2013 End of Session Report

*Note:  All information is current as of May 22, 2013

2012 End of Session Wrap Up

Currently, Coralville is using TIF to finance its Iowa River Landing commercial project. The large concern among lawmakers and Iowa City is when last fall when the project added a Von Maur department store. The retail store was subsidized with TIF, concerning the city of Iowa City with the possibility of them losing its own Von Maur department store at Sycamore Mall. An attorney for the builders argued that the city’s providing a grant to private development partner Oliver McMillan to buy the Von Maur for site for $1.4 million, with agreement that it sell the land to Von Maur for a certain amount violates the spirit of the state’s economic development grant law.

Tax Increment Financing is a system under Iowa law that cities and counties can use to finance public improvement projects and to fund economic, housing and residential development incentives. TIF is based on the idea that the improvements will increase the local government property tax base, and that the increment (difference) between the original tax base and post-development tax base, can be used to finance the cost of the improvement. Local governments create a special district meeting criteria for the TIF program. Local governments and schools receive property taxes based on the original property tax valuation and funds from the increment are set aside to pay back bonds used to finance improvements. Backers say the system helps cities develop areas that might otherwise remain run-down, while those critical of TIF say cities can abuse the system to pay for projects that should be left for the private sector.

Hayworth presented information on the city’s use of TIF to redevelop industrial brownfields in Iowa River Landing, to bring over 1,000 jobs to the University of Iowa’s Oakdale Research Park and to facilitate the headquarters of Integrated DNA Technologies. Hayworth stated that Johnson, Scott and Linn County continued to have retail sales growth during the city’s period of TIF-financed retail projects. He said the Coralville Marriott Hotel and Convention Center is a success for the community by keeping University of Iowa-related conferences in Iowa. TIF backers for Coralville argue that the system is a job investment and that it’s a fair exchange for other local taxing bodies such as schools and counties. However, many businesses are concerned about the TIF use to fund projects that compete with private developers.

Kevin O’Brien spoke in committee for the Citizens or Responsible Growth in Taxation on behalf of private builders that believe this is unfavorable to the taxpayers and surrounding competing businesses. Those that are critical claim Coralville has $11,049 in TIF debt per person. They stated the city-owned and TIF-financed Coralville Marriott Hotel and convention center actually lost $3.4 million in years ended June 30, 2009 and June 30, 2010.

TIF is also concern for the superintendent of Clear Creek-Amana Community School District, Denise Schares, who was also called before the House Government Oversight committee. Schares stated she began hearing community concerns weekly about the concerning effects of Coralville’s TIF use on district revenues after she became superintendent. TIF use in Johnson County diverted $2,974 per child in property tax revenue in the last year of tax collections. The superintendent says the state makes up the shortfall to 87.5 percent

The introduction of a TIF reform bill is expected in the Ways and Means committee this session. HSB 540 would set an end date for almost all of the TIF districts in the state. Documents presented to the oversight committee are linked below:

Citizens For Responsible Taxation–Talking Points
Citizens For Responsible Taxation- Handout 1
Citizens For Responsible Taxation- Handout 2

They are as follows:

Administration and Rules Committee: Rep. Renee Schulte, Chair (R-Cedar Rapids)
Administrative Rules Review Committee: Rep. Dawn Pettengill, Chair (R-Mount Auburn)
Education Committee: Rep. Greg Forristall, Chair (R-Macedonia)
Environmental Protection Committee: Rep. Steve Olson, Chair (R-DeWitt)
Ethics Committee: Rep. Kevin Koester, Chair (R-Ankeny)
Government Oversight Committee: Rep. Chris Hagenow, Chair (R-Windsor Heights)
Human Resources Committee: Rep. Linda Miller, Chair (R-Bettendorf)
Judiciary Committee: Rep. Rich Anderson (R-Clarinda)
Local Government Committee: Rep. Nick Wagner, Chair (R-Marion)
Natural Resources Committee: Rep. Henry Rayhons, Chair (R-Garner)
Public Safety Committee: Rep. Clel Baudler, Chair (R-Greenfield)
Veterans Affairs Committee: Rep. Royd Chambers, Chair (R-Sheldon)

“There will be several important issues that come out of these committees this year and I’m pleased these chairs will be the ones leading those discussions,” said Paulsen. “These leaders are committed to serving Iowans and getting them back to work.”

