There's good and bad in Iowa budget picture, state auditor says

Gov. Terry Branstad and the split-control Legislature have made “very good progress” in correcting bad budgeting practices, but they still faces a $161 million “spending gap” compared to available state revenues and continue to make ill-advised money shifts and use one-time money for ongoing services that must be eliminated, State Auditor David Vaudt said Monday.

Vaudt issued his assessment of the final fiscal 2013 budget by giving generally positive remarks although he warned there remain unresolved fiscal challenges and considerable federal uncertainty that could dog budget-makers for years to come.

On the positive side, Vaudt said the gap between available state revenue and ongoing spending has been slashed by nearly 80 percent from the $764 million imbalance just two years earlier. He said growth in state tax collections have averaged 8.8 percent over the past two fiscal years while average spending has growth by 1.7 percent – enabling the state to fully replenish its reserves and bank surplus dollars.

On the down side, budget makers still used $71 million in one-time sources to finance the current budget, underfunded Medicaid by $41 million to $81 million in the current fiscal year that began July 1, and moved $335 million of general fund revenue to off-budget accounts that make it more difficult for taxpayers to track the numbers and make comparisons.

“It's refreshing to see the progress that we're making,” Vaudt told reporters. “We've made a very huge turnaround.” While state budgeting practices are “on the right track,” he added, “we're not where we want to be.”

The auditor noted that state government has gone four consecutive years where the governor and lawmakers provided no increases in their budgets for salary and benefit costs, forcing state agencies to absorb the increased costs within their yearly general-fund allotments. “If this practice continues without offsetting agency efficiencies, these unfunded salary and benefit cost increases will significantly impact the level of service agencies can provide.”

Vaudt also point to the state's primary pension system, Iowa Public Employment Retirement System (IPERS), by noting the unfunded actuarial liability has grown from $327 million at the end of fiscal 2000 to $5.7 billion at the end of fiscal 2011. He said the huge increase means the system is 80 percent funded today compared to 98 percent in fiscal 2000. “This is a liability we need to eliminate,” he said, noting that the gap widened even as lawmakers took positive steps in recent years to improve the situation.

Finally, the state auditor warned that there will be considerable pressure on state budgets in fiscal 2014 and years beyond as a result of federal actions. If the federal tax code remains unchanged and federal income tax are allowed to expire, state revenues could take a hit estimated as high as $175 million due to the reverse effect of Iowa's federal deductibility law and the decline of federal support to mean state budget-makers could have a “fiscal cliff” in future years.

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