Branstad offers $7.4 billion spending plan

DES MOINES - Gov. Terry Branstad on Tuesday unveiled a $7.412 billion spending proposal for next fiscal year that would invest heavily in education and health care while holding most state government agencies at status-quo budgets and moving ahead with privately managed Medicaid services.

The governor asked the split-control Legislature to pump an extra $146.8 million into K-12 education beginning July 1 and increase Medicaid funding by $41 million. Other budget areas that would be in line for more money included regent institutions, $8 million; community colleges, $3 million; the court system, $8 million mostly for judicial pay increases; college tuition grants, $1 million; and the legislative branch, $4 million.

'The budget I propose today was crafted the same way hardworking Iowans do, with a cautious eye and optimism for the future,” Branstad told lawmakers during his Condition of the State address to a joint session of the 86th Iowa General Assembly.

'It is a tight budget,” the governor added. 'It is a budget that will keep our state stable. The budget is balanced today and fits within our five-year projections.”

Branstad's budget plan calls for a 3.3 percent increase in general fund spending that would draw about $35 million from surplus ending balances to fund his fiscal 2017 priorities. However, David Roederer, director of the state Department of Management, said budget-makers will be asked to provide $79 million in supplemental funds to cover a Medicaid shortfall and other costs in the current budget year that would lower next year's overall boost to 2.3 percent if lawmakers authorize that spending.

Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, said he was anxious to 'dig into” details of the governor's spending plan, adding 'I don't think we're as far apart as maybe we have been in the past with the governor's office, with just preliminary conversations that we've had.”

Grassley and House Speaker Linda Upmeyer, R-Clear Lake, were non-committal on Branstad's use of surplus money to balance the state's fiscal 2017 general-fund ledger, noting House Republicans plan to 'live within” an estimated $7.32 billion in ongoing revenue that allows for $153 million in spending growth in the next budget year.

'It's going to be a tough budget year,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee. 'I think it's going to be tougher than last year, but we're going to have to look at it.”

Dvorsky said he believed the governor had identified some of the right priorities even if he didn't fund them at the level that Senate Democrats prefer.

David Roederer, director of the state Department of Management, told reporters during a budget briefing that a federal decision to move back implementation of Iowa's Medicaid modernization changeover to privately managed care until March 1 cost the state $17 million and will carry a $300,000 daily price tag if there are further delays.

Branstad said the move to managed care is designed to improve patient health, increase the coordination of services and control costs by saving an estimated $100 million in fiscal 2017. Otherwise, he said, the growth of Medicaid spending will consume 'virtually all” of the state's revenue growth in the coming fiscal year.

Branstad's budget blueprint would direct 67 percent of next year's spending growth to education - with K-12 schools to receive $93.4 million via a proposed 2.45 percent increase in supplemental state aid to Iowa's 333 public districts and $53.3 million in education reform money for a third year. Property tax credits get 14 percent of the new money, followed by human services at 12 percent and court services 7 percent, Roederer said.

Rep. Mary Mascher, D-Iowa City, said she was glad the governor included money for schools but noted there are trust obstacles to overcome with legislative Democrats after last July's veto of nearly $56 million in one-time money for K-12 schools.

'Due to last year's debacle with the veto of the one-time money, that has created a real mistrust on the part of Democrats with any kind of proposals that are put out there,” she said.

Mascher also said she believed Iowa Medicaid recipients would be better served by an increased focus on prevention and better service delivery rather than the shift to privately managed care that 'has been a disaster in terms of the rollout.”

'People saying this is a nightmare. We think it needs to be delayed for the rest of the year,” Mascher added. 'We need to get a handle on this so we really do it right. There are so many vulnerable Iowans who are counting on us to make sure that happens.”

The governor's budget plan did not include any money for salary adjustments, although state employees will receive pay hikes as prescribed by collective bargaining agreements and executive-branch departments again will be expected to make adjustments using attrition or other means to absorb any raises within their budget areas, he added.

The budget plan presented Tuesday assumes the state's cash reserve and economic emergency accounts will contain $738 million at the end of fiscal 2017 with a projected general fund ending balance of $112 million, according to Branstad administration budget documents. About 90 percent of state general-fund spending goes for K-12 school foundation aid ($3.1 billion), wages and benefits ($2.1 billion), and Medicaid ($1.3 billion).

Roederer noted that the administration's budget asking seeks to 'couple” the state's tax code with federal changes (excluding business depreciation) for the 2016 tax year at a cost of about $49 million. The governor is not seeking to make tax coupling retroactive to the 2015 tax year, he added.

The budget plan also calls for using about $65 million in Rebuild Iowa's Infrastructure Fund (RIIF) money over five years to modernize the State Historical Building, beginning with $7.6 million next fiscal year. Branstad hopes to raise another $14 million privately to defray the project's overall cost of $79 million.