Capitol Report - End of 2022 Session

The Iowa Legislature adjourned the Second Session of the 89^th General Assembly in the early hours of May 25^th, after a nearly month-long gridlock following the 100^th day. Governor Reynolds and leadership in both the House and Senate worked over the last four weeks to find a compromise on key policy issues including the Fiscal Year 2023 budget, Iowa’s bottle bill, tax reform, pharmacy benefit managers, and education savings accounts (ESA’s). Ultimately agreements were reached on all remaining priorities with the exception of ESA’s.

Iowa experienced a record surplus heading into 2022, and as a result the Legislature approved an $8.209 billion budget for FY23, an increase from the FY22 budget of $8.11 billion. Governor Reynolds, Senate leadership, and House leadership pushed for a historic tax bill this session and approved House File 2317 in February. Governor Reynolds signed the bill on March 1 and highlighted the legislation in her response to the State of the Union address by President Biden. The legislation will move Iowa from a 46^th overall ranking to 15^th overall on the State Business Tax Climate Index. The bill includes the following provisions:

• Flat personal income tax rate of 3.9% by Tax Year 2026.
• Eliminate the tax on retirement income in Tax Year 2023.
• Remove the tax on capital gains upon the sale of stock related to employee stock ownership plans (ESOPs).
• Phases the corporate tax rate in Iowa to 5.5% percent from the current 9.8% as annual net receipts to the Iowa General Fund exceed $700 million annually.
• No elimination of the S-Corp Apportionment Tax Credit.
• Under the Research Activities Credit (RAC), supplies and computer use expenses are phased out as qualifying expenses as part of the credit calculation.
• Refundability for RAC is phased down to 50% in 5 years.

Senate File 2367 was adopted on May 23^rd and includes additional tax reform provisions that exempts state income taxes on retention bonuses provided by the state with American Rescue Plan Act funds. The bill also eliminates sales tax on feminine hygiene products and diapers starting in 2023.  An amendment to the Department of Revenue bill passed on May 23^rd eliminated the tax emption on computers and computer peripherals.

In addition to tax reform, the legislature approved two of Governor Reynolds workforce priorities. House File 2355 makes changes to Iowa’s unemployment insurance system by shortening the maximum benefit duration to 16 weeks, shortens the timeframe and wage requirements for someone on unemployment to accept a job, and allows for businesses to be reimbursed for overpayment of benefits. Senate File 2383 was approved following HF 2355 and includes provisions related to work-based learning, recruitment of healthcare workers, city and county inspections of manufactured houses, and eliminates certain fees for veterans. Both bills were sent to the Governor and are expected to be signed into law.

During the Condition of the State Address, Governor Reynolds addressed the need for placemaking initiatives to aid in attracting workers to Iowa. In April, Governor Reynolds announced she would be allocating $100 million in American Rescue Plan Act funds to a new program, Destination Iowa. The program will award grants to quality of life and tourism projects across the state.

The Legislature expanded on childcare bills approved in 2021 and passed three additional bills. House File 2198 establishes new child-to-staff ratios in child care centers and allows workers 16 years or older to work in child care centers without additional supervision. House File 2127 allows childcare centers to collect the difference between Child Care Assistance rates and rates charged to private pay families. House File 2252 expands Child Care Assistance eligibility to parents with permanent disabilities, previously only a parent with a temporary disability qualified.

On May 23^rd, Senate 2378 was approved by the Senate after receiving bipartisan support in the House on April 12. SF 2378 reforms Iowa’s decades old bottle bill for the first time since it’s adoption. The bill includes the following provisions:

• Allow dealers to opt out of redemption
• Increases the handling fee paid by distributors by 2 cents
• Allows for a tax refund on the barrel tax for beer of 1 cent per redeemed container
• Codifies unredeemed deposits to distributors
• Civil enforcement by the Department of Natural Resources and Attorney General
• Allows all retailers who possess a food establishment license to opt out
• Codifies the convivence standard for redemption centers for dealer opt out
• Requires a dealer who does not accept cans to display a notice on the front door stating the location of the nearest redemption center
• Effective date: January 1, 2023

President Biden visited Iowa in April to announce his plan to lift the restrictions on the sale of gasoline blended with 15% ethanol during the summer months. Shortly after, both the House and Senate approved House File 2128, a bill related to renewable fuels incentives. On May 15^th, Governor Reynolds signed the bill into law. HF 2128 adopts a standard for access to E15 throughout the state and was one of the Governor’s top priorities for 2022.

Education policy played a large role in session adjournment this year, with a nearly month-long stalemate over the proposed education savings account legislation that ultimately failed to pass. The legislature did approve a provision in the final standings appropriation bill that eliminates the March 1 deadline for families to open-enroll into other school districts. Governor Reynolds signed House File 2416 into law, the bill allows only female athletes to compete in sports that are designated for females, regardless of how the student may identify. The law applies to both K-12 and collegiate levels.

Following Sine Die, lawmakers are heading back to their districts to campaign for the upcoming June Primary and November General elections. Following redistricting, many lawmakers have been drawn into new districts with some incumbents having primary opponents.

The 90^th General Assembly will convene on January 9^th, 2023.