Facing fiscal reality

Our state government is increasingly addicted to using one-time money pots to pay for ongoing and increasing expenditures, state Auditor David Vaudt warned last week. The practice, he says, is one reason Iowa has such a severe budget crunch.

It's hard to argue with Vaudt's reasoning and numbers. He is widely respected for his objective focus on financial reality, and our state policy makers should pay attention.

Vaudt outlined a sobering scenario.

The Legislature approved a budget for fiscal 2007 that was funded 99 percent by the annual tax revenues that feed the general fund. Money shifted from separate, dedicated accounts - “one-time sources” - such as the Senior Living Trust Fund, Tobacco Related Funds and Property Tax Credit Fund covered the remaining 1 percent.

Next year, the legislators OK'd 7 percent worth of one-time money. Last year, it grew to 9 percent, including 2 percent from initial federal stimulus money.

Vaudt estimates the current fiscal budget is “balanced” by a whopping 13 percent of one-time funds - 8 percent of it stimulus.

Meanwhile, state tax revenues are falling dramatically as we feel the effects of economic recession. The shortfall, combined with some overly optimistic and imprudent spending by the Legislature, has put the general fund into a hole Vaudt puts at $900 million deep.

No wonder the urgency with which Gov. Chet Culver recently ordered massive cuts in state spending.

Even that drastic measure won't fully address a potentially worse financial mess in fiscal 2011. Much less federal stimulus money remains in the pipeline for that year, unless Congress decides to do another round of stimulus spending. And those special funds (Senior Living Trust, etc.) are essentially maxed out. Even the state's reserve wouldn't cover the gap.

In fact, Vaudt says that even using remaining stimulus money as backfill, it would take a 14.4 percent growth in tax revenues just to close the existing spending gap predicted for fiscal 2011. Such a revenue increase would be unusual even in good economic times.

All of which seems to leave state officials with two basic choices: tax rate increases or even more cuts in state programs and services.

This recession is no time for major increases in state tax rates. And history shows us the state's spending in real dollars has nearly tripled in 30 years, while Iowa's population has been static.

It is time for legislators to make major long-term structural changes in state government. Changes that maintain high-priority services and programs during good economic times and bad, and don't break the bank.