Condition of the State 2019

(Source: Wikimedia.org under Creative Commons license)

Here's what we know about Iowa in 2019: Of its roughly 54,000 square miles, roughly 50,000 of them contain places that are losing population and wealth, and are voting Republican. Republicans have had unified control of state government since 2016 after holding the governor's office and state House since 2010. They renewed control in 2018 despite a Democratic wave nationwide. The Statehouse is pretty much an "office of rural affairs," with urban Democrats at the margins.

So, I'll say with my best Ross Perot voice, "it doesn't take a rocket scientist" to imagine the Governor and legislature putting their best efforts and resources into resuscitating Iowa's struggling small towns, rural areas and small industrial cities. In earlier posts (cited below) I've cited recommendations from researchers on how to do this: support universities, welcome immigration, develop public-private partnerships, small business incubators, improve digital skills, subsidize extension of broadband access, and in desperate cases relocation assistance, a rural housing initiative, and better funding for state agencies (Smith 2018, Hendrickson Muro and Galston 2018, Menner 2018, Florida 2017).

However, what we've seen since 2016 is little-to-no progress on any of these economic initiatives, and a whole lot of crowd-pleasing and tax-cutting. Besides the biggest tax cut in the state's history last year, which will only help the situation if supply-side economics miraculously starts to work, we've seen annual bills restricting abortion--including last year's "fetal heartbeat" bill--as well as de-funding Planned Parenthood, barring sanctuary cities, loosening gun control, ending collective bargaining for public employees, blocking minimum wage increases in urban counties, and cutting the state budget.

This year, according to the Gazette's daily previews, top legislative priorities include holding the line on spending while expanding gun rights, cutting property taxes, legalizing sports gambling, and making the judicial selection process less merit-based and more partisan. How any of this helps the people who are hurting, wherever they are, I can't see, unless they draw some comfort from pissing off liberals.

Gov. Kim Reynolds (R-Iowa), from governor.iowa.gov

Governor Kim Reynolds's second Condition of the State address Tuesday was civil and positive, in the tradition of this address, but rather small potatoes. That may be as good as it gets, given the priority placed on cutting taxes. She began with an extended section celebrating Iowa's residents and legislative achievements (see above), then announced "the future is now" while discussing various initiatives (some state, some private) to prepare students and workers for the new economy. (Later in the speech, a post-prison initiative got the highest praise possible: "And it's run without! government! funding!") There was also an extended discussion of mental health policy, signaling that is going to be higher on the agenda than previously thought, though much of the work ahead involves undoing the damage the state did earlier in the decade.

She ignored all of the ideological red meat on the legislature's table, which was polite, but left me wondering how much of her address actually related to the legislative session just underway.

The Governor nodded at the need for rural economic development, in the usual ways. Virtual connectivity was hailed as the key to retaining young people and keeping rural communities vital, and she's asking for $20 million, so I'll give her that. Second on the list was expanded rural housing tax credits. Oh, and we'll now have an actual office of rural affairs, to be called the Center for Rural Revitalization. She was more personal last year when she said "When I go home, I hear the disappointment and I feel the frustration when another storefront closes." But the hesitation to commit much in the way of state resources to addressing deep-seated local issues is the same. At least we can send them texts when we pass another gun rights bill!


SEE ALSO
"Election 2018 and What Happens Next," 20 November 2018
"What is the Future of Iowa's Small Towns," 3 July 2018 [includes a fair amount of economic data on urban/suburban vs. rural Iowa]
"Condition of the State 2018," 10 January 2018

Condition of the state 2018

Gov. Kim Reynolds, from governor.iowa.gov

[The text of Governor Reynolds's address is here.]

Governor Kim Reynolds today presented a hopeful message to a joint session of the Iowa legislature, with a vision of an "Iowa overflowing with opportunity" where "everyone has a chance to succeed." The main policy message, though, is that we are continuing our transition to a low-tax, low-service state. Reynolds became governor less than a year ago when her predecessor, Terry E. Branstad, was appointed U.S. Ambassador to China by President Trump.

