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Massive Tax Bill Buys Out Regional MH/DS Services

Monday, April 5, 2021

Leaders in the Iowa Senate rolled out a huge tax reform bill that takes $152 million in property tax replacement dollars from cities and counties, ends tax credits for those that donate their land to conservation, and limits who can avoid property taxes by putting their land for forestry reserves.  The biggest part of this bill (Senate File 587) addresses funding for the state's mental health and disability services system that is currently funded entirely by property tax dollars. Instead, this bill will get rid of these local funds and replace them with state funds.  Whether these funds are enough to maintain services and add new complex needs and children's services coming on line this July 1 is not known.  The bill's complex formulas for growth and repayments from regions with fund balances make it difficult if not impossible to predict how much funding will be available from year to year.

Many groups are registered in opposition to this bill, while others have stayed "undecided" as they work through these details.  Those in favor include Farm Bureau, Americans for Prosperity, Iowans for Tax Relief and Iowa Taxpayer's Association. Many advocates see both good and bad in the bill, but the common theme is uncertainty, something that has plagued the system from the beginning of the state-county partnership late 1990s.  You can read more in the nonpartisan staff review of the bill here.

Mental Health/Disability Service (MH/DS) Regions

  • Regional boards would remain the same, and still vote on all the budgets and plans for the region.
  • No change is made to the regional advisory boards; they continue to be an important part of the planning process.
  • All regions would have to put their money into a single bank account (by July 1, 2021).
  • The unelected regional administrator (called a CEO, for chief executive officer) would be responsible and accountable for the funds, instead of the elected county auditors. 
  • Regional requirements and core services do not change.
  • Regions are encouraged to spend down their fund balances (fund balances are like a savings account - it's the amount of property tax dollars left unspent at the end of the year).
  • No other county tax dollars could be used to pay for services or staff (although an exception is made for three years to allow the continued shared funding/donated services agreement between Broadlawns and the Polk County Region).

County MH/DS Property Taxes

  • We use the term "per capita" when talking about funding for the regional MH/DS system. It means "per person" living in the region.
  • Currently regions are allowed to use up to $47.28 in property taxes for services (although several regions were locked in at a lower rate).
  • Year 1 would change that to $21.14. (FY 2022 - which starts in just a few months on July 1, 2021).
  • Year 2 the property tax for MH/DS services is eliminated. The system becomes entirely state-funded.
  • After the first year, there are no longer county dollars in the system.

State Regional Supplement Fund

  • For Year 1 (FY 2022) state funding for regions is $15.86 per capita (for total of $37 per capita).
  • For Year 2 (FY 2023) state funding for regions is $38 per capita (there are no longer county dollars in the system).
  • For Year 3 (FY 2024) state funding goes up to $40 per capita.
  • For Year 4 (FY 2025) state funding increases to $42 per capita.
  • For Year 5 (FY 2026) & after, the state would add cost of living increase (called an allowed growth rate) up to 1.5% (based on a formula that is dependent on sales tax increases).
  • In Year 5, if the growth rate is the maximum of 1.5% - that is a per capita increase of just 63 cents - so up FY 2026 would be at most $42.63.
  • At this rate, it would take until FY 2033 to get back up to $47.28 per capita (the current rate). That's 12 years!  
  • Regions are sent state funds in four even quarterly payments (July, October, January, April). 

Regional Risk Pool 

  • A new risk pool is created to help regions for which the per capita rate is not enough to cover costs.
  • The risk pool board includes providers, county supervisors, county auditors, regional MH/DS administrators, and other stakeholders.
  • Risk pool applications are due October 31, decisions are made by December 15, and funds sent to the regions on January 1.
  • Regions who have over 40% fund balance in Year 1, 20% in Year 2, and 5% in Year 3 and after are not eligible for risk pool funds.
  • Lists how risk pool funds can be used (core services, "critical services," avoiding cuts that put someone's safety and health at risk, and assistance in to "maintain consumers in a community setting.")

Regional Risk Pool Funding

  • Funds risk pool with $9,960,590 in Year 1 (FY 2022) and $5,170,340 in Year 2 (FY 2023).
  • Starting in Year 3 (FY 2024), there is an annual increase (called the risk pool growth factor), up to 3.5% (also based on sales tax increases).
  • Regions that have fund balances over the allowed limits would have to pay back the state for the amount they are over the fund balance limit.  Those repaid funds go into a Risk Pool. (Reminder: regions are allowed 40% fund balance in Year 1, 20% in Year 2, and 5% Year 3).
  • Total risk pool funds available each year is not known since we do not know if sales taxes will increase (and by how much) and how many regions will be required to repay the state.

The bar chart below shows how much regions will receive in county property tax dollars (orange) and state funds (blue).  The first fully-orange bar is current law, allowing regions to collect up to $47.28 per capita from their property tax levies.  The second year, noted as FY 2022) is when the bill takes effect, reducing county taxes and adding in state funds.  Since we do not know how much will be in the risk pool or how much growth will be, they are noted with question marks.  We have more information on this bill available at infonetiowa,org. 

