‘$1 billion surplus’ is misleading

By David Vaudt

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Many of you have heard reports Iowa currently enjoys a $1 billion budget surplus. If Iowa truly had $1 billion of extra money to spend, our lawmakers would have proposed and adopted a budget substantially larger than either party proposed.

Telling taxpayers Iowa has a $1 billion budget surplus is misleading. The people who arrive at that number do so by counting more than $600 million of “rainy day” funds set aside as required by law for cash-flow purposes and for economic emergencies.

Counting the “rainy day” funds in what the state can spend is as inappropriate as you are including your retirement account balance as money available now for spending on your everyday expenses.

As for the remainder of the purported surplus: Using one-time money for ongoing costs allowed the state to bring a $280 million “checking account” balance into fiscal year 2012, while at the same time actually spending $500 million more than it received in fiscal 2011. This is similar to you ending the month with a $300 “surplus” in your checking account, but putting $800 on your credit card to produce that checking “surplus.” Even if you use your checking account “surplus” to pay down your credit card, you end the month in debt.

The same is true for the state. All of the costs to provide general fund services must be counted to get a complete picture of Iowa's finances - even if some of those costs are paid from the state's “charge cards” when the state's “checking account” is expected to come up short. Total revenues and total costs required to keep Iowa's government running are the numbers that matter. If ongoing costs consistently exceed ongoing revenues, Iowa faces a situation where service levels are unsustainable.

Iowans do have some cause for hope. Iowa has significant revenue-growth projections, a lower unemployment rate than the national average and a real estate market that weathered the housing crisis much better than many other states.

Even so, Iowa faces significant challenges as to how government sustains the level of services being provided today. Costs in three primary areas of state spending - education, Medicaid, and salaries and benefits - are projected to grow faster than revenues. Couple that with less financial assistance from the federal government as it addresses its own fiscal imbalance, and Iowa's fiscal challenges will only intensify.

That's why Iowa must make the difficult financial decisions today and quit“kicking the can down the road.”

David Vaudt is state auditor of Iowa. Comments: info@auditor.state.ia.us