Iowa Legislative Session recap

Tax reform continues to be a top priority for the Republican trifecta. In 2022, legislation was passed that gradually phases down the state income tax until a flat tax of 3.9% is reached, as well as lowering the corporate income tax to 5.5%. In 2023, focus shifted from income tax to addressing property taxes. 

During the Condition of the State, Governor Reynolds unveiled a proposal to accelerate the 2022 law by phasing down the individual income taxes to a flat rate of 3.5% by TY25. The Senate introduced a separate tax proposal in January that would gradually eliminate income taxes entirely by directing Iowa Public Employees' Retirement System (IPERS)  to invest the Tax Payer Relief Fund into a trust with the revenues generated there used to buy down the individual tax rate. 
 
Senate File 2442 was agreed upon in the final weeks of session and includes both individual and property tax changes. The final compromise accelerates the phase-down from the 2022 legislation to create a flat individual income tax rate of 3.8% for TY25, a summary of the current rates versus the new rates can be found in the table below. 

The legislature also took the first steps toward amending Iowa’s Constitution related to income tax. Two resolutions passed both chambers requiring a two-thirds majority approval for future legislators to raise individual income taxes and requires Iowa use a flat tax rate system. The legislature must adopt the same language during the next legislative session for the proposed amendments to be considered by the public for ratification. 

One of Governor Reynolds priorities introduced in January was legislation to expand work-based learning opportunities in the state. Senate File 2411 expanded the definition of work-based learning, allowed summer programs to be included, and created a Workforce Opportunity Fund to support equipment, instructional materials, stipends and other training-related costs. The legislation made changes to the Future Ready Last Dollar Scholarship Program and student teaching requirements for individuals with prior experience in a classroom. On the final day of session, both chambers advanced the bill and sent it to the Governor to be signed into law. 

Originally introduced in 2023, the Major Economic Growth and Attraction program passed both the House and Senate this year and is on its way to Governor Reynolds’ desk.  

This bill would create an investment tax credit for projects with more than $1 billion in capital investment on sites of 250 acres or more. The bill also provides for sales and use tax exemptions while limiting other state incentives (for example High Quality Jobs and Targeted Jobs Withholding Credit). The bill also includes $300,000 for the Iowa Economic Development Authority to certify at least two sites in each Iowa congressional district (8 sites total), in counties with populations of 50,000 or less.  

In 2023, the legislature adopted Senate File 514, reorganizing Iowa’s Executive Branch to be more efficient. The legislation consolidated the number of state agencies from 37 to 16 and included a provision directing the legislature to form an interim committee to review Iowa’s Boards and Commissions. As the second phase of the reorganization, this year the legislature adopted Senate File 2385, consolidating and eliminating many of Iowa’s Boards and Commissions. 

Under the bill, 69 boards are eliminated, 3 boards are merged into the Board of Behavioral Health Professionals, 3 boards are merged into the State Mortality Review Committee and 2 new boards are created. Nine boards saw a reduction of board members under the bill. 

During the Condition of the State, Governor Reynolds shared her top priority for the 2024 session was to make changes to Iowa’s Area Education Agencies (AEAs). Throughout session, both chambers considered versions of the initial proposal that would reallocate funding and make changes to the services AEAs provide. House File 2612 was agreed upon during the twelfth week of session with the following changes included:

• Districts will receive 10% of special education funding from the State while AEAs will receive 90% of funding effective after the 2024-2025 school year 
• During the 2024-205 school year, school districts will receive 60% of State funding for general education and media services while AEAs will retain 40% of the funding  
• Following the 2024-2025 school year, school districts will receive 100% of funding for general education and media services 
• Creating a task force to study and make recommendations to improve the AEA system 
• Creating a special education services division within the Department of Education and providing the department with additional oversight over AEAs 
• Increasing Supplemental State Aid by 2.5% 
• Increasing teacher minimum pay to $50,000 

• E-Verify: Opposed. This bill would have required any business receiving State incentives to sign up for the federal E-Verify system. Analysis from the CATO Institute has demonstrated that E-Verify has a penchant for inaccuracies leading the Quad Cities Chamber to oppose additional government involvement in business hiring practices. 
• Daylight Savings Time as official time throughout year: Opposed. This bill would have led to the Iowa and Illinois Quad Cities existing in two different time zones during half of the year. This would cause complications to scheduling and therefore the Chamber opposed. 
• Midwest Interstate Passenger Rail Compact: Supported. This bill would have authorized the State to join the Midwest Interstate Passenger Rail Commission and allowed Iowa to participate in planning and strategy conversations around the deployment and expansion of rail across the Midwest. This bill passed the House but failed to pass the Senate. 
• Iowa Major Tourism Event Grant: Supported. This bill would have created a new grant program to support large tourism events in Iowa by providing funding for development, planning and logistics for major events. This bill was a new idea this session and we expect to see this be a continued conversation in future years. 
• Workforce Housing Tax Credit Increase: Supported. The workforce housing tax credit is a successful program that has helped to develop workforce-oriented housing across Iowa. The program has been so successful that it is oversubscribed. This legislation would have increased funding to allow for more projects to be funded. This will continue to be a conversation in future years. 
• Creation of Land Redevelopment Trusts: Supported. This bill would have created a new Land Bank/Land Trust law in Iowa allowing municipalities to have additional tools for redevelopment of blighted parts of town. This would be an asset for communities across Iowa and we expect this to be discussed in future sessions.