Staffing and Board Member Changes

• Former Executive Director: Executive Director Maxine Kilcrease was fired after a brief period of time on suspension. She was put on paid leave March 11th pending an investigation into allegations that she raised her annual salary without the board’s knowledge or consent, and then fired on March 25th.
• Temporary Executive Director: Harry Heiligenthal, Leadership Development Director on staff with the IASB, served briefly as interim director.
• Interim Executive Director: A new Executive Director was hired on May 1. Veronica Stalker will serve as interim Director from May 1 to December 31, 2010. She has been involved in education in Iowa since 1976, included time spent on school boards and working with IASB programs, and will help in the transition to the appointment of a new executive director at some point in the future.
• Board Member Changes: Jack Hill, former Board president, retired from the Board. He was involved in the contract signing of former ED Kilcrease’s salary increase.

Policy and Control Changes

• Transferring Money within the Association: Some consternation with the organization stemmed from internal transfers of money that were approved by only one person. A new policy says that all transfers to or from a fund under IASB control must be approved by two of the following three people: executive director, board president, and board treasurer.
• Creation of an Audit Committee: One of the allegations at the IASB is that the former ED prevented access to the Board for the outside auditing company. To combat that, a committee has been setup consisting of 5 members of the Board that will work to monitor and oversee IASB’s financial process, policies, and controls. They will meet quarterly with external auditors.
• Travel Policy: Travel has been an issue within the IASB as well, as the former ED was given advice from the previous ED to take advantage of trips on the IASB’s dime. The new, like the old, policy outlines what events staff and board members will be reimbursed for and how much will be reimbursed. A Travel Expense Report is required and travel must be related to their position, duties, and responsibilities. The only change made is that spouses and other family members are not considered eligible for reimbursement by the IASB.
• Credit Card Policy: A source of headlines among the problems at the IASB was the vacation paid for with an IASB credit card by former CFO Kevin Schick. The new policy removes the ability of Board members to use the credit card and specifies that IASB employees shall not use the credit card to purchase personal items.
• Staff Salaries: Previous IASB policy was that the ED was given a lump sum for staff salary allotment and it was up to the ED to divvy that up among the employees. Board approval was given only for the lump sum. The former ED reportedly increased the salaries of several staff members upon her arrival, while firing at least one other employee for lack of money in the budget. New policy now requires the Board to set and approve salaries for all staff.

IASB Membership and Programs

• Membership Dues: School boards pay a membership fee to the IASB every year to receive access to a number of services valuable to school boards. These services include legal consultation, financing advice and education, workshops, presentations, etc. The Board of Directors voted to decrease membership dues by 5% to help schools meet their budgets easier.
• Repayment of Federal Grant Double Drawdown: One of the IASB’s programs, Skills Iowa, receives federal grants on a regular basis. An accounting error on the part of a new staff member led to a double draw-down of federal funds in the amount of nearly $500,000. After reviewing the issue, the IASB Board has determined it was a true mistake and the money was repaid to the federal government on April 14, 2010.

It appears that the IASB is working its way through the problems the association has faced recently and is making appropriate changes. Staff who contributed to these problems are gone and the association is in the process of finding replacements. Policies that were unacceptable or unclear have been changed. While more work needs to be done, the association is at least on a path towards recovery.

The committee met on Thursday, the first time since the legislative session ended. During the five hour meeting several current and former IASB staff members testified. That list includes: Maxine Kilcrease, former Executive Director, who was terminated just this past month on allegations of raising her own salary and keeping the board of directors in the dark on financial matters of the organization; LeGrande Smith, currently employed as the legal counsel for the IASB; Mary Gannon, lobbyist for the IASB; Margaret Buckton, former associate executive director of the IASB; and Larry Sigel, former CFO of the IASB.

Ms. Kilcrease appeared along side her lawyer who gave her opening statement and consulted with her on nearly every answer she gave during the questioning. She was not very forthcoming with answers, mostly pleading the fifth amendment and telling members that she cannot answer accurately due to her being blocked access to her documents and information. Her contract was terminated with the IASB at the end of March.

Others who testified before the committee were much more forthcoming with answers. LeGrande Smith, IASB’s current legal counsel, answered much of the committee’s questions. Former associate Executive Director, Margaret Buckton, and former CFO, Larry Sigel, also answered many of the committee’s questions. Both Ms. Buckton and Mr. Sigel applied for the Executive Director position, along with Ms. Buckton’s brother, Jon Muller, when it was open last year. All three were denied interviews and Ms. Kilcrease was given the job. Muller left within days after this occurred, Sigel left a few months later, and Buckton was fired from the organization in September of last year.

