Iowa Bankers Association 2019 Legislative Issues

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1 Iowa Bankers Association 2019 Legislative Issues Tax Issues Bank Tax Equity Current position: Support Update: IBA passed a bill through the Iowa Senate last session that taxed banks and credit unions equally. Income above $7.5 million was taxed at 4% and income below $7.5 million taxed at 2%. This provided a slight decrease in bank income tax and a slight increase in large credit union income tax. IBA can offer a revenue neutral (to the state) option or legislation that would tax credit unions if they go beyond certain prescribed parameters (i.e. business loans, no common bond of membership, geographic boundaries). Another option is to reduce the bank franchise tax to the same level as credit unions. State Income Tax Reform 2.0 Current position: Support Update: Governor Reynolds and both the current House and Senate leaders have indicated a desire to fine tune last year s income tax reform bill particularly as it relates to business. The IBA continues to believe this is our best opportunity to talk about solutions to the banking industry tax inequity. If the Legislature and Governor remain in Republican control, they will look for ways to reduce and simplify the tax code. If Democrats take control of either the Governor s office or House or Senate; we can assume that tax reform may look different with more focus on reviewing tax credits ($427 million annual price tag), and or passing a penny sales tax for water quality. These are two areas that the two parties may be able to find agreement. Sales Tax Expansion Current Update: An increase in the state sales tax could be debated as a part of tax reform. If the sales tax is increased, the first 3/8 of a penny would go to various water quality initiatives and the remainder would likely be for further tax cuts. Property Tax Backfill/Reform Current position: Neutral Update: Lawmakers may consider legislation to eliminate or phase out the property tax backfill or replacement for local governments. The appropriations for Property Tax Replacement have experienced a significant dollar growth over the past two years, largely due to the enactment of SF 295 (Commercial Property Tax Act) in The legislation phases in reductions to Iowa s commercial and industrial property taxes over a four year period (FY 2015 to FY 2018) and creates two standing appropriations designed to reimburse local governments for the reduced property tax revenue. The combined amount appropriated in FY 2015 for the commercial and industrial property tax replacement and the

2 Business Property Tax Credit totaled $137.7 million. These appropriations increased to $277.1 million in FY Beginning in FY 2018, the standing appropriations cannot exceed the actual FY 2017 appropriation amount. SAVE Extension (Secure an Advanced Vision for Education) Update: This funding stream to build school infrastructure was formerly known as the statewide school infrastructure sales and services tax or local option tax. Money received must be used solely for school infrastructure or school district property tax relief. School infrastructure means those activities for which a school district is authorized to contract indebtedness and issue general obligation bonds. It also includes the payment or retirement of outstanding bonds previously issued for school infrastructure purposes. The SAVE fund expires on December 31, The legislature has considered proposals to extend SAVE for an additional 20 years because school bonds for infrastructure would typically extend past the 2029 date. Inheritance Tax Withholding Update: Last session, the Iowa Bar Association advocated putting measures in place to ensure that inheritance taxes are paid prior to the transfer of an asset or security following the death of the owner of that asset or security. The bill would prohibit any institution or person holding an asset from transferring that asset to a joint owner, transferee, or beneficiary unless the inheritance tax associated with the asset has been paid, the payment of the tax has been secured by a bond, or the recipient has completed a form verifying that he or she is exempt from the inheritance tax. Life insurance benefits are not included in the requirement. It also provides that any institution or individual that transfers an asset or security to a joint owner, transferee, or beneficiary without first withholding the inheritance tax, securing it by a bond, or confirming that the recipient of the asset is exempt from the inheritance tax may be held liable for the payment of the inheritance tax associated with the asset. Economic Development Workforce Housing Tax Credit Update: Workforce Housing Tax Credits assists construction or rehabilitation of housing in communities. The program provides tax credits to developers with a particular focus on projects using abandoned, empty or dilapidated properties. There is $20 million available for the program with $5 million set aside for small cities within the 88 least populated counties. The tax incentives include a refund of sales, services or use taxes paid during construction. Developers may receive a state investment tax credit up to 10 percent of the investment directly related to the construction or rehabilitation of the housing. Developers qualify under the small city set aside for an investment tax credit of up to 20 percent of the investment. The state investment tax credit is fully transferable. The tax credit is based on the new investment used for the first $150,000 of value for each home or unit and can be carried forward for up to five years or until depleted, whichever happens first. Developers

