Iowa revenue projection cut by $414 million; budget cut looms

Gov. Chet Culver said Wednesday all options will be on the table as he addresses a $415 million revenue shortfall that will force spending cuts of up to 8.4 percent this fiscal year.

“We're going to have to make deep cuts,” the governor said a short time after a revenue estimating panel slashed projected state tax collections by nearly $415 million for the fiscal 2010 year that runs through next June 30.

Culver said the national recession has blown an unprecedented hole in the state budget a little more that three months into the fiscal year and he plans to consult legislative leaders as well as analyze the impact of cuts to nearly 250 budget line items before deciding how best to proceed.

“Now we know our target and we will move forward with the options,” he told a Statehouse news conference. Culver said he announce his plan of action Thursday afternoon.

Whatever budget-balancing course is selected, the governor said, it will require significant cutbacks to existing state programs and agencies and could result in workforce reductions and potential employee layoffs.

“These cuts are going to be significant and they're going to be hard felt across the state,” he said. “We've already tightened the belt and obviously we're going to do it further.”

The governor did not rule out the possibility of calling state lawmakers into special session to deal with a sharp drop in revenues that he attributed to “this great recession” brought on by bad policies in Washington and bad practices on Wall Street.”

If the budget is balanced solely via an across-the-board cut, it would have to be up to 8.4 percent to cover the projected shortfall and to maintain a $100 million ending balance by next June 30, he said. Another option might be to impose a smaller across-the-board cut and have lawmakers make additional adjustments when they convene in regular session next January.

Leaders of the Mount Vernon-based Iowa Fiscal Partnership said budget adjustments should not come via cuts alone, warning that approach would seriously damage critical public services and further hurt Iowa's struggling economy.

“Iowa's revenue problem does require immediate action, but that action must be strategic,” according to the group's statement.

Craig Lang, president of the Iowa Farm Bureau Federation, urged Culver not to order an across-the-board cut, but to consider convening a special legislative session or seeking other methods whereby elected leaders could collectively pursue budget solutions.

“Across-the-board cuts reduce state spending, but unfortunately they increase property taxes on all Iowans, Lang said in a statement.

Culver pledged to deal with the current budget imbalance without raising taxes and to be “sensitive” to state funding cuts that might impact local governmental entities.

During its quarterly meeting, the Revenue Estimating Conference lowered its fiscal 2010 projection from nearly $5.853 billion last March to $5.438 billion on Thursday.

“In March, what looked like might be a mild Iowa recession has turned into a significant and severe recession for all states,” said Holly Lyons, a Legislative Services Agency fiscal analyst and REC member.

The revenue forecasters attributed the projected sharp downturn in tax receipts to a prolonged recession has hit personal income tax collections with fewer Iowans working, has under cut corporate profits, and has slowed consumer spending that translates into lower sales tax receipts.

“These are serious numbers,” said House Majority Leader Kevin McCarthy, D-Des Moines. “It's going to cause some reductions in services. Some agencies are going to be able to adjust, but for some it's going to be very challenging.”

Minority legislative Republicans on Thursday criticized majority Democrats for approving an “irresponsible” budget last session that planned to spend $6.3 billion – in part with the help of over $500 million in one-time federal stimulus money. Thursday's figures indicate that the state's $6.3 billion spending plan is supported by nearly $5.44 billion in general fund tax receipts – translating into a huge imbalance that will result in painful cuts to many programs Iowans depend upon, they said.

“It's not exactly a shocker today,” said Rep. Christopher Rants, R-Sioux City, who urged Culver to call a special legislative session so lawmakers can target scarce resources to priority areas and protect property owners from higher taxes as state spending is slashed.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said majority leaders will work with Culver to deal with the “aftershocks” of the nation's current “economic earthquake.”

Rep. Steve Kettering, R-Lake View, ranking member of the Senate Appropriations Committee, said the decision of Culver and majority Democrats to ignore budget realities during a time of severe economic downturn has “placed Iowa's budget on the edge of a financial abyss.”

The American Federation of State, County and Municipal Employees (AFSCME) union, which represents the largest share of state workers, issued a statement urging state budget-makers to “look at the full picture” rather than only spending cuts in addressing the revenue shortfall.

The budget examination should also look at ways to “close corporate tax loopholes and re-examine other tax schemes that have not shown evidence that they are growing the Iowa economy,” AFSCME said in a statement.