The committee spent time asking Larry Sigel about his new company which he formed shortly before leaving the IASB. The company, Iowa School Finance Information Services (ISFIS) provides financial consulting to schools. A contract was signed between the IASB and ISFIS right before he left the association. The contract had the IASB pay newly formed private company $300,000 over three years in return for various lobbying and financial-education services. A lawsuit was filed by the IASB claiming ISFIS did not hold its end of the contract. The lawsuit has since been dropped, but lawmakers questioned the situation telling Sigel it seemed like an unethical deal and that his company was “spying” on the competition to the school board’s programs.

Questions were also raised about the openness of IASB’s records. The legislature passed a measure this year requiring the IASB to comply with Iowa’s open meetings and open records laws. But the situation needs to be revisited, as it was hastily applied at the end of the session. A measure to further increase transparency regarding non-profit boards was defeated when a disagreement between the two bodies of the legislature killed it.

One of the big questions on the minds of the Republican members of the committee that still remains unanswered is what are the financial dealings of Skills Iowa? Two Des Moines Register articles have uncovered information showing questionable financial transactions regarding Skills Iowa.

Skills Iowa is an entity under the IASB that provides online learning tools for students and teachers called Assessment Center and Skills Tutor. These programs are provided by a software company in Rhode Island called US Skills, Inc. Skills Iowa was formerly called Following the Leaders (FTL) and was overseen by a group in the eastern US called the Education Learning Council (ELC). FTL was started around 2002 and was tested in several states as a project to see how online learning could enhance student achievement. It started out with impressive funding, receiving about $30 million in federal funding for the first 6 years. After some mismanagement allegations and questions raised about ELC, and studies on the effectiveness of FTL showed poor or unknown results, the program floundered. ELC let the program go and told states still using it that they were on their own.

Iowa was the largest user of FTL, so management of it was transferred to IASB and Skills Iowa became the arbitrator of the program. Sen. Harkin took particular interest in Skills Iowa, funneling over $12 million in federal funds to the IASB for it in the form of earmarks. The program is even called “a special project of Senator Tom Harkin.”

In 2007 and 2008 when federal funding could not be secured for Skills Iowa, the Democratic legislature appropriated $3 million and $500,000 to Skills Iowa. Federal funding resumed again in 2009. Over the course of the last 8 to 10 years it appears that Skills Iowa and FTL have received nearly $40 million in taxpayer money.

Where it gets dicey is who the money is going to. FTL contracted out to Achievement Technologies for their programs, a company run by Michael Perik. US Skills, the company contracted by Skills Iowa, is also owned by Michael Perik. Millions of dollars have been spent by FTL and Skills Iowa on software provided by Perik’s companies; about $6.2 million since August of 2007. Perik has donated more than $1 million to Democratic campaigns across the country, including $50,000 to Governor Culver, $31,000 to the Iowa Democratic Party, and $13,500 to Senator Harkin.

Coincidence or not, it’s clear that Skills Iowa needs to show its financials to the committee for review.

The Oversight committee plans to meet again in May. How many more meetings remain, though, is still up in the air. Senator Olive said he felt one more meeting might help close the issue. Rep. Watts disagreed, saying there are still more people to question and more answer to find.

Still waiting to appear are Kevin Schick, former CFO, and Jack Hill, former president of the Board, who resigned this week. Republican members would also like to see Susie Oleson, director of Skills Iowa, appear to provide answers on that entity. She has been with Skills Iowa in one capacity or another since around 2002.

The IASB is a non-profit organization of elected school board members dedicated to supporting school boards and administrators in their governance and leadership role. The association has a staff of 29, headed by an Executive Director and is overseen by a board of directors. The board consists of school board officials elected by members in nine regions, which serve three-year terms. The board president is elected for a two-year term.

The IASB has a number of spin-offs under its control that provide various services to school districts. It has 17 business services listed on its website and it has a myriad of other tools and services available. It also has a 100% owned for-profit affiliate called Local Government Solutions, Inc. All total, the IASB is one of the largest school board associations in the country, for a state ranked 30th in overall population.

Funding for the association is entirely tax-payer dollars. About 1/3 of its revenue is from membership dues that school districts in Iowa pay based on their enrollment numbers. Dues range from about $700 to just over $10,000. Membership in the association allows school boards access to legal counsel, financial assistance, and various other services related to running a local school board. The other 2/3 of its revenue is from fees it charges to school boards for usage of its 17 businesses and other programs and trainings the association provides, as well as state and federal grant money.

