Iowa budget outlook remains challenging

DES MOINES – The appetite for government funding is eating into the state surplus.

State government closed its fiscal 2013 budget year with a $927.8 million surplus. The newly revised estimate for the current fiscal year projects the state to post a $895.1 million ending balance next June 30 after cash reserves and emergency funds are full, according to the state Department of Management.

However, Gov. Terry Branstad and the split-control Legislature are entering a new budgeting cycle in which they have made multi-year commitments to reduce property and income tax burdens.

They also promised a 4 percent boost in state aid, along with money for education reforms. In addition, they face higher Medicaid costs due to federal shifts at a time when state agencies have delivered a fiscal 2015 wish list that would boost spending by 7.9 percent.

“It's always a challenge,” said David Roederer, director of the state Department of Management. “Keep in mind the Legislature overspent what the governor recommended last year, so he is not automatically accepting those increases for the coming year.”

Iowa is coming off a fiscal year in which state tax collections rebounded with a 7.3 percent increase that was aided by some uncertainty over federal tax law changes.

However, state general-fund spending also jumped by nearly $420 million, or about 7 percent, to $6.432 billion, and legislative changes shift about $178 million in tobacco settlement and gambling profits, so they will no longer show up on the general fund ledger, state officials said.

Roederer said the $6.833 billion in state department funding requests his office received by Oct. 1 - up $543 million compared to current levels - included about $140 million to cover the first year of commercial property tax cuts and income tax relief that will help whittle down the state's surplus until fully implanted in fiscal 2019.

“We needed to have a health surplus because we're going to start eating into that,” he said.

Under Iowa's new biennial budgeting approach, state lawmakers left the Statehouse last May having locked in a fiscal 2015 spending plan that funds 87 percent of next fiscal year's government operations with $5.644 billion.

The Legislative Services Agency projected that another $1.16 billion would be needed to restore government budget areas to 100 percent of their current year appropriations.

Robust revenue growth enabled state budget experts to revise the expected fiscal 2013 surplus, from $778.8 million to $927.8 million, and added about $170 million to a current-year surplus previously projected at $725 million.

After the state Revenue Estimating Conference revised its growth estimates cautiously higher for the next 21 months, Rep. Chuck Soderberg, R-LeMars, chairman of the House Appropriations Committee, warned that the upcoming election-year session should not abandon the policies that have put the state budget on sound financial footing.

“This practice has driven steady economic growth and enabled us to continue this state's commitment to improving schools, strengthening health care and making Iowans and their communities more competitive in the global economy,” Soderberg said.

“The projected growth in state revenue is not a green light for overspending,” he added. “Republicans will continue our strategy of investing in key priorities, paying off debt and returning any overpayment of taxes back to the taxpayers.”

Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committeee, said the coming session again will require Senate Democrats, House Republicans and the governor to work together to fund priorities while balancing the state budget.

“The steady, sustainable growth in Iowa's state revenues is evidence that building an economy that supports middle-class families is working for Iowa,” Dvorsky said. “During the next session, we will be able to responsibly invest in improving educational opportunities, job creation and reducing our state's shortage of skilled workers.”

Among the big-ticket funding requests were nearly $300 million in new money for education, including $45 million for state Board of Regents institutions and an extra $81 million for human services in fiscal 2015.