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Iowa Gov Signs Tax Law That Speeds Up Iowa Income Tax Cuts, Shifts Mental Health Funding to State

Jun 17, 2021

Iowa Gov. Kim Reynolds signed a wide-ranging tax bill into law Wednesday that will allow more income tax cuts to kick in, phase out backfill payments to local governments, and shift mental health funding from local property taxes to the state.

At a bill signing event at Youth and Shelter Services in Ames, Reynolds called it “landmark tax reform legislation.”

“Taken as a whole, today’s bill ushers in a new era of freedom, growth and opportunity in Iowa,” she said.

Reynolds on Wednesday highlighted the bill’s impact on mental health funding. The new law will end the county property tax levy that currently brings in revenue to fund the state’s 14 mental health regions. Instead, the state will provide funding in its budget each year, and the new law is expected to give the state more power to ensure the mental health regions are providing services that are required by law.

Reynolds said the new structure will provide property tax relief and complete the work on mental health services she started when she became governor in 2017.

“For all the improvements that we’ve made, the final piece of the puzzle was still missing: a steady and reliable funding source,” Reynolds said. “With my signature today, that missing piece finally falls into place.”

YSS President and CEO Andrew Allen said the changes will increase access to behavioral health services in Iowa.

“This work is so important, and the stakes are so high,” Allen said. “The need is so great, especially for our youth.”

Another mental health provision in the bill requires insurance companies to pay the same rate for in-person and telehealth mental health services.

The new law also removes revenue thresholds from a 2018 tax law, which will allow more income tax cuts to take effect in 2023.

Reynolds said she wants to purse more income tax cuts next year.

“If we’re over-collecting we should make sure that we give that money back to [taxpayers],” she said. “And the other things is, states across the country are continuing to bring theirs down. And if we’re going to remain competitive, we’re going to have to continue to take a look at that.”

The new law includes the expansion of a child care tax credit, more funding for affordable housing programs, a sales tax break for food banks, and other tax changes.

Many stakeholders have expressed support for the new law, but local governments and some Democrats have opposed the provision that phases out backfill payments to cities and counties.