Tough budget challenge shaping up for Iowa lawmakers

DES MOINES - Gov. Terry Branstad and state legislators are facing a moving target at the start of a new state budgeting cycle as state revenue growth has taken on a downward movement.

Budget experts at the Statehouse are closely monitoring the movement of state tax receipts as they approach a critical point next month when (REC) Revenue Estimating Conference members will lock in the tax collections projections that will become the basis for spending decisions by lawmakers who convene in January.

The panel downgraded its growth projection last month by $125 million in light of international uncertainty and sliding farm income, but receipts have been holding close to the panel's 4 percent increase for the current fiscal year since then.

However, there are signs of economic weakening, like economic development chief Debi Durham's expectation that Iowa exports could be down as much as 15 percent from last year's $15.1 billion record.

'It's going to be tough, it's going to be tougher than the current fiscal year, but I don't think it's insurmountable,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, in assessing the fiscal 2017 budget prospects Tuesday. 'The key is going to be what the REC says in December and we'll go from there. It's dependent on what the REC says.”

Executive-branch department heads acknowledged the tight fiscal reality at the start of budget hearings before Gov. Terry Branstad, with several coming with status-quo requests for the fiscal year that begins next July 1.

'We know it's going to be a challenging year for everyone,” said Rod Roberts, director of the state Department of Inspections & Appeals.

Not all areas of the state budget were status quo at the Statehouse, however, with overall agency requests received by the state Department of Management approaching $305 million over the current $6.96 billion funding estimate, according to documents provided by management officials. The largest single request was a 6.7 percent increase by the state Department of Human Services above its current allotment of nearly $1.75 billion.

'I think we have to be very cautious,” Branstad said of the next state budget, 'but because we have been careful and because we have managed well and because we made the tough budgeting decisions last year, hopefully, we're in a situation where we don't have to make drastic cuts.

'But we'll probably have to, in next year's budget, look at being even a little less than what we recommended for the second year of the biennium because revenues are down,” he added. 'Obviously, that means we have less money to spend.”

According to the Legislative Services Agency, the state has combined cash reserves and economic emergency fund balances projected to total $718.7 million on June 30 and $734.9 million at the end of fiscal 2017. The state treasury has a surplus estimated at $187.7 million for the current fiscal year, but that figure drops to $74.6 million assuming that all $269 million in built-in and anticipated expenditures are funded - a scenario that likely won't happen once the split-control Legislature gets into its budget deliberations.

'I think there were a lot of people in the Legislature who thought there was going to be more money to spend, and they wanted to spend some one-time money that would have just created a bigger hole for us to dig out of,” said Branstad, referring to his veto of nearly $56 million in one-time money for K-12 schools last July that was very unpopular with education groups and legislative Democrats. 'Thank God we don't have that problem.”

Dvorsky said the 1.25 percent increase that K-12 schools ended up with last session was woefully inadequate, and he hopes the sixth straight year of divided government produces a realization that education funding is a priority that needs quick legislative action during the 2016 session.

Last January, Branstad presented a two-year budget plan that called for a 1.25 percent boost in supplemental state aid to K-12 schools for the current fiscal year and a 2.45 percent across-the-board increase to those districts in fiscal 2017.

On Monday, Branstad was non-committal on whether that 2.45 percent increase would be part of the fiscal 2017 budget plan he presents to lawmakers next session.

'It's my hope that we can do that,” the governor said, 'but it's going to be a little more difficult.”

Branstad told reporters education will be a priority in the fiscal 2017 budget, 'and we're willing to cut other areas of the budget” as he assembles a spending plan.