State Budget Goes from Bad to Worse

The Revenue Estimating Conference has spoken. Things aren't good:

Iowa leaders today said deeper cuts in state spending likely will be required by next June 30.

A three-member panel that projects state tax collections today scaled back current year expectations by nearly $100 million and knocked down fiscal 2010 by $132.6 million.

State Revenue Estimating Conference members gave a pessimistic view of Iowa's chances of coming out of the recession soon, with employment expected to slip and other economic indicators staying flat or declining.

The panel revised revenue estimates downward over the next 18 months, with REC member David Underwood of Mason City expressing concern that the cutbacks aren't deep enough and that the revenue forecasters may be back in the spring to lower them even further.

REC member Charles Krogmeier, director of the state Department of Management, said today's action likely means Gov. Chet Culver will have to make deeper cuts than the $40 million he trimmed from general fund spending earlier this week. He also called for halting construction of a new state office building to save another $37 million.

 For non-wonks, the REC is a panel of budget/economic experts who sit down and make their best educated guess as to how much revenue, aka taxes, the state will collect this budget year and next. The December estimate is important, because it's supposed to set the size of the budget pie lawmakers can slice up come January.

And it's looking like instead of a pie, there will be a big gaping hole. And it's only going to get worse, folks. During the last state downturn, in 2001-2002-2003, every time the REC met, the budget picture got darker. And, by all accounts, this downturn could be much worse.

The Big Lug is going to have to cut more from the current year's budget. And as for Fiscal Year 2010, which starts July 1, 2009, it's looking ugly. In October, fiscal folks were talking about a$500 million gap between tax collection projections and big spending promises already made. Now, it looks like that gap is approaching $640 million and growing.

Republicans say this is bad. And guess who's to blame? From House Minority Leader Kraig Paulsen, R-Hiawatha:

"Democrats have put this state in a precarious position," said House Republican Leader Kraig Paulsen (R-Hiawatha). "At a time when the national economy was on it's way down, Democrats increased state spending by over $2,000 per family, over the span of two years they've hired more than 2600 new state employees, and loaded up budgets with pork projects for their preferred constituents. The only thing they have left to show for it is a gaping hole in the budget."

House Republicans stated when the Legislature reconvenes in January, they plan to protect the Cash Reserve Fund in order for the state to pay commitments on time and will oppose any attempt to raise taxes on Iowans. If the Economic Emergency Fund is tapped, it should only be used to help address the problems associated with the treacherous flooding and tornadoes that devastated Iowa communities this summer.

Oh yeah, the disaster. This is very bad news for anyone hoping the state would shower us with recovery cash. And Cedar Rapids city leaders who want lawmakers to give them an extra shiny penny or two of local sales tax may be out of luck. Lawmakers may need extra sales tax pennies to balance the state budget before this is over.

But Democrats say, hey, it's not so bad. And why place blame? We're all in this together! From House Majority Leader Kevin McCarthy, D-Des Moines:

"The December revenue estimate includes both good and bad news for the state budget - concerning both the national economic recession and revenue projections for FY 2009 and FY 2010," says House Majority Leader Kevin McCarthy of Des Moines.

"We have over $620 million in the state's rainy day funds and we have a Governor and state legislature that are committed to fiscal discipline," McCarthy continued.

"Yet, we need to be prepared for real cuts in budgets for both 2009 and 2010. There will be real cuts and there will be real pain, but I do believe that Iowa is in a better position to weather this budget storm than almost any other state. I am disappointed in statements made by Republican leaders, but now is not the time to play partisan politics...we are all in this together and need to work together in a bipartisan way."

 True, we have a cash reserve, but how long will it last? It didn't last long in the 01-02-03 budget dive. Again, from The Gazette's story:

REC member Holly Lyon of the Legislative Services Agency said today's decision increased the likelihood that the governor and Legislature will have to use some of the state's $640 million cash reserve to address one-time emergency needs in fiscal 2010.

Here we go again.

When Republicans ran things, they cut taxes a lot and increased spending a lot. Then, when times got tough, the bottom fell out of the budget.

When Democrats took over, they raised taxes a little, on cigarettes etc, and increased spending by a massive amount. Now, when times are tough, the bottom is falling out of the budget.

It's an endless cycle. The only big difference now is, that at a crucial moment when we need a healthy state government to help rebuild after devastating floods, we've got a fiscal crisis.

It will be interesting to see how Democrats respond. Can they say no to key constituencies? Do they have the guts to roll back previous, politically loaded spending promises? Or will they do what previous legislatures did and raid every off budget account under the sun and balance the budget with gimmicks and smoke and mirrors?

I'd by stock in smoke and mirrors if I were you.

UPDATE -- This just in, Gov. Culver responds by promising more cuts:

Governor Chet Culver will announce steps next week to reduce state spending by an additional $60 million, which represents one percent of the State's General Fund revenues.

The Governor made his announcement in response to new projections made this morning by the Revenue Estimating Conference. The REC is estimating that state revenues for FY2009 will be $99.5 million below estimates made in October; revenue estimates for FY2010 are $132.6 million lower.

The Governor issued the following statement:

"When I announced more than $75 million in budget cuts and cost savings earlier this week, I reminded Iowans that our state is being hit on two financial fronts: a national economic recession and the natural disasters of last summer. Both events are having an impact on families, businesses and government across the state.

"At the same time, we cannot lose sight of the fact that Iowa has benefited from strong financial management. While bordering states are facing deficits that are measured in billions of dollars, Iowa has a record level of cash reserves, the highest possible bond rating, and a diversified economy.

"The budget savings that I announced on Tuesday, which included asking the legislature to de-appropriate $37 million for a new state office building, not only met our immediate needs but also anticipated today's new estimates. However, we are going to need to find additional savings in order to reduce spending, maintain an appropriate year-end budget balance, and continue to be fiscally responsible.

"Next week, after carefully reviewing our options, I will announce additional steps to reduce state spending by $60 million, which represents one percent of our General Fund revenue. These savings will come from a combination of further administrative spending reductions, transfers of unused funds to the General Fund, and recommendations to the legislature for additional de-appropriations when they convene in January.

"As economic conditions have changed, my Administration has neither overreacted nor under-reacted, but has taken prudent steps to balance our strong fiscal management with the services Iowans need. As Governor, I will continue this approach, not only during this current fiscal year but as we head into what will likely be a very difficult budget year in 2010. But I am confident that, working together in a bi-partisan way, we will meet these economic challenges."