 The bill is on the Senate Debate Calendar already, so it could come up any day now.  Some of the things advocates have been saying:

  • It's not a Mental Health System - it's a Mental Health and Disabiity Services System.  Legislators and some organizations have started to refer to the regional system as "mental health regions."  People are starting to forget the DISABILITY SERVICES side of MH/DS regions and the importance of those services to individuals with intellectual and developmental disabilities.  As a reminder, Iowa law only requires regions to serve individuals with an Intellectual Disability (ID) diagnosis; serving individuals with Developmental Disabilities (DD) is optional for regions and entirely dependent on the region having extra funding available. If state funding is not sufficient, non-mandated populations like those with a DD diagnosis may face service cuts.
  • Funding is ramped up over time and includes a growth factor.  However, the growth factor is connected to sales tax growth, so if the economy goes down, the state's funding for mental health does as well (even though demand for mental health services goes up during times of economic uncertainty). In addition, the growth factor is based on two-year old data to improve predictibility (but that's a big lag for a service system).  The growth factor does not take into consideration growth in the overall state's population; if more people are served, more than a cost-of-living increase is needed.
  • Property taxes are reduced, addressing an unfair system that has led to "have" and "have not" regions. Scott County almost got kicked out of their region because they were unable to contribute their fair share to the regional budget (their property taxes are capped too low).  Polk County's property taxes have only funded half of their budget since the 2015 "equalization formula" was abandoned (when the state stopped contributing $30 million to the regional system).  While this bill removes one barrier, it does not address the core problem that some regions will have to forever rely on the state risk pool to maintain services. 
  • Funds can be allocated where they are needed, not where the property tax dollars can be generated.  One of the problems with the old freeze on property taxes is that it froze the amount a county could collect, so counties are allowed to collect the same amount from property taxes this year (Fiscal Year 2021) as they did when the state started partnering with counties in  1998.  Since that time there have been two censuses and population has shifted. Iowa's urban counties have grown significantly since that time: Story County added 25,000 residents, Linn County and Johnson County combined serve 100,000 additional residents, and Polk County increased its population by 140,000. Some regions have more than enough money from property taxes, and could even tax more, but the state cannot take those funds and give them to other areas of the state in need.  With an entirely state-funded system, the state could do this.
  • There are several operational issues with the structure of the new system.  First, no region can operate on zero fund balance.  Imagine your bank account going to zero at the end of each month and trying to pay rent, car payments, and groceries during that first few weeks of the next month.  Regions need some money in the bank to pay providers, or provider payments will be delayed or service authorizations slowed.  Second, most (if not all) regional staff are county employees or the county pays their salaries. Without a levy and with the prohibition on any other funds being used to pay for those salaries, this would cut into service dollars.  Third, a non-elected person is the new administrator of the funds (no longer county auditor, now regional administrator). Other issues include uncertainty in risk pool dependent areas, lack of definition in the risk pool criteria, absence of a children's provider representative on the risk pool board, fast implementation date (starts less than two months if bill passes and is signed), and prohibits some sharing of resources.
  • The state has not been a reliable partner.  This is not an opinion; it's fact. The state has rarely lived up to its promises in funding their part of the MH/DS regional system and regions have relied on local property tax dollars to fill in those gaps. Local funding means local input into the process, and a degree of responsiveness that you do not see in other state funded systems.  Without some reliable locally-controlled funding source, regions are entirely dependent on the Governor, DHS and the 150 state legislators to fund the system.  As a person with a disability, instead of going to your local county supervisors for help, you will need to go to your two legislators and DHS to make your case.  That all said, the Senators writing this bill fully intend to retain local control, but that may or may not be possible without local dollars in the system.

The bill moved fast through the Senate; one week from it's introduction the bill has gone through two committees and subcommittees, and was voted out of the Senate on Tuesday, April 6.  Democrats voted against; Republicans voted for.  It now moves to the House - so if you have concerns, comments, thoughts, or suggestions, talk to your State Representative (you can take action here).  If it does not pass this year, advocates will need to talk to their legislators about this bill and other approaches to funding the state's MH/DS regional system so that it remains accountable to the taxpayer and responsive to the person relying on the services and sustainable for those providing the services.  


NOTE TO ADVOCATES:  In 2020, the Governor Reynolds submitted her plan to use a part of a sales tax increase to reduce property taxes and add more state funding. This year, we have the Senate plan. Next year there may be another plan.  The good news is that everyone is talking about a better way to fund regional mental health and disability services.  Every person working on this has mental health and disability services as a priority, they all just have different ways to fund them. So far, no plan has been perfect.  As they say, the devil is in the details.  If it were easy, it would have been fixed a long time ago.  So if you talk to your legislators about this, make sure you start out by thanking them for making mental health and disability services funding a priority. 



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