DES MOINES — Newly appointed Iowa House Appropriations Committee Chairman Gary Mohr recalls a college class where his professor said economics is the study of unlimited wants but limited resources.
The Bettendorf Republican is about to see that theory in action up close and personal as House Speaker-select Pat Grassley’s choice to succeed him at the helm of the budget-writing committee for the 2020 legislative session that begins in January.
After a rocky period of state budget shortfalls and cutbacks, Iowa lawmakers are prepping to return to the Statehouse now with the treasury in a surplus position. But Republicans in control of both chambers say they plan to keep a tight hold on government purse strings and return more money to taxpayers if possible and prudent.
“We’re in a very solid position and that hasn’t come about by accident,” said Iowa Senate President Charles Schneider, a West Des Moines Republican who previously served as Senate Appropriations Committee chairman during painful stints when state programs had to be cut to balance shortfalls.
Now, well into the 2020 fiscal year that started in July, the nonpartisan Legislative Services Agency projects the state is on track to post a surplus balance of $414 million by next June 30 — with cash reserves and economic emergency funds approaching $784 million, which would be a return to the 10 percent of budget surplus target.
At the same time, the state is facing economic challenges and uncertainty. International trade turmoil has hit farm income and hurt manufacturing; a shortage of skilled workers continues to hamper business growth; and parts of Iowa are still reeling from devastating flood disasters.
“We’ve got a lot of surplus problems,” said Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee.
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And Rep. David Jacoby, D-Coralville, cautioned that surplus projections are a bit of a misnomer. A large slice of the excess unused money will be needed to supplement costs associated with Iowa’s privately managed Medicaid program yet this year, he said. And the fiscal 2021 ledger already has $322 million in anticipated expenditures even before legislators and Gov. Kim Reynolds set the K-12 state aid level or set priorities for the projected $8.3 billion-plus in state spending authority.
That authority is, by law, 99 percent of what the revenue panel estimates will be available.
“Our caucus doesn’t view the 99 percent spending limitation as an amount that must be spent,” Schneider noted. “It’s just the maximum amount that can be spent and we want to make sure that we’re using taxpayer funds judiciously.”
Reynolds said she is just beginning the process of assembling a two-year state budget plan to submit to the GOP-led Legislature in January.
But she doesn’t expect the estimated available funds will change much when the Revenue Estimating Conference finalizes the revenue picture in December. She expects funding priorities will include education, health care, public safety, mental health, child care, rural broadband, workforce development, housing and disaster aid.
“We’ve been very good stewards of the taxpayer dollars,” said Reynolds, who noted the state managed to fund its priorities without “starving” discretionary spending areas in building a $289 million surplus last fiscal year. However, she said some budget areas may need some catch-up funding after multiple years of belt-tightening.
Fiscal 2021 requests from executive-branch agencies seek nearly $200 million in increased spending — a 2.6 percent increase that includes a spike in human service needs, more money to state universities facing another round of tuition increases and other asks that total $7.61 billion.
“This is what everybody says when they come into the office: ‘Now I know the budget is tight, I know there’s really no money at all, but this is really important and it’s just $4 million,’” Reynolds said in an interview last week. “I don’t think you’d be surprised by how many conversations that I have just like that every day. There’s always that but.”
Education groups representing teachers, school boards and school administrators say they are in the process of evaluating their budget needs and state aid requests for the upcoming school year.
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But a representative of the teachers’ union said the request would not be less than a 3 percent increase.
Mohr said there will be more flexibility in spending decisions next session, but he also believes his GOP colleagues will be looking at ways to reduce tax collections as well after a major state income tax-cut package was enacted in 2018 and took effect last January.
Budget-makers also will be keeping a close eye on how that multiyear plan plays out to avoid over commitments.
“We worked hard at this. We worked hard at trying to limit our spending so we would start having surpluses and we wouldn’t have to keep cutting programs,” Mohr said. “We’re going to certainly keep our eye on it. It’s the taxpayers’ money and we’re going to keep a close eye on it so we don’t overspend and we don’t misspend.”
Rep. Chris Hall, D-Sioux City, ranking member of the House Appropriations Committee, said the state currently has “an artificial surplus.” Unmet needs haven’t been addressed, he said, while tax-cut decisions that benefited wealthy Iowans and federal government actions have taken revenue out of the money stream that could have gone for public safety, education and health care.
Because of that, Hall said he expects a “kind of lean” budgeting process. “I don’t get the sense that there are going to be major investments and new programs that are made this year,” he said.
Jacoby said he expects a fiscal 2021 budget that is “even tighter than usual” given projections for continued slow growth for the Iowa economy and his expectations that a mild recession could be in the offing.
“I think we’re in a world of hurt as far as the state budget because we have so many unpaid bills. Medicaid is at the top of the list and we don’t know the total cost of the flooding in Iowa,” he said. “I’m a little worried about the budget right now and I don’t think the people at home are feeling the benefits of any tax cuts. I think a lot of people are struggling to make ends meet.”
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Schneider defended the phased-in 2018 tax cuts, saying they are providing relief and improving Iowa’s uncompetitive tax system without undercutting state government’s income stream and impacting priorities.
He said any additional tax changes would be done responsibly in consultation with the state’s Department of Revenue, but added, “there’s no plan in place right now to do anything” during the 2020 session.
Any income tax change discussions likely would include revising the state’s $400-million tax credits and possibly exploring a sales tax increase for environmental/natural resources/outdoor recreational improvements that Iowa voters approved in 2010. But the way money from that would be distributed and possibly used to balance revenue lost by deeper income tax cuts would be up for debate.
Mohr called the 2018 tax reductions “a very good idea,” but something that has to be monitored along with spending decisions.
“You’ve always got to be vigilant,” the incoming House Appropriations Committee chairman said.
“There will always be more requests for money to be spent than what we have available. That’s the nature of society and that’s the nature of budgets, but you’ve got to watch it, you’ve got to be able to say no, you’ve got to live within your means and that’s what we intend to do.”
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