3 must build or rehabilitate at least four single family homes or at least one multi family building containing three or more units or at least two upper story units. Total project costs may not exceed $200,000 for a new construction, $250,000 per unit for historic rehabilitation. Total project costs for projects under small cities set aside may not exceed $215,000. The project must be completed within three years from the date the project is registered. The program currently has a wait list and the Iowa Economic Development Authority is not accepting new applications. Available credits for fiscal years and a portion of have been committed. Available credits under the small cities set aside have been committee through fiscal year The IEDA is considering requesting an increase to $30 million for the program $10 million for small city set aside. Tax Increment Financing (TIF) Update: IBA supports tax increment financing as a valuable local economic development tool that should be retained by the Legislature. Any proposed reform of TIF should not go beyond: 1) TIF revenues granted only to property tax producing properties, 2) All impacted local governments signing off on TIF areas, 3) Each TIF area not exceeding 20 years. The total TIF increment value statewide for FY 2019 is $11.4 billion and at the $5.40 school levy, the calculated backfill for the state in FY 2019 is $61.6 million. Prison Industry Housing Initiative Update: Legislation was introduced in the Iowa Senate last year that would replicate a South Dakota housing program. Inmates in South Dakota s prison system are constructing 1,200 square foot standard stick built homes on specially designed floor trusses that ensure durability when transported to the purchaser. The program provides inmates with work skills and provides affordable housing for South Dakota residents. In Iowa, several business groups opposed the initiative as it provides a significant tax advantaged competitor to mobile and modular home dealers. Abandoned Dwellings Update: Legislation was introduced last legislative session to deal with abandoned and vacant properties in Iowa cities and towns. The IBA opposed the legislation because we felt it lacked adequate due process for all involved. While it is important to create an expedited process to deal with these properties, it is equally important to follow the following basic principals in reaching a solutions 1) A statutory definition for abandoned property; 2) Once a property is determined vacant and abandoned in a judicial foreclosure jurisdiction, an efficient court procedure should be available to make a determination of this status, one that then allows foreclosure to be made in an expedited manner; 3) If determined abandoned or vacant in a non judicial foreclosure, a practical rebuttable presumption should be available for the moving party to evidence, so they may confidently expedite the foreclosure process; 4) In order to ensure effectiveness of the principles, local laws or ordinances must be preempted at the state level to avoid conflict or divergence.

4 PACE Update: Property assessed clean energy (PACE) is a means of financing energy efficiency upgrades or renewable energy installation for residential, commercial and industrial property owners. The loan repayment stream is an assessment on the property tax of the building owner which means that tax liens for PACE financing take priority over other lienholders, and those lien holders may not be notified or given an opportunity to object. One of the notable characteristics of the PACE loan is that it attaches to the property rather than the individual which causes issues when PACE properties are bought and sold. More than 30 states currently allow PACE loans and every year there are efforts to add Iowa to the list. Agriculture Issues Central Filing Notice System Update: IBA has long supported a central system for filing agricultural liens. Federal law gives states two options for notifying buyers of agricultural products that a security interest exists in the products being sold. Iowa chose to operate under the direct notice option which requires lenders to send a direct notice to all potential buyers of agricultural products. With advances in technology, it is time Iowa considers the central notification option which allows lenders to file an effective financing statement with the Secretary of State that buyers can access electronically when buying farm products to determine if a security interest exists. Iowa s current system is outdated, unreliable and costly. Agricultural groups continue to oppose a central notice system for agricultural liens and as a result, the Legislature has been reluctant to pass legislation. The IBA has worked with the USDA over the past several months to approve an e notice system to replace the current direct system of notification to buyers of agricultural products. The IBA has also worked with the Iowa Secretary of State to upgrade its electronic filing systems to accommodate central notification including a fee increase to enable the Secretary of State to upgrade its aging infrastructure. Drying and Storage Lien Update: There is a case pending in the Iowa courts that attempts to expand the Agriculture Supply Dealers Lien to include grain storage and drying costs. The IBA has filed an amicus brief in this case and is reasonably confident in a positive outcome for the banking industry. However; there is reason to believe that the Agri business Association of Iowa, representing grain elevators, might seek legislation to expand the Agriculture Supply Dealer s Lien to include drying and storage costs or simply seek a separate statutory lien that automatically attaches to the property by virtue of the relationship to the debtor. Iowa Mediation Funding Update: In 2018, the Iowa Legislature appropriated $300,000 to fund the Iowa Mediation Service. Under Iowa law, mediation is mandated prior to a farm foreclosure. The Iowa Mediation Service will once again be requesting an appropriation this session. The Iowa