The policy part of the speech promised continuation of the mix of conservative ideology and shouts to constituent groups (lobbying for the national renewable fuels standard, e.g.) begun with Republican ascendance in Iowa earlier this decade. Any problems those policies have created so far were either mysteriously attributed--including the always-amusing phrase "mistakes were made" when Medicaid was privatized--or ignored altogether. She touted her balanced budget without mentioning it required tapping reserve funds after earlier tax cuts produced a revenue shortfall. Big moves were promised on water quality without mentioning why the state has a water quality issue. (Large-scale farming operations have saturated the soil with fertilizer, which gets into groundwater, municipal water supplies, rivers, and eventually into the Gulf of Mexico's ever-expanding dead zone. It is also impossible to overstate the importance of this constituency to Midwestern Republicans.) At least it got mentioned, though, unlike all other environmental problems.

Dead zone in the Gulf of Mexico (Source: USAPP)

The small towns that historically served the legions of small farmers have had a rough adjustment to an era of corporate agriculture, and face an anxious future. "When I go home," Reynolds notes, "I hear the disappointment and I share the frustration when another storefront closes." There is a role for government in managing the transition--Reynolds will appoint a task force to explore statewide broadband, and proposes various health care and education initiatives--but there are limits to what even an activist state can do. (And will there be some consideration of return-on-investment when we build broadband across the state?) Anyhow, government is mostly portrayed in the speech as as alien and unwanted: The primary response to rural and small town stagnation is to double down on tax cuts. (We're not Kansas, at least not yet.) Reynolds promised tax changes with the goal of reducing individual and eventually corporate rates. It's appealing to say "Iowans will keep more of their hard-earned money," but assumes those Iowans will not miss the government services that will be cut or eliminated.

West Branch, Iowa painting by Grant Wood, 1931
(Creative Commons)

Reynolds lingered over the virtues of Iowa's small towns while virtually ignoring its cities. She claims "the heart, soul and spirit of Iowa will always remain in our small towns and rural communities," but, as in other states, urban areas are now where the Iowa economy happens. An increasing proportion of Iowans live in urban areas: 64 percent in the 2010 census. According to the U.S. Bureau of Economic Analysis, Iowa had just over 2 million jobs in 2016; over half of them are located in eight of our 99 counties. All of these eight have average wages or salaries at or above the statewide average, and even with widely varying performance among them their combined net migration in the 2010s is nearly double the state total. In other words, without these eight counties, Iowa loses population and is underwater financially. The governor thankfully omitted most of the culture war gunk (anti-immigration, repealing gay rights, crackdowns on violent crime, e.g.) in her address, but neither was there anything on affordable housing, public transportation, small business incubators or other ways to support Iowa's cities do their stuff (see Florida 2017). More emphasis on worker training could help develop the middle-level skills Iowa needs, but cutting state services, busting unions and rooting for the end of the Affordable Care Act won't help those workers deal with a likely future of uncertain, contract-based employment arrangements (Vinik 2018). Nor will they help Sioux City and Waterloo, two historic cities which lag behind in the post-industrial age. Nor will they help my city avoid having to close eight elementary schools.

From 2011-2015, Iowa lost population among key age and skill groups. Half again as many younger workers with college degrees left the state as moved in, with particular losses among those with high-level technical skills (Swenson and Eathington 2017, esp. Table 8 and Figures 2-16). Meanwhile, large cities across the country are seeing sharp increases in those aged 25-34 with four year degrees--even downtrodden cities like Detroit and Buffalo (Cortright 2018, Griffin 2018). Can the young educated people leaving Iowa be won back with a new round of  tax cuts? By partying like it's 1874? Will those workers and the firms that employ them be attracted by the legislative accomplishments Reynolds touted for 2017: voter ID laws, looser gun control, reformed collective bargaining, and defunding Planned Parenthood? Or were these accomplishments aimed at pleasing those who already live here and are nostalgic for some golden age before everything started changing?

