State revenue estimates revised downward

DES MOINES – It's back to the drawing board again for Gov. Chet Culver and state budget makers.

The state Revenue Estimating Conference Friday reduced its tax receipt projections by nearly $130 million for the current fiscal year that ends June 30 due to continued deteriorating economic conditions tied to the national recession.

The three-member panel also scaled back its expectations for state revenues in fiscal 2010 by nearly $270 million.

“I feel like we've been walking on quick sand and every time we make a move we sink a little bit deeper,” said Sen. Bill Dotzler, D-Waterloo. “This is really devastating news. It just keeps getting worse.”

Democratic leaders in the House and Senate issued a joint statement following Friday's REC meeting promising to take necessary steps to keep the current state budget balanced and to adjust fiscal 2010 spending targets to reflect the revised estimates. They noted they already had set next year's spending levels $133 million below the governor's proposed fiscal 2010 budget.

“We remain committed to a fiscally responsible state budget that focuses on the priorities of middle-class families without raising taxes,” according to the joint statement issued by House Speaker Pat Murphy, D-Dubuque, House Majority Leader Kevin McCarthy, D-Des Moines, Senate Majority Leader Mike Gronstal, D-Council Bluffs, and Senate President Jack Kibbie, D-Emmetsburg.

Gronstal said legislative budget subcommittees will be given “even lower” fiscal 2010 spending targets next week, probably another $130 million to $140 million that will be achieved via a combination of across-the-board and selective cuts. He said it was too early to rule out layoffs as part of the budget solution.

With the latest downward revisions, Gronstal said lawmakers will have about 10 percent less revenue to deal with than they initially expected, which is an unprecedented situation.

“This is the worst I've ever seen,” he said during an appearance on Iowa Public Television's “Iowa Press” show. “We've never had a 10 percent decline in one year. That is a giant number compared to anything we've experienced before.”

Added Gronstal: “We're going to struggle through some very tough choices in the next few days. I think Iowans can expect that there's going to be delays, there's going to be some things that we're not going to be able to do that we wanted to do.”

Minority Republicans said the latest developments should prompt line-by-line budget scrutiny to identify the core government duties and pare back functions not critical to basic service delivery. That analysis likely would signal state employee layoffs in fiscal 2010 to balance spending with shrinking revenues.

“There are going to be significant alterations to the budget,” said Rep. Scott Raecker, R-Urbandale, ranking GOP member on the House Appropriations Committee. “I would anticipate there will be job losses. That's unfortunate but it's the reality of what we're facing. The cuts will have to come from everywhere.”

Culver and top lawmakers said Friday's revenue revisions were not a surprise given the employment losses and recessionary factors at play in Iowa. They expected to begin talks next week aimed at further reducing spending through June 30 and downsizing the fiscal 2010 budget plan.

“Starting next week, I will discuss recommendations with legislative leaders so we can move quickly to reach agreement on balanced budgets in light of these new revenue projections,” Culver said in a statement.

Charles Krogmeier, an REC member who also serves as Culver's chief of staff, said the additional revenue declines are significant and will force the governor the governor to resubmit new budget plans through June 30 and for the fiscal 2010 budget year within the next two weeks.

Culver said federal stimulus money will help in areas of Medicaid and education, but additional state spending adjustments also will be required.

“It's going to be a struggle in the next week or two to figure this out,” Krogmeier said. Unpaid employee furloughs or layoffs probably aren't good options with slightly more than three months remaining in the current fiscal year. But those cost-cutting measures could be in play for fiscal 2010.

“We've got a potential headache for this year,” he told reporters. At the same time, Krogmeier said the governor does not support tax increases as an option for dealing with the current budget challenges.

“He doesn't see that tax increases are a good thing right now and he wants to avoid them,” Krogmeier said.

The new budget outlook likely will intensify the debate over bonding, with Culver and legislative Democrats looking to borrow at least $700 million to create jobs, upgrade infrastructure and help communities recover from last year's weather-related disasters.

“Federal stimulus has always been there, bonding has always been there; everybody has always known we're going to do some things with those,” Gronstal said.

Republicans countered the tough economic conditions call for biting the budgetary bullet by cutting spending not borrowing to spend more.

“Republicans are adamant now is not the time for tax increases nor big debt and spending schemes such as the ones the governor has suggested. Since we cannot be sure we have hit the bottom yet, we must preserve the state's cash reserves to protect against future economic turmoil,” said House GOP Leader Kraig Paulsen.

“We've got a boat and it's starting to sink because we've got too much spending. Borrowing will further exacerbate this problem,” added Senate GOP Leader Paul McKinley of Chariton. “We've got to have some fiscal prudence brought into this thing and live within our means. We have to make hard choices and shared sacrifices.”