5 Attorney General s office has also indicated its interest in increasing the per hour rate for mediation. Linked Investment for Tomorrow (LIFT) Current position: Support Update: LIFT is an existing state program that provides capital to small businesses owned and operated in Iowa. A person interested in LIFT can submit an application through their local financial institution or contact the Iowa State Treasurer s office. Once approved, the state treasurer will purchase a certificate of deposit from the financial institution for a rate three percent below the one year Treasury Bill rate, with a minimum rate of one percent. The financial institution will loan those funds to the borrower at a rate up to, but not exceeding four percent above the CD rate. The maximum amount available to the borrower is $200,000 and the maximum life of the loan is five years. The Treasurer does not guarantee the loan nor is the CD collateral for the loan. Qualifications are as follows: Combined net worth of the borrowers and owners cannot exceed $975,000. Existing small businesses must have annual gross sales of $2 million or less. The maximum amount of assistance is $200,000. Loan may be used for the purchase of land, improvements, fixtures, machinery, inventory, supplies, equipment, information technology, licenses, patents, trademarks, or copyright fees and expenses. Loan proceeds shall not be used to finance existing debt. Business must be for profit. Borrower must not have received financial LIFT assistance prior to July 1, Consumer Issues Home businesses must qualify for a tax deduction for that portion of the home used for business pursuant to regulations of the Internal Revenue Service. Loan proceeds cannot be used for real estate investments, rental, leasing, or speculation. Liquor, beer, and wine sales must not exceed twenty percent of annual sales for establishments holding a class C liquor license. Borrowers cannot be delinquent in making child support payments or any other payments due the state Title Insurance Update: There has been no proactive legislation proposed to legalize the sale of title of insurance in Iowa for several years. Iowa is the only state that does not allow for the sale of title insurance. There have been a number of changes in Iowa law over the years to make it easier for banks to use title insurance including the ability to purchase title insurance from out of state companies and pass the cost onto the consumer if the loan is sold to the secondary market. If a loan is held in a banks loan portfolio, the bank can utilize title insurance purchased out of state and can pass on the cost, but the loan must be put in the

6 banks non conforming loan basket. National banks are not required to do the same. The IBA requested a rule change by the Banking Division to give state chartered banks the same ability that national banks have to use title insurance to evidence title. The current rule states that in order to evidence title, the state bank must, on a new mortgage, provide a written legal opinion from an attorney admitted to practice in Iowa or title insurance written by an insurance company licensed to do business in the state in which the real property is located. The IBA would support the rule being changed to reflect that the bank could evidence title with title insurance written by any licensed insurance company. The Iowa Division of Banking has denied the request. Remote Notarization Update: Several mortgage related organizations are considering the issue of remote notarization. Iowa currently allows for electronic notarization but does not yet allow for remote notarization. Recently the Uniform Law Commissioner s approved language that does recognize and establish uniform rules for remote notarization. The IBA expects that legislation will be offered this session to adopt the uniform law that will allow for the notarization of contracts remotely. Ancient Mortgage Clarification Update: Current Iowa as it relates to mortgages is that a mortgage is valid for either 20 years from the filing date or 10 years beyond the stated maturity date of any indebtedness. This causes compliance challenges when applying this law to the various factual situations in mortgages used by IBA member banks. Today, the standard mortgage is 30 years so the IBA would like to change the law so that a mortgage is good for 30 years with the ability to file for another 10 year extension. The change would apply to only to new mortgages. Application fee on Consumer Loans Update: The Iowa Credit Union League is contemplating introducing a change in the Iowa Consumer Credit Code that would attempt to change federal law so that financial institutions could charge an application fee. Under federal law, if a financial institution charges the fee it has to be charged to all applicants regardless of whether they receive the loan. Prize Linked Savings Account (lottery linked account) Update: The credit union industry has introduced this concept in past sessions. It is a savings account where some or all of the interest payment on the accounts or marketing dollars are used as prizes that one account holder can win. Each time a customer deposits funds into the account it increases their chances to win the lottery.

7 E Verify Update: The Iowa Legislature has offered bills in the past several sessions that would mandate that businesses utilize the e verify system before hiring. Many of the business groups have resisted a mandate indicating that the system is expensive to maintain and unreliable. The IBA has not weighed in on the issue in the past; however, it is likely to become a far more visible issue with the murder of a young women this year by an illegal alien. ADA Website Compliance Position: Work with business groups on solution Update: Banks in some parts of the country have received letters claiming that their websites violate the accessibility standards required by the Americans with Disabilities Act. In turn this has prompted some states to seek legislation to curb ADA lawsuit abuse. Arizona passed a law requiring plaintiffs to certify that they were harmed by the violation, allowing a period for the alleged violator to cure the deficiency and remove the websites from the state version of ADA. Oklahoma allows for a 120 day opportunity to cure the alleged violation and Kansas has amended their unauthorized practice of law statute to allow the state to take action against out of state law firms soliciting business in Kansas. Notice Requirements on Open end Accounts Update: Federal Regulations Z and B have timing requirements regarding changes in terms to certain open end accounts that do not match the timing requirements in Iowa Code which states that open end account changes must be given 60 day prior notice. As a result state law requires is anywhere from days longer than what is required under federal law for the same types of accounts.