This completes our fourth week of the legislative session. It has been a very busy week with committee meetings and subcommittee meetings. The session time is slow this time of year, but the time is well spent doing the research and moving bills through the committee process.

This week the Iowa Supreme Court said there is no rational reason to differentiate tax rates between the forms of gaming. There could be broader implications with the Iowa Supreme Court ruling. What about Iowa’s property tax system? Agriculture and commercial land generate business income. Is Iowa’s current property tax law, which differentiates between commercial and agricultural land NOW unconstitutional? Is our property tax system ripe for legal challenge? What about other businesses, like banks and credit unions, providing similar services that are currently taxed at different rates?

The vote was 5 for and 2 against. I think that Iowa Supreme Court Justice Mark Cady said it best: "The decision of the majority causes great harm to the law, to the concept of federalism, to the doctrine of judicial economy, to the essential reliability of legal principles, and to the balance of power within our government. Perhaps most troubling of all, it also causes a great injustice to the people of Iowa."

Justice Cady went on to say "Yet, the majority’s reasoning imposes serious consequences upon the legislative branch, which has justifiably relied upon its freedom granted under the law to create classifications in tax statutes by imposing a greater tax burden on one of the two types of gambling enterprises in Iowa."

"In this case, the legislature uses a taxation statute to pursue the objective of economic development by favoring riverboats over racetracks. Taxation is an area laden with social and economic policy, which is a legislative function to develop." Justice Cady said.

The ruling by the Iowa Supreme Court leaves a hole in the budget of around $200 million dollars. This is the total of back taxes that are owed to the land-based casinos and the reduction in their new tax rate. I don’t think Iowa taxpayers should be on the hook for the money owed to the land base casinos. We still hold a bargaining chip with the casinos. The land-based casinos want table games and more slots. The legislature cannot afford another $200 million hole in the budget. There will be some type of negotiation to find a way so that the taxpayer is not the one left holding the bill! But at this particular time it is almost impossible to anticipate where the common ground might be reached.

The State Government Committee held a public hearing in the House Chamber on Monday, February 2, at 5:00 p.m. Despite the bitter cold and freezing rain in parts of the state, the hearing boasted an attendance of more than sixty people with thirty-three expressing their views on gambling. Iowans wanting a new casino in their area argued passionately that an expansion of gambling would be good for economic development, but several compulsive gamblers and treatment providers pleaded the legislature to resist the expansion of gambling. They also made the plea for more money to be put into the treatment for gambling addiction.

After listening to the people at the hearing and attending one of the subcommittee meetings on the gambling issues, it is plain to see that there is a wide range of beliefs in where people stand on gambling. This is true with the typical Iowan and in the Iowa Legislature, also.

There has been some good news. On Monday, February 2, Fiscal Services released the revenue figures through the first seven months of the fiscal year. Due to strong growth of income tax receipts, revenue exceeded the December estimate set by the Revenue Estimating Conference (REC).

Through January, total general fund revenue increased by $37.3 million, or 1.3 percent compared to FY 03. This is up from December, when revenue was up only $1.3 million, or 0.1 percent.

Personal income continues to grow at a rapid rate compared to FY 03. Unfortunately, sales and corporate income tax receipts are still lagging behind the FY 03 numbers.

If Iowa can hold the line on spending in FY 04 and FY 05 and the economy continues its rebound and eventually picks up some steam, there will be revenue growth needed to support priorities like education, health care and public safety in FY 2006 and beyond.

As always I would enjoy hearing from you.

Until next week,

Tom Sands