New state budget has $171 million ‘spending gap’

DES MOINES - The fiscal 2015 state budget passed by the split-control Legislature and signed by Gov. Terry Branstad needs $171 million of surplus funds to balance proposed spending levels that exceed projected revenue growth through next June, according to a new analysis.

State Auditor Mary Mosiman said Monday the 'true” general fund expenditures for the budget year that began July 1 are projected to total $7.401 billion, while the revenue under the state's 99 percent spending limitation law available for budgeting stood at $7.23 billion - resulting in a $171 million 'spending gap” that would be balanced using part of the carry-forward surplus.

The state entered the new fiscal year this month with a $746 million ending balance after $523 million was set aside in the state's cash reserve and $174 million in the economic emergency fund, Mosiman said. She projects that surplus will stand at $575 million on June 30, 2015, if all the assumptions are met.

Mosiman said the numbers include $135.9 million as the first annual installment of a multi-year commitment to reduce commercial property taxes in Iowa, a figure that will grow to $303.6 million by fiscal 2017 and top $382 million in fiscal 2024. The governor and lawmakers also have made future commitments to education reform and Medicaid expansion that will require more spending.

The state auditor cautioned against making accelerated multi-year commitments that will require fiscal discipline in future years to keep the state's financial ledger balanced.

'It is paramount that they plan accordingly,” Mosiman told reporters.

State budget makers have made considerable progress in reducing reliance on one-time sources to fund ongoing expenses. However, $29 million in 'performance of duty” obligations are still funded in that manner, and $340 million in general-fund spending has been shifted to other sources, which makes it difficult for Iowans to follow the shifts in budget documents, she noted.

'Iowa has made some pretty good progress over the years with sound budgeting principles,” Mosiman said. But her analysis also found that the spending gap that once was $764 million in fiscal 2011 had dipped to $17 million in fiscal 2014 before rebounding to $171 million in the current budget plan.

She also expressed concern that for a sixth consecutive year state agencies have been required to absorb the increased costs of employee salaries and benefits - a practice that she warned could impact services in some budget areas.

Mosiman also noted that Iowa's public pension systems remain underfunded. The Iowa Public Employees Retirement System (IPERS) stands at 81 percent funded, the judicial retirement system at 71 percent funded and the peace officers' system at 64 percent funded. Also, she said the fiscal 2015 state budget is projected to underfund Medicaid by $53 million.

'Auditor Mosiman's comments today confirmed that Iowa can balance the budget and invest in expanding Iowa's middle class without raising taxes,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee.

Gov. Terry Branstad said Monday a drastic drop in state tax collections near the end of fiscal 2014 prompted him to veto millions of dollars that lawmakers earmarked for debt reduction, environmental programs, projects seeking one-time funding and regent university building projects to avoid future budgeting pressures. He said projections show the state budget to remain in the black as spending commitments come due.

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