Iowa settles in to ‘hybrid' budgeting

Partial second year budget allows lawmakers room for change

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DES MOINES — Iowa’s move to biennial budgeting is bucking the national trend.

The trend among state governments for 70 years has been to abandon two-year budgets in favor of annual budgeting, according to the National Conference of State Legislatures. In 1940, 44 states enacted biennial budgets and only 19 do so now. Iowa, however, is not regarded as a true biennial budgeting state.

“Iowa is kind of in a gray area,” said NCSL policy associate Todd Haggerty, noting the state adopted the practice at Gov. Terry Branstad’s insistence in 2011 but there’s nothing official to classify Iowa as a biennial budgeting state. “In practice, it kind of is,” he said.

For instance, the state budget passed by the Iowa Legislature that Branstad finished action on last week appropriates money for fiscal 2014 and 2015, but lawmakers only approved nearly $5.64 billion in fiscal 2015. That was more than $1.1 billion below the governor’s nearly $6.75 billion recommendation for future yearly state appropriations.

The partial fiscal 2015 spreadsheet includes a commitment to provide K-12 school districts with a 4 percent increase in state aid for the 2014-15 school year, but it only funds most state operations with 50 percent of the funds they will need in the second year of the next biennial.

Supporters of biennial budgeting say the fiscal 2015 spending proposal, while incomplete, is an important marker for long-range planning that gets lawmakers well down the road toward finalizing the overall budget when they reconvene in regular session in January.

“It helps but it’s not the end all be all. It has helped when legislators say, ‘if we do this, how much is it going to cost next year,’ and you begin seeing the multiplier effect,” said David Roederer, director of the state Department of Management. “Is it perfect? No. But it’s a lot better than going one year.”

‘Jury is still out’

Branstad has credited the switch to biennial budgeting as one of the reasons for the state’s fiscal turnaround since the 2008 worldwide recession that has rung up a massive government surplus and full reserve accounts.

“That’s baloney,” said David Swenson, associate scientist in the Department of Economics at Iowa State University. “I don’t believe anybody with a straight face can claim it’s had any significant impact on the state’s fiscal condition.

“The surplus is a combination of all legislative action and a very generous economic recovery — not a great recovery, but it has been on the fiscal side,” added Swenson, who gave more credit to House Republicans’ refusal to spend as much as Branstad or Senate Democrats wanted in the past three legislative sessions for the state’s dramatic fiscal shift. “In general, I have to tell you it was more political rhetoric than it was a practical issue.”

Rep. Chuck Soderberg, R-LeMars, chairman of the House Appropriations Committee, said Iowa is using somewhat of a hybrid approach to biennial budgeting within the constraints of a divided government where Republicans control the Iowa House and governorship while Democrats sway in the Iowa Senate.

He said the fundamental change in the state’s fiscal decision making has represented a significant departure from past practices that rung up a $900 million budget shortfall by sticking to principles of spending less than the state collects, not using one-time money to fund ongoing needs and not intentionally underfunding programs.

Lawmakers fudged on that last principle when they failed to fully fund the state’s Medicaid program this fiscal year because of an impasse on language dealing with taxpayer-funded abortions. Roederer credited biennial budgeting with buying the time needed to keep government programs operating while negotiators worked out a compromise.

Swenson said he did not like to call biennial budgeting a gimmick because it can have practical purposes, but he noted it is inherent in the process for lawmakers to argue over money issues each session and he cautioned against establishing rigid fiscal parameters that might limit government flexibility to respond to changing situations.

“As a practical matter for planning purposes to have a two-year budget horizon that is somewhat aligned with the electoral process — that can make sense so long as that budget isn’t so locked in that situations or conditions as they change don’t prevent you from addressing those conditions or situations,” he said.

“Think about it. Would your business do a two-year budget? Given all the dynamics that have happened in the economy, would your farm do a two-year budget? Would your factory do a two-year budget?

“The answer is: well, heck no,” Swenson added. “I think the jury is still out.”

Iowa has had the most erratic history of any state in dealing with the annual-versus-biennial budgeting question, adopting annual budgeting in 1975 but then switching back to biennial in 1979 before resuming the annual process in 1983 when Branstad was serving his first term as governor.

“There is little evidence of clear advantages of either an annual or biennial state budget,” according to an NCSL report on the topic. “In reality, a state can develop a good system of executive and legislative fiscal and program planning and controls under either an annual or biennial budget. The system would work differently with the alternative time spans, but could be effective under either approach.” 

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