DES MOINES — Gov. Kim Reynolds and key legislators agreed Tuesday on broad goals for balancing the state’s budget this year and next, but differences emerged on how and what to pay for that may carry implications for programs and institutions that depend on government funding.
The Republican governor indicated her spending priorities are built on dipping into a share of the state’s windfall from the recent federal tax cuts to help cover a projected $34.7 million shortfall by June 30, and also taking longer to repay money borrowed from reserves so K-12 schools could get a $54 million state aid increase in fiscal 2019.
Those budget balancing tactics drew concerns from fellow Republicans in the Iowa Legislature.
“I think it’s a good start,” said Sen. Charles Schneider, R-West Des Moines, chairman of the Senate Appropriations Committee. “There will be differences to iron out. I’m sure we will find some common ground in short time.”
Education, health care and courts would get most of the $175.3 million in new state money available for budgeting in fiscal 2019 under Reynolds’ plan — her first as governor, and one that comes as she faces election.
At the same time, Republicans are committed to a state individual income tax rewrite that would allow Iowans to keep at least $109.7 million, spurred by a federal tax package that first will be felt in February wage withholdings.
In her state budget presentation to lawmakers, Reynolds proposed a $7.447 billion general fund spending plan that would be about 2.7 percent more than the current revised budget that will have to be pared back by the $34.7 million with a mix of cuts and adjustments by June 30.
Cuts yet this year are targeted for regent universities ($5.13 million), correctional facilities ($3.4 million), human services ($3.32 million), community colleges ($1.81 million), courts ($1.61 million) and others.
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To erase the projected shortfall and end up with a small budget cushion, the governor is seeking to de-appropriate that $19.4 million while also making a $10 million adjustment in Medicaid spending and using about $11.2 million in revenue the state will gain when Iowans begin seeing lower federal wage withholdings.
She proposes plowing future state gains from the federal tax changes into lower individual state income tax rates, eliminating federal deductibility and simplifying Iowa’s tax system.
For fiscal 2019, Reynolds proposed a 1.5 percent increase in K-12 state aid, or $54 million, and statutory flexibility to allow school districts to use another $35 million previously earmarked for class-size reduction as they see fit.
She also offered an extra $77 million to cover Medicaid and child-care needs, $13 million more for higher education — including $7.5 million to regent universities and $3 million to community colleges — along with $8 million more to fund education reforms, $2.6 million more to fund workforce readiness initiative and a $14 million pass-through request from the state court system.
While declaring revenue growth in fiscal 2019 from the federal tax cuts to be off limits for spending, Reynolds suggested pushing back repaying $111 million borrowed from reserves to balance the fiscal 2017 budget.
She advocated splitting the IOU in two, paying back half in fiscal 2019 and delaying the rest until fiscal 2020.
“That’s a new proposal we’ll have to talk about, but I know last year we wanted to try to get that paid back as fast as possible,” said Senate President Jack Whitver, R-Ankeny.
Schneider, too, said he believed lawmakers would want to stick to their plan of paying back the money in fiscal 2019.
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He also expected GOP legislators to balk at using any of the federal tax cut revenue to erase this fiscal year’s shortfall — meaning they likely would look at making deeper budget cuts.
The first order of business, Schneider said, will be to make those adjustments and get a better sense of what the state can afford in fiscal 2019.
“I think the mood of our caucus would be to apply any additional revenue from the federal tax bill to rate reductions for Iowans so that they can keep more of their money in their own pockets so we can put it to work in our state and grow our economy,” he said.
During her Condition of the State speech, the governor noted “it’s no secret we are working through difficult times with our state budget” but said “education is a priority and we will continue to back that up with real money.”
Overall, the governor’s proposed budget directs 36 percent, or $62 million, in new money to preK-12 education, 44 percent, or $77 million, to human services and 7 percent to higher ed.
“The governor painted a very rosy picture of the state’s condition notwithstanding the fact that the budget is in crisis,” said Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee. “ ... I think she’ll probably get good marks for the speech, but when you look below the surface I think there are some pretty serious financial problems for the state.”
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