DES MOINES — State budget officials said Wednesday another $13 million will have to be borrowed from reserves to balance the fiscal 2017 ledger and, while no special legislative session is needed, lawmakers and Gov. Kim Reynolds will face challenges in managing upcoming finances.
Iowa Department of Management Director David Roederer said the expected shortfall for Iowa’s fiscal 2017 budget was another $14.6 million once all the transfers, accruals and other financial details were finalized for the budget year that ended June 30.
The governor plans to balance the budget as required under state law by borrowing $13 million from the economic emergency fund and combining it with a projected $1.6 million ending balance, Roederer said.
The state will have $605 million in reserves when the latest IOU is combined with the $131 million Reynolds and lawmakers already borrowed earlier this year with the promise of paying it back in two years.
“This has been a difficult budget year, but I am pleased we were able to manage lower-than-expected revenues without cuts to education or Medicaid,” the Republican governor said in a statement. She did not attend Wednesday’s Statehouse briefing.
“We have been monitoring funds daily since the end of the fiscal year on June 30 and took a measured approach in dealing with the state’s finances. We continue to closely monitor the current fiscal year’s balance sheet and do not believe action is needed at this time,” she added in ruling out summoning the General Assembly into special session to address budget issues.
The governor’s budget chief said growth in state revenue finished at 2.5 percent, or $7.095 billion total, over the prior year.
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That was below projected growth, but stronger than expected wage withholdings, corporate tax collections and state sales taxes collected on online purchases helped narrow the gap to a $14.6 million shortfall under accounting practices the state has used for the past 30 years, he said.
Roederer said about $70.6 million in past-due payments were made to the state after June 30, dramatically reducing a projected deficit. If the budget shortfall had been larger than $50 million, the governor would have been forced to call a special legislative session to address the situation. Iowa governors have the authority to withdraw up to $50 million from the emergency fund to cover a deficit without legislative approval.
Some Republicans praised Reynolds for ensuring the budget is balanced and bills are paid on time, but Democrats and candidates from both parties challenging her in the 2018 governor’s race took exception to Wednesday’s outcome.
“The numbers don’t add up,” said Rep. Chris Hall, D-Sioux City, ranking member on the House Appropriations Committee. “The state was $104 million short on June 30 and only $14.6 million today. Taxpayers deserve to know whether Gov. Reynolds and Republicans cooked the state’s books to close the fiscal year and avoid a special session.”
Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee, said Wednesday marked the third time the state has faced a fiscal 2017 “budget mess” because Republicans have failed to implement policies that are fiscally responsible.
Republican Ron Corbett, the Cedar Rapids mayor and former legislator who is challenging Reynolds in the 2018 GOP primary, was even more pointed in his criticism of her decision to increase borrowing to $144 million rather than summon legislators to the Capitol to implement reforms.
“This borrowed money is to continue to feed the bureaucracy of state government,” said Corbett, who was at the Capitol on Wednesday but not allowed to sit in on the budget briefing for credentialed reporters.
“I’m questioning the accuracy of all the numbers just like a lot of people are right now, but certainly in the end she’s still borrowing $13 million on top of the $131 million that was already borrowed, and you don’t balance your budget by using debt,” Corbett said. “It looked like a lot of smoke and mirrors as they’re trying to cover themselves from too much spending.”
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However, House Speaker Linda Upmeyer, R-Clear Lake, was quick to defend the governor and her decisions not to call a special session.
“Gov. Reynolds’ diligent and thoughtful approach was the right decision,” Upmeyer said in a statement. “While others were reactionary, she demonstrated the steady leadership Iowans expect. House Republicans will continue to fight off unsustainable spending schemes proposed by Democrats and will work with Gov. Reynolds to keep Iowa moving forward.”
Roederer acknowledged the budget numbers turned out better than it appeared they would nearly three months ago, telling reporters “I thought we would be giving a much different presentation (Wednesday) at the end of June 30.”
But he likened projecting the fiscal year outcome before reconciling financial data to predicting the final score of a baseball game at the end of the seventh inning.
“The governor was very careful not to speculate. We don’t do that,” he said.
The state budget director said the $13 million transferred from the economic emergency fund to cover the fiscal 2017 shortfall will automatically be charged against the current fiscal year budget unless the Legislature and governor take action to alter that.
Faced with repeated downgrades of the amount of revenue the state would take in during fiscal 2017, lawmakers and then-Gov. Terry Branstad earlier made $118 million in adjustments and then later dipped into reserves for the extra $131 million.
Unless changed, the state must pay back $33 million of the borrowed money in the fiscal 2018 budget and $111 million in fiscal 2019.
“I believe we’re going to have a challenge” again during the fiscal 2018 cycle, Roederer said, “but to the extent of that, it’s too early to tell.”
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Troy Price, chairman of the Iowa Democratic Party, issued a statement blaming “massive special interest tax giveaways” and fiscal mismanagement that moved the state from a surplus of nearly $1 billion five years ago to the current deficit situation.
“Kim Reynolds is trying to hide from her own budgetary disaster to avoid political blame, risking our future more than she already has with her fiscally irresponsible special-interest handouts,” Price said. “But she can’t hide from the impact of the Reynolds budget crisis. Iowa families already feel the pain from her mismanagement. Iowans will remember Reynolds’ cowardice and refusal to do her job in 2018.”
His counterpart, Jeff Kaufmann, chairman of the Republican Party of Iowa, instead praised Reynolds for her “stead, stable management” given some tough years for Iowa agriculture that have taken “a major toll” on the state budget.
“In contrast to Democrats in the Legislature and those vying for higher office who panicked and prematurely called for a special session,” Kaufmann said, “Gov. Reynolds and Republican legislators chose not to play political games. Where Democrats attempted to spend the fiscal 2017 ending balance money on ongoing expenses, Republicans instead stayed levelheaded, closely monitoring revenues and spending, and consistently deployed fiscally responsible practices to ensure taxpayer money was spent wisely.”
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