Iowa faces another $131 million budget shortfall

But under a time crunch, lawmakers likely will dip into reserves

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DES MOINES — Gov. Terry Branstad and GOP lawmakers are looking to temporarily tap into Iowa’s cash reserves to cover a projected state budget shortfall of another $131.1 million announced Tuesday.

Although state revenues are growing, they are not doing so as robustly as predicted — already leading to a nearly $118 million budget reduction by the end of June, and now the likelihood officials will have to dip into savings.

“Gov. Branstad and Lt. Gov. (Kim) Reynolds propose using our savings in the cash reserves, rather than additional budget cuts, to meet our current fiscal year needs,” administration spokesman Ben Hammes said in a statement. “The state has already made cuts to the current fiscal year budgets, but with just over three months remaining in the current fiscal year, additional cuts are not feasible.”

Branstad and Reynolds are committed to reimbursing the reserve account in the fiscal 2018 and 2019 budgets to be passed this legislative session, Hammes said.

Both Senate Majority Leader Bill Dix, R-Shell Rock, and House Speaker Linda Upmeyer, R-Clear Lake, said bridging the budget shortfall using money from the $738 million reserve funds — $184.5 million in the economic emergency fund and $553.5 million in the cash reserve — appeared more viable than finding additional cuts with just over three months to go in this budget.

“We must not cripple our schools, public safety and many other essential services with further cuts this year,” Dix said in a statement.

Tuesday, the three-member Revenue Estimating Conference revised the current fiscal year estimate to $7.106 billion, a 2.7 percent increase but lower than forecast in December.

Estimators also reduced their fiscal 2018 revenue projection to about $7.365 billion, a 3.6 percent growth rate that nonetheless will force the governor to revise the two-year budget plan he submitted this session that was based on tax collections being nearly $191.8 million higher.

“Iowa’s economy is showing signs of weakness in some areas,” said conference member Holly Lyons of the Legislative Services Agency. “There is no indication that we are headed into a recession in the near term, but we are facing a difficult time. ... It seems like we’ve bumped into some head winds in terms of lower than anticipated sales tax revenue, lower income tax estimated payments and potentially lower income tax filing payments.”

Conference member David Underwood of Mason City said farm income continues to lag below last year’s sluggish numbers, and lackluster sales tax receipts have been “perplexing” with some blaming online competition and weak retail sales.

“Iowans didn’t have the income that they did in the previous tax reporting year, which is kind of a surprise,” Underwood said.

Conference Chairman David Roederer, director of the Department of Management and Branstad’s budget director, said administration officials are working on revised budget plans to reflect the new numbers.

Estimators also made their first projections Tuesday for fiscal 2019 — expecting $7.626 billion in tax collections that would be a 3.6 percent increase and give budget makers an extra $262 million to work with.

While Roederer said it’s likely the governor will recommend dipping into the reserves and then replenishing them soon, he did not rule out additional spending cuts still this fiscal year.

Tuesday’s development made the Legislature’s budgeting more difficult, “but it’s way better to know it now then trying to deal with it in the middle,” Upmeyer said in an interview.

“Refilling our savings account will be a top priority of Senate Republicans in our ongoing budgeting process,” Dix said. “We must also remain steadfast in our efforts to examine all state government spending, to include tax credits and streamlining state government services, as we prepare Iowa to become more fiscally sound and responsible.”

Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, called for revamping the way future state tax collections are estimated, given three consecutive downgrades in the current fiscal year. He also called for taking “a very hard look” at spending areas and said “every tax credit is on the table.”

Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee, said GOP policies this session have been a “train wreck for working families.” He said minority Democrats are willing to work on “midcourse corrections” that invest in education and jobs.

“Their agenda includes grossly underfunding our local schools; turning Iowa’s respected, state-run Medicaid safety net into a national disaster; weakening the rights of workers and driving down wages; and showering out-of-state corporations with an all-you-can-eat buffet of tax cuts and tax credits,” he said in a statement.

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