Reynolds looks to tap reserves for expected Iowa budget gap

DES MOINES - Gov. Kim Reynolds moved Tuesday to assure Iowans that state payments for K-12 schools, Medicaid and other government programs will continue uninterrupted as her administration deals with a possible fiscal 2017 budget shortfall she hopes to cover with surplus reserves.

'Folks are rightly concerned about the state budget and what it means to them,” Reynolds said at her weekly news conference. 'The bottom line is this: that there will be continuity of government and Iowans will experience no change from when the sun sets on June 30 to the morning of July 1.”

Reynolds told reporters it is unlikely state tax collections will meet the growth estimates the current fiscal year's budget is based upon, but she said she has statutory authority to borrow up to $50 million from the economic emergency account if the state is short when the fiscal 2017 books are closed Sept. 30.

'We're hoping we'll be able to do this without a special session,” she said, but it remains an option to call lawmakers back if the shortfall exceeds her authority to transfer money.

Economic and federal tax policy volatility has impacted Iowa's tax collections for the 12-month period that ends June 30. While still growing, they have not kept pace with projections - a situation that already forced former Gov. Terry Branstad and lawmakers to make $117.8 million in midyear spending adjustments that included $88.2 million in cuts and $25 million in fund transfers.

Later, they also had to borrow $131 million from the cash reserve to keep the budget balanced with the promise of repaying the funds in two years.

Now it appears Reynolds may have to use up to $50 million more in emergency transfers.

'At this point, it looks unlikely that Iowa tax receipts will be able to meet the (Revenue Estimating Conference) projections for fiscal 2017. However, we will not be able to determine the extent of that shortfall until Sept. 30,” she said.

'It's absolutely not realistic for us to do additional cuts,” Reynolds said in ruling out unpaid employee furloughs as a cost-saving option with less than three weeks remaining in the fiscal year. 'We're looking at covering the budget shortfall through the state's economic emergency fund. By statute, I do have the authority to transfer up to $50 million from that fund without calling back the Legislature, so we're hopeful that we can manage the remaining budget within that amount.”

Without an additional transfer, the state's reserve funds as of June 30 are estimated to total $606.9 million, or $131.1 million below the statutory maximum of 10 percent of the adjusted revenue estimate.

The Legislature appropriated $7.269 billion from the state's general fund for the fiscal 2018 year that begins July 1 with expectations the state would close the next 12-month budgeting cycle with an ending balance of $106.9 million on June 30, 2018, and reserve-fund balances totaling $625.1 million, or $112 million below the statutory maximum.

Reynolds said it appeared the state's personal income tax receipts were below expectations due to lagging capital gains collections and financial decisions Iowans are making in anticipation of federal tax reform. Also, she noted that shifting consumer practices such as making out-of-state online purchases were eroding sales and use tax receipts, pointing out a need to revamp Iowa's income tax code.

'It has become increasingly clear that our tax code does not align well with today's economy,” noted Reynolds, who has made tax reform a 2018 priority. 'Our tax system was designed for a different time when purchase behavior patterns were more static. We're living in somewhat of a volatile economy.”

Reynolds said everything has to be on the table when she and the Republican-led Legislature work next session to come up with revisions.

House Democratic Leader Mark Smith of Marshalltown said he hoped legislators would work in a bipartisan way to 'change course” to make sure Iowans aren't paying for 'tax giveaways” through increased college tuition, fewer services and higher property taxes.

"Gov. Reynolds' decision to borrow money from the state's savings accounts to pay the bills this year confirms the GOP's corporate tax giveaways are unaffordable,” he said in a statement. 'The giveaways haven't produced growth and, instead, have slowed the state's economy and put the state budget in the red for the third time this year.”

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