State revenues slip more, no new cuts required

DES MOINES – Gov. Chet Culver won't have to make deeper spending cuts this fiscal year based on newly revised revenue estimates, but it likely will be a different story for next year's state budget.

“We're going to have to make additional cuts (in fiscal 2011). No one's suggesting that we won't,” Culver said Friday. “The question is can we minimize those cuts” by saving money via proposed efficiency measures, streamlining and government reorganization.

The governor's comments came on a day when the state Revenue Estimating Conference lowered its current year state revenue projection by $36.8 million and shaved $13.1 million from its fiscal 2011 tax collection expectation.

Dick Oshlo, an REC member who is Culver's budget director, said Friday's downward revision will not force additional spending adjustments beyond the 10 percent across-the-board cut the governor already ordered because Culver was realistic and set aside a projected $188 million ending balance that would absorb the latest decline.

The revised estimate of $5.401 billion in available state tax receipts for the current year means the state treasury is expected to take in $532.8 million less than it did in fiscal 2009. REC members expect fiscal 2011 tax receipts will be virtually unchanged, increasing by $2 million overall for the year.

“There's certainly a lot of uncertainty out there,” said REC member David Underwood of Mason City. “I don't see a lot of rapid growth occurring. I think we've got to be very conservative.”

House Majority Leader Kevin McCarthy, D-Des Moines, said the downward revisions were about what lawmakers expected and sets up a “very challenging” fiscal 2011 budgeting cycle next legislative session.

“I think it's going to be a status quo budget in 2011,” McCarthy said. “There are some signs that we could be turning the corner in a few months from now, but I think it's good for them to be conservative.”

Culver said the consensus view is that he and legislators will face a fiscal 2011 budget gap of about $500 million. He has proposed about $341 million in savings through streamlined government efficiencies and he pointed to additional federal stimulus money and state cash reserves topping $400 million as a possible one-time source to smooth out budgetary bumps.

REC members and other economic experts cautioned that recovery will be slow in coming as consumers and employers remain skittish. Whatever rebound occurs will build slowly and tax collections will lag even further behind.

“If we're not there yet, we're pretty close to hitting rock bottom and we're going to be turning the corner sometime in the next few months, and because of the investments we've made we think Iowa is going to be stronger as a result,” he noted.

McCarthy said the state's fiscal 2011 budget will be “very challenging,” but he noted “the cuts we'll have to make won't be as drastic as they initially looked like they were going to have to be.”

Minority GOP legislators were less optimistic, saying the state's ongoing budget woes speak to a spending addiction by Culver and legislative Democrats rather than the nation's recession as the majority party contended.

“The newest estimate by the REC is not surprising,” said House GOP Leader Kraig Paulsen of Hiawatha. “The real budget mess is how much money was spent during the last two years.

“Even after Gov. Culver made the across-the-board cut, for every dollar of revenue that came in, $1.13 was spent,” Paulsen added. “To put it into perspective, if you were making $50,000 a year, that would be like putting $6,500 on your credit card. Iowa continues to have a spending problem.”

Craig Lang, president of the Iowa Farm Bureau Federation, used Friday's REC decision to press Culver and the Legislature to redesign the process for estimating state tax collections next legislative session to avoid a repeat of the disruptions caused by unsustainable spending based on a faulty revenue outlook.

Lang, a Brooklyn dairy farmer, said Iowans will have to deal with more than $250 million in potential property tax increases as a result of actions taken to balance this year's state budget.

“Homeowners, farmers and main street businesses simply can't afford a tax increase and a property tax increase is a tax increase,” he said.

REC member Holly Lyons of the Legislative Services Agency said she felt comfortable with the revised numbers, but conceded “it's extremely difficult to estimate these numbers in a recession. Nobody's going to be right, we just hope that we're close.”