The story broke last weekend with an article describing nepotism, fraud, misuse of taxpayer dollars, financial crisis, and conflicts of interest. The currently suspended executive director, Maxine Kilcrease, is on leave from the board for increasing her salary to well over $300,000 without approval and for keeping board members in the dark on the association’s financials. While she has been a large part of the focus, for good reason, the story goes much deeper and starts long before Kilcrease was hired in July 2009.

The committee has spent nearly four hours asking questions of a lawyer hired by the association last week, Nolden Gentry, and the head of an auditing firm which has been auditing the IASB for the last several years, Ted Lodden. At this point the committee has not had the opportunity to question any board members or staff of the IASB or its spin-offs.

Some of the more troubling portions of a story that keeps unfolding are:

• The auditors hired by the association were chosen and hired by the board. However, the auditors recently were blocked from speaking with the board about concerns that arose during the audit. They were told to cease contact with the board by Kilcrease, and any information they hoped to provide to the board was taken by staff with the assurance the board would see it. It is unlikely that the board was ever notified of their concerns. Auditor Lodden stated it was the strangest thing he has ever seen in his time as an auditor. The auditing firm is having trouble completing their audit because many documents and financials are missing or paint an incomplete picture.
• It was made clear that the only for-profit entity under the IASB is a company called Local Government Services, Inc (LGS). LGS was created to house some profit making enterprises of the IASB to prevent the IASB from losing its non-profit status. Clearly there are entities under the control of the IASB that are generating profit. The IRS has a threshold of 30% for which when revenues surpass, the non-profit status is in jeopardy. So at some point nearly 30% of revenues were profit from the IASB’s entities. It’s unclear which entities were making money, how much was coming in, where it’s coming from or where that money is going. These questions need to be answered.
• A program called Skills Iowa, which provides a tool to schools to help assess student ability and helps set lessons for those students is a grey area that needs clarification. Representatives Clel Baudler and Kent Sorensen questioned Gentry about the program, which was reported to have received $40 million in federal funds, mostly secured by Iowa’s Senator Tom Harkin. More than $6 million of this money was used to purchase software from a company in Rhode Island over a two year period. The owner of this company has donated nearly $1 million to democratic campaigns, included over $70,000 to democratic campaigns in Iowa.

As far as solutions, it’s unclear at this point what needs to come from the investigation. Two legislative results have already occurred.

1. Last week an amendment was brought to the Senate subcommittee on Education Appropriations. The amendment was passed in subcommittee and requires school boards to report any money paid to the association in dues or fees for services and to report those services received. It also requires the association to provide copies of reports relating to federal grant monies received and distributed to school boards. While a good idea, the amendment didn’t go far enough.
2. The second solution was one that House Republicans fully support. Rep. Baudler asked Mr. Gentry if IASB was subject to Iowa’s Open Records/Open Meetings laws. Mr. Gentry stated that he was unsure. Senator Ward, a member of the Oversight committee, brought an amendment to the floor during debate on the Education Appropriations that subjects IASB to Open Meetings and Open Records. It passed the Senate 49-0.

While the legislation is a good beginning step, it is just that; a beginning. The bottom line is that there is a lot more to uncover. As board members, former employees, and current employees come forward to testify, the story will continue to unfold. New details and allegations are being uncovered nearly every day. The FBI is involved, investigating issues within the Skills Iowa program. It’s possible, but unknown at this point, for the IRS to get involved as well. Lodden’s firm is working to finish their financial audit, which they hope will be completed in May. And another auditing firm is performing a forensic audit at the moment which should uncover more of the financial problems.

Oversight has requested the board of directors, the current executive director, and the former executive director come before the committee. If IASB staff and board members are unwilling to take the invitation, the Oversight Committee has been granted subpoena power, which the chairs have indicated they will exercise. The next meeting is scheduled for noon on Monday, March 22.

Iowa Republicans are united in support of reforming and opening state government. Government has a responsibility to make public how and where it spends taxpayer dollars. Additionally, Republicans believe government has a responsibility to make certain that information is accurate, easy to understand and delivered regularly.

Government reform cannot wait for another CIETC scandal or film office debacle to happen. It must be done now. Government has become too large too fast and it is time for a set of common sense Iowa Open Government Initiatives to solve Iowa problems with Iowa solutions.

Here is what Republicans will do if Iowa voters give us the opportunity:

The Iowa Taxpayer Transparency Act

Transparency and accountability are keys to reestablishing citizen trust in government in the wake of so many high profile scandals. The Iowa Taxpayer Transparency Act will provide Iowans with the tools to evaluate the performance of their local and state government.

