Big-ticket commitments pose state budget challenges

DES MOINES - Iowa lawmakers are facing a challenging budget year that, in large part, is a product of their own making.

Veteran and new legislators who will comprise the split-control 86th Iowa General Assembly that convenes Jan. 12 will face a fiscal 2016 state budget that already carries built-in and anticipated increases projected at nearly $488 million.

A significant share of those commitments are funds dedicated during the 2013 session to provide commercial property tax relief and other tax breaks, and to enhance teacher compensation and performance as part of education reforms designed to restore Iowa kindergarten-through-grade-12 schools to world-class status.

The new two-year biennial budget also will begin to address health care expansion efforts by picking up a growing state share of its Health and Wellness program. It also will assume a larger share of Medicaid program costs that are being shifted by federal officials in bigger proportions to states such as Iowa where unemployment is lower and economic growth is picking up.

'Everybody knows our budget for next year is going to be a bit tight because we made commitments two years ago,” said Senate Majority Leader Mike Gronstal, D-Council Bluffs, whose caucus held on to a 26-24 edge in the Iowa Senate in the last election.

' ...

We're going to have some challenges this session, but they're the kinds of challenges that we think we can manage.”

Projections by the Legislative Services Agency (LSA) indicate state budget-makers will have nearly $7.2 billion in net tax receipts available for fiscal 2016 and about $400 million in surplus funds to carry forward - bringing the total pool of money to slightly more than $7.52 billion under Iowa's 99 percent spending limitation law.

However, House Speaker Kraig Paulsen, R-Hiawatha, said Republicans - who are expected to have a 57-member majority in the Iowa House - do not want to spend more than the state takes in. So cuts will be required in some budget areas to make room for the new commitments, cover the $200 million-plus increase in human services and provide a base funding increase for K-12 schools beyond the $70 million already dedicated to the education reform effort.

'House Republicans continue to believe that, while we are going to have a tight budget and we are going to have to make tough decisions and there's going to have to be some cuts made in the budget, we still don't really have a revenue problem in this state,” Paulsen said. 'We have a spending problem.

'So we're very comfortable going in and finding some opportunities to reduce spending in the state, and in turn finding opportunities to reduce tax burdens on Iowans.”

The fact that the Legislature will remain divided between majority Republicans in the House and majority Democrats in the Senate likely will limit the 2015 legislative agenda and force bipartisan cooperation to forge a budget and find other areas of compromise.

Leaders and Statehouse observers say the partisanship that was shown in 2013 proved they can move 'big ideas” to fruition. But it likely will take until near the end of the scheduled 110-day gathering to determine what can be accomplished in an off-election year session.

On the list of possible middle-ground solutions are transportation funding, broadband expansion, education spending, including another freeze on tuition for residents at Iowa's regent universities, skilled work force enhancements and tax code simplification.

John Stineman of the Iowa Chamber Alliance said business leaders around Iowa are hoping lawmakers can come together on tax improvements and produce a long-term strategy for meeting Iowa's work force needs that could be the 'next big bipartisan win.”

The tone for bipartisan accord could be set early as Gov. Terry Branstad meets next week with House and Senate leaders from both parties to discuss transportation funding options and other top-shelf issues.

'I think the timing is right and I think we should move on it early and get it done in 2015,” the governor said.

Top legislative Democrats say they will unveil their 2015 legislative priorities on Monday and Branstad says he will include his biennial budget blueprints for fiscal years 2016 and 2017 when he discusses his session priorities with a joint-session of the General Assembly on Jan. 13 before pausing to mark his inauguration for an unprecedented sixth term later that week.

Much will hinge on state budget decisions, and the first big item out of the chute will be how much state supplemental aid Branstad and the split-control Legislature commit to per-pupil funding for Iowa's 338 public school districts.

Preliminary estimates subject to adjustments pegged state costs from $42 million for a 1 percent increase up to about $200 million for a 6 percent pump to current-year district costs topping $3 billion.

'We want to be very careful and very frugal and yet be able to provide the resources needed to meet the priorities,” Branstad said.

LSA estimates presented to legislators in December projected the state's surplus beyond the $720 million in reserves potentially would shrink to about $132 million by June 30, 2016. They would slip below $80 million the following fiscal year as commitments to property tax relief and education reform hit their peaks and Medicaid expansion costs continue to build.

Sen. Bob Dvorsky, D-Coralville, Senate Appropriations Committee chairman, said the state's surplus has been spent down 'a little more dramatically than people thought it would be,” in part because state revenue growth has slowed due to slumping grain prices. However, he said the budget issues facing lawmakers in 2015 are manageable.

Rep. Chuck Soderberg, R-LeMars, chairman of the House Appropriations Committee, said the LSA estimates at static numbers and in some cases may be adjusted downward, modified by cost-containment efforts or not funded at the projected levels. 'We'll go through the budget process to define where we need a status-quo budget, where there's a need for an increase,” he noted.