compare to the REC projection?  Currently, just about every tax source is currently below the March estimate.  Personal income tax collections are supposed to grow by 5.6 percent in FY 2017.  This category is up 2.58 percent through 2 months.  Corporate income tax collections are supposed to grow by 3 percent, but they are running at negative 20 percent.  While that amounts to a drop of $6.5 million, it is not a good start to the fiscal year.  Inheritance tax collections are to rise by 6.5 percent, but they are at negative 18 percent.  Sales tax collections are forecast to grow by 1.5 percent, and they are up 1.2 percent.  The only tax which is producing more revenue than projected is the insurance premium tax, which is up 1.54 percent through 2 months.  The REC has projected a decline of 1.3 percent. 
 
In the other receipts categories, the state faces a similar situation where most of these categories are running behind what the REC has projected.  The biggest revenue streams in this category - liquor profits and judicial revenue - are both negative through the first two months of FY 2017.  On the refund side, many of these are also below the REC projection, which is helpful.  But there are  exceptions, which would be corporate and franchise refunds.  Those categories are running ahead of the REC forecast and FY 2016 levels.  And while sales tax revenue has grown by just 1.2 percent, school infrastructure refunds are up 7.74 percent.
 
The state will need to start experiencing significant revenue growth in order to meet the REC projection.  This may start to occur over the next two months, since September and October 2015 were particularly bad months for revenue in FY 2016.  But the economic picture is not brightening. 
 
 In Creighton University’s Mid-America Economic Conditions survey for August shows that of the nine states they track, only South Dakota was a performing at a level above growth neutral.  Ernie Goss, Creighton’s lead economist, said that the weakening ag economy is driving down the numbers, and pulling manufacturing down with it.  Creighton also tracks the changes in manufacturing jobs.  Iowa has lost the largest percentage of manufacturing jobs on these nine states, a drop of 3.1 percent over the past year.   If the dollar remains strong as compared to foreign currencies, it is hard to see when agricultural and heavy equipment exports will pick up. 

Iowans Save $22 million in First Quarter of New Medicaid Program
 
In April, the Iowa Medicaid program transitioned to managed care.  After months of negative press and speculation about savings, the Department of Human Services released a 61 page report updating the public and the legislature on the progress of the program.  This report is a direct result of House Republicans’ creation of the most robust oversight program of any managed care system in the country.  This report will allow us to do what we need to do - ensure that Iowa’s most vulnerable citizens have quality health care and are moving toward a path of wellness.
 
At the August 29th Health Policy Oversight Committee meeting, the First Quarter Performance Data was released by the Department of Human Services.  The report showed more information than ever before on the internal workings of the Medicaid program.  Before managed care, how much the state spent on Medicaid was in a constant state of flux.  The group that is tasked with predicting how much the state spends on Medicaid would have a range of over $50 million in spending.  This made responsible budgeting year-to-year nearly impossible.  However, moving forward, the state is now able to assign a per-member-per-month cost for each individual enrolled in Medicaid.   
 
Page 48 of the report outlines the program cost savings.  According to DHS, the program cost savings in the first quarter of the program are $22,263,905.  Savings are unique to each quarter of the program.  However, the report states that the state is on track to meet the savings amount of $110 million projected last session. 
 
At the August 29th meeting, Rep. Dave Heaton (R- Mount Pleasant) acknowledged that there have been hiccups during this transition period.  However, moving forward the legislature’s focus should be on fixing the problems that are brought to our attention by providers and members.  In his opening comments, Rep. Heaton highlighted what he believes are the two purposes of the Oversight committee: “First, to ensure that patients’ needs are met and they are receiving the care that they expect and second, to ensure that the managed care organizations are held accountable.  We have entrusted these MCOs with millions of tax dollars and expect them fulfill their contractual obligations and improve Medicaid enrollees health.  If they do not meet the necessary benchmarks, they will not get their 2%.  If they do not meet their contractual obligations, there will be monetary sanctions.”
 
House Republicans remain committed to not only improving the quality of care in the Medicaid program, but ensuring that the managed care companies are held accountable if they are not meeting their contractual obligations.
 
The complete report can be found here.



Sincerely, 

Representative John H. Wills

2015-16 HOUSE REPUBLICAN BUDGET PRINCIPLES

House Republicans are committed to these principles to produce a balanced and sustainable state budget:

  1. We will spend less than the state collects;
  2. We will not use one-time money to fund on-going needs;
  3. We will not balance the budget by intentionally underfunding programs; and
  4. We will return unused tax dollars to Iowa’s taxpayers.
The House Republican position on government spending is reasonable, sustainable and based on simple common-sense budgeting principles.
 


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