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

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.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 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.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 immediately preceding July 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.