The legislation would create a publicly available database that would be accessible to taxpayers, at no charge, to review annual revenues and expenditures of state and local governments. In addition, the bill would create a searchable tax rate database that will include the tax rates from every taxing entity, and will contain a geographical tax rate map, as well as an individual tax rate calculator. This feature will provide Iowans with a much-needed tool in learning exactly how they are taxed by state and local governments.

State Budget Database
Specifically, state departments must disclose inter and intra-departmental transfers and include key details so certain expenditures cannot be hidden under broad descriptions like “miscellaneous spending” or “general administration.”

The database, taking into account all confidentiality and privacy concerns, will also include a listing and description of information relating to tax credits claimed for individual income tax, corporate income tax, franchise tax and insurance premiums tax. Legislators and Iowans need to know which tax credits are working and which ones are not.

Republicans also want additional information included regarding the Iowa Power Fund and the Grow Iowa Values Fund. These programs were promoted by their advocates as job-creating entities that would spur economic growth. There is significant doubt as to those claims and Iowans deserve to know exactly how much these programs are spending and where and how many jobs they are creating.

All state-issued payments exceeding $10,000 will be made available. The database will include the recipient’s name, address and purpose for which the warrant was issued. This allows Iowans to see exactly where their money is going while preventing waste and fraud.

Local Government Database
In many places local city and county governments provide far more financial and budget information than the state government. Unfortunately some of that information is essentially pie charts, bar graphs and spreadsheets that simply compare expenditures to revenues. While this information is helpful, it does not tell taxpayers where, why and how their dollars are spent. Initially, every county in Iowa and towns with a population greater than 10,000 would participate in implementing this database within their current resources.

Each year Iowans pay more than $4,700 per person in state and local taxes. The implementation of an Iowa transparency website would likely have a limited price tag of under $40,000. This software is available for no additional taxpayer dollars from the federal government and some states have partnered with private businesses to develop state websites.

In light of the record spending increases over the past three years Iowans must have a clear and concise method to obtain information about spending. By providing these tools Iowans will have the opportunity to be the final check and balance. Iowa Republicans will provide taxpayers with the necessary tools to hold their local and state officials accountable for the delivery of effective and cost-efficient services.[1]

Legislative Service Agency Department of Accountability and Analysis

Republicans propose the development of an accountability arm of the Legislative Service Agency. This restructuring of legislative employees will be able to conduct independent program analysis and policy reviews free of political influence from the executive and legislative branches of government.

Florida has the Office of Program Policy Analysis and Government Accountability to help legislators gather information and make decisions based on real data regarding the performance of state programs and departments. In just one calendar year this office saved the taxpayers of Florida $270 million, and since the creation of the office has found billions of dollars in savings.[2] Currently, the Iowa Legislature is dependent upon the executive branch departments for much of the information it uses to make decisions. An office dedicated to program analysis and policy review that can independently gather information to help legislators perform the vital oversight functions Iowans expect will prove to be a valuable asset in the allocation of taxpayer dollars.

Iowa Republicans have proposed a systematic process wherein EVERY program funded by state government will be sunset (de-authorized) by a certain date unless the Governor and Legislature reauthorize that program. This will force a thorough top-to-bottom review of every existing program funded by state government to determine whether the program is effectively and efficiently meeting the needs for which it was created, or if the need even continues to exist. Part of the responsibility of this office will be this process of gathering information regarding programs and recommending to the legislature if the program should continue. In addition, all of this information will be public to ensure that the public has the same information as their legislator.

Incremental budgeting practices have led to a bloated and expensive state government that is both unsustainable and a drain on Iowa taxpayers. This office will help streamline state spending and state programs in a way that protects taxpayers from excessive state spending and ensures better delivery of state services to those in need.

References:
[1] Iowans for Tax Relief website 10/21/09 http://www.taxrelief.org/articles/6

[2] Cost Savings Reports National Conference of State Legislatures website 10/28/09 http://www.ncsl.org/default.aspx?tabid=17356

Iowa Republicans: Real Solutions for Iowa’s Families is a joint project of the Republican Party of Iowa and the Republican Iowa House and Senate Caucuses. Through this project Iowa Republicans will promote a series of bold solutions to the problems facing our state in areas ranging from the budget to education, the environment and energy, family, health care and transparency.

“The Oversight Committee has a history of looking into scandals such as Atalissa and CIETC and providing open and honest discussion for Iowans.

“The Legislature approved the film tax credit and has a responsibility to find out why the program has been mismanaged and abused. Frankly, the only thing keeping that discussion from happening today is politics.”

Watts is the Ranking Member of the Government Oversight Committee.