(Source: "FY2019 Budget in Brief," State of Iowa Department of Management)

The opposition party typically keeps a low profile on Condition of the State days. (There aren't the silly canned responses that follow the U.S. President's State of the Union addresses.) Senate Democratic leader Janet Peterson praised Governor Reynolds's delivery and some of her proposals, but said legislative Democrats about how they would be funded given tax cuts and stresses on existing programs.

SOURCES:

"Iowa Community Indicators Program," Iowa State University: aggregated and original data as well as economic analysis
Joe Cortright, "Cities Continue to Attract Smart Young Adults," City Observatory, 2 January 2018
Richard Florida, "Anti-Urban States Aren't Just Hurting Their Cities," City Lab, 21 December 2017
Jennifer Griffin, "The Future Success of Cities Depends on Urban Kids," Strong Towns, 10 January 2018
Dave Swenson and Liesl Eathington, "Evaluating the Higher-Level Skill Content of the Iowa Workforce and Its Competitiveness with the Rest of the Nation," Department of Economics, Iowa State University, September 2017
Danny Vinik, "The Real Future of Work," Politico Magazine, January-February 2018

SEE ALSO:

James Q. Lynch, "Iowa Gov. Reynolds Focuses Speech on Solving Problems," Cedar Rapids Gazette, 9 January 2018
Joyce Russell, "Reynolds Touts Republican Achievements in Condition of the State Address," Iowa Public Radio, 9 January 2018

EARLIER POSTS ON HOLY MOUNTAIN:

"The Republicans' Tax Revolt," 22 December 2017
"Condition of the State," 14 January 2014

The Republicans' tax revolt

Senate Republican Leader Mitch McConnell (R-Kentucky) celebrates passage (swiped from nytimes.com)

There can be no more caviling about the accomplishments of the Republican-led federal government in 2017: the tax bill that cleared December 20, and was signed by President Donald J. Trump two days later, represents major policy change. Unfortunately, in addition to achieving some legitimate objectives the bill pushes policy in some very dubious directions.

First, the good news. The bill includes a long-overdue overhaul of corporate taxation. The U.S. relies to an unusual degree on business taxes, and the complex provisions of the tax code had pushed the top rate (which nobody really pays) far above that of other advanced democracies. The current bill closes some loopholes and reduces the top tax rate from 36 to 21 percent, making American business taxation more transparent and possibly more internationally competitive. Some advocates expect this to result in more hiring with higher wages. (I'm dubious, given that corporate profits have already been doing well for most of this decade, far outpacing wages.) The provision is not revenue-neutral, but could have been offset with higher individual rates. (It wasn't.)

I'm also fine with what's happened to the home mortgage interest deduction: the amount of debt on which interest is deductible was reduced from $1,000,000 to $750,000 for homes purchased after 2017, and nearly doubling the standard deduction drastically reduces the amount of people who will take it. This provision of the code has inflated prices, encouraged communities to sprawl and individuals to over-build (see Zuegel 2017 and Williamson 2017); the presumption that homeowners make better citizens was dubious from the start.

Other positives: Using chained CPI to make year-to-year adjustments should more accurately reflect the impact of inflation on taxpayers, even though it will mean lower benefits from, say, the Earned Income Tax Credit.... The child allowance has been increased for the first time in awhile, to $2000, albeit offset by eliminating personal exemptions. For low income filers, $1400 of that credit can be refunded in a sort of "negative income tax"... And some ideas got removed from earlier versions: reducing or ending tax credits for historic preservation, as well as provisions affecting higher education like taxing tuition benefits for employees of colleges and graduate student fellowships. (Maybe those last are neutrals rather than positives, since nothing was changed.)

If the bill had gone only that far, it might have been more widely supported, in and out of Congress, although that's hard to say given Washington's toxically partisan divide. But the sponsors had to go and:

• skew the individual cuts to the wealthy. In part that's because the wealthy pay most of the income taxes in America, but that's not true of all taxes. (ITEP 2017 shows the distribution of tax payments by income level, and how that would have been affected by an early version of the 2017 tax bill.) This exacerbates an already-widening income and wealth gap in America. The skew does appear worse if you include the expiration of individual cuts after ten years, which was included to make the bill fit under budget caps, so a lot of opposition analysis focuses on 2027 numbers. In fact those cuts may or may not expire, but if they don't, they will clearly worsen the bill's impact on the deficit (discussed below.)
• double the estate tax exemption, which was absurdly high even before Republicans tried to end it in their 2001 tax cut. The ability of the very rich, some but not all of whom got that way by doing socially-productive things, to pass on huge fortunes to their heirs, all of whom got that way simply by coming out of the right vagina, is absolutely contrary to an opportunity society. We're making the world safe for aristocracy, pure and simple. And since whites got several centuries' head start on making money, this approach does racial harm as well.
• expand pass-through provisions, by which individual income can be taxed at the lower business rate. This option is not available to typical working people, of course, only to those in a position to declare themselves independent contractors. A special provision related to real estate partnerships will provide substantial benefits to the Trump family as well as Senator Bob Corker (R-Tennessee), a late convert to the yes column, all of which is giving cynics a field day.
• retain the obscene carried interest loophole, whereby the income of financial wizards is taxed as capital gains rather than income, and therefore at a much lower rate. This has cost the government $18 billion over the last ten years, besides which it irrationally favors financial wizardry over any other work. Hello-o-o, 1 percenters!
• run as much of a deficit as they legally could claim. The official estimate of revenue loss, $1.4+ trillion over 10 years, assumes a substantial economic stimulus effect, which as I said may or may not result, and steady and considerable economic expansion throughout the period. Otherwise the impact on the deficit is substantially worse. Fiscally stimulating the economy at all in the eighth year of a bull market with the country at or near full employment is hard to justify. The capacity of the federal government to deal with future events (natural disasters, security threats, economic downturns, funding for retirement and health care programs, maintaining infrastructure), not to mention regular disruption in our high-tech economy, has been damaged, which is inexplicable. In the near term, higher deficits would trigger funding cuts for Medicare and Medicaid.
• add legislative matters to the bill. Republicans have repeatedly attempted over the years to repeal the individual mandate provision of the Affordable Care Act and open the Alaska National Wildlife Refuge to oil drilling, without success. Both are included in this bill. The ACA change cuts health care policy off at the knees--"We have essentially repealed Obamacare," President Trump proclaimed Wednesday--roiling individual insurance markets, without any recourse for the most vulnerable.
• do all this in an all-fired hurry, without so much as a committee hearing. Senator John S. McCain (R-Arizona) complained last summer about his leadership's abandonment of "regular order" in considering legislation. This bill was a most egregious example, but he supported it anyway.

The tax bill does some good, but considering its effects on vulnerable individuals as well as American society as a whole, it does a lot more bad.

DATA STUDIES
Tax Policy Center: http://www.taxpolicycenter.org/publications/distributional-analysis-conference-agreement-tax-cuts-and-jobs-act/full
Institute on Taxation and Economic Policy: https://itep.org/finalgop-trumpbill/

Reuven S. Avi-Yonah et al.: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3089423

American Planning Association: https://www.planning.org/blog/blogpost/9140260/
US Treasury Dept: https://www.treasury.gov/press-center/press-releases/Documents/TreasuryGrowthMemo12-11-17.pdf 

SEE ALSO:
William G. Gale and Leonard Burman, "Congress Missed an Opportunity to Reform the Corporate Tax," Up Front, 26 December 2017
Alejandro Ortiz and Kathleen Powers, "So, What's in the Tax Bill?" Vote Smart, 13 December 2017

Why casinos?

Is a casino what this block needs?

The required cooling-off period has passed since Cedar Rapids's casino proposal was denied by the Iowa Racing and Gaming Commission in April 2014, and three proposals have emerged to try it again (Morelli). The Cedar Crossing group led by Steve Gray, who created the 2013-14 proposal for a casino that would have straddled 1st Avenue West near the Cedar River, has resubmitted that version along with a smaller casino concept on 1st Avenue where it currently intersects with 4th Street NE, the railroad tracks and the Cedar River Trail. Wild Rose, which operates large-scale casinos in Clinton and Dubuque, has proposed a small casino on the second floor of a four-story building proposed in the 400 block of 1st Avenue SE.

Of the three I prefer the look of Wild Rose's proposal. It's an unpretentious building that works well with the rest of the block and doesn't impede walkability. My main beefs against the original Cedar Crossing proposal were that it was a gaudy building that wouldn't work with the street; that it was a self-contained pod of attractions that not only would provide no spillover benefits to nearby businesses but would actively compete against them; and that, compared to a contemporaneous proposal by MGM to Springfield, Massachusetts, the City of Cedar Rapids seemed to be getting very little out of the deal. I haven't seen the financial details of the current proposals, so can't compare them or assess their sufficiency.

I remain curious as to why a casino plays such a central role in our city's discussions of economic development. Some people enjoy them, some don't; I get that. And whether big- or modestly-sized, a new casino will make a noticeable splash when it opens. But as economic drivers casinos seem less effective than incremental urbanism. This admittedly is a pretty slap-dash way of demonstrating this, but let's look at the 400 block of 1st Avenue SE, where the Wild Rose hopes to build. The venerable Bever building, built in 1923, is pretty, but this is far from the hoppin'-est block in town. Using the Urban Three model of property tax comparison...

NAME	ADDRESS	CITY	CTY	LAND VALUE	IMPROVE MENT VALUE	TOTAL TAX VALUE	ACRES	VALUE PER ACRE
Albert Auto	421 1st Av SE	Cedar Rapids	Linn	154,600	155,800	310,400	0.296	1,048,649
Bever Bldg	417 1st Av SE	Cedar Rapids	Linn	80,600	549,400	630,000	0.154	4,090,909
Skogman Bldg	411 1st Av SE	Cedar Rapids	Linn	168,000	860,000	1,028,000	0.321	3,202,492
Vacant Land		Cedar Rapids	Linn	100,800	6,700	107,500	0.193	556,994
TOTAL BLOCK				504,000	1,571,900	2,075,900	0.964	2,153,423
Wild Rose Casino	777 Wild Rose Dr	Clinton	Clinton	2,935,000	21,065,000	24,000,000	28.6	839,161
Riverside Casino & Golf Resort	3184 Hwy 22	Riverside	Wash ington	5,343,500	65,930,100	71,273,600	381.23	186,957

...we find that the taxable value per acre on this block vastly exceeds either of the region's most successful casinos. The taxable value per acre of the vacant lot where Wild Rose hopes to build is more than three times that of the Riverside Casino and Golf Resort!

However, as dubious a use of valuable real estate as I believe a downtown casino to be, I am done with the Iowa Racing and Gaming Commission. I would rather have the city make its own decisions, even if I disagree with them, about its future. The State of Iowa has shown an unbridled willingness to intervene in and overrule local decisions--from casino location to minimum wage to labor agreements to plastic bags to rental regulations, and now taking down the Des Moines Water Works--without any notable talent for doing it. Unless someone's rights are being violated, the governor and legislature should butt out. We can handle this. Do something you're good at, like ensuring gun rights for robots.

SOURCES
B.A. Morelli, "3 Cedar Rapids Casino Choices Meet Application Deadline," Cedar Rapids Gazette, 13 February 2017
Strong Towns, "The Walmart Index: Results of Our Big Box Data Collection Are In," Strong Towns, 3 August 2016
"G.O.P. Statehouse Shows the Locals Who's Boss," New York Times, 21 February 2017, A22

SEE ALSO:
Ben Seigel and Brooks Rainwater, "Preemption Prevents Innovation," US News and World Report, 
"Value Capture and the Property Tax," Lincoln Institute of Land Policy, n.d.

EARLIER POSTS:
"No CR Casino... Now, What?" 17 April 2014
"Their Casino, Our Casino," 5 September 2013