Iowa faces potential budget shortfall

Problems due to eroding revenue outlook

A gavel sits on the desk of Senate President Pam Jochum at the State Capitol Building in Des Moines on Tuesday, January 14, 2014. (Stephen Mally/The Gazette)
A gavel sits on the desk of Senate President Pam Jochum at the State Capitol Building in Des Moines on Tuesday, January 14, 2014. (Stephen Mally/The Gazette)

DES MOINES — State budget-makers are grappling with projected shortfalls in the current and fiscal 2018 budget years and efforts to bring the state ledger into balance could be further complicated if a panel of revenue forecasters further downgrades expectations for future state tax collections.

The latest projections for the state general fund budget prepared by the nonpartisan Legislative Services Agency estimates a $35.6 million shortfall for the current fiscal year that ends June 30 and a $63.1 million shortfall for the fiscal 2018 state budget that Gov. Terry Branstad and the GOP-led Legislature will shape into a final spending plan next session.

“The current fiscal year is challenging and that generally means next year could be a challenge as well,” said David Roederer, director of the state Department of Management who is the Branstad-Reynolds administration budget director and chairman of the Iowa Revenue Estimating Conference (REC), which meets Monday to set the revenue levels the governor and lawmakers will use for budgeting next session based on the state’s 99 percent spending limitation law.

Eroding growth in state tax collections rooted in worldwide economic uncertainty and depressed farm prices that have placed a drag on other sectors of Iowa’s economy have cut into the expected surplus. This comes at the same time as state government closed the books on its fiscal 2016 budget in September and further complicated this fiscal year’s outlook when REC members downgraded projected tax receipts by $49.3 million in fiscal 2017 to slightly more than $7.308 billion.

They also lowered fiscal 2018 projections by $71.9 million to just over $7.607 billion.

Those levels still reflect estimated growth in state tax collections of 5.6 percent this fiscal year and 4.1 percent in fiscal 2018, respectively, but so far receipts have been relatively flat through November heading into Monday’s meeting when the current growth projections will be revisited.

The combination of a lower-than-hoped-for surplus at the close of fiscal 2016 coupled with future revenue growth reductions translated into a $92 million loss for the state general fund and an estimated $21 million shortfall in Medicaid appropriations for fiscal 2017 set by the Medicaid Forecasting Council as resulted in at least $35.6 million in adjustments to keep the current state budget balanced on June 30, according LSA projections.

Roederer said the numbers are fluid right now given than the projected Medicaid shortfall is based on utilization rates and enrollments that may actually end up lower than expected which would mean program savings. Also, Monday’s REC decisions will factor into the budget outlook.

If the projections stay negative, however, Roederer said “we’d have to take some action — the governor and the Legislature — when we get back here in January.”

“It’s going to be a tight budget, there’s no doubt about that,” Lt. Gov. Kim Reynolds said Friday. “It’s subject to what we find out on Monday, but we know it’s going to be reduced so we’re already anticipating that when we’re working on the preliminary budget.”

Branstad, who is slated to deliver his budget blueprint to lawmakers on Jan. 10, recently held budget hearings with state agencies that sought an additional 1.8 percent in state spending for the 2018 fiscal year that begins next July 1. The $7.263 billion in requests did not include new state aid for K-12 school districts and some agencies included additional wish lists for spending should the state’s budget outlook improve.

“The departments, I think, we’re being very realistic but were also being very helpful, realizing it’s going to be a very challenging budget,” Roederer said. “Our department heads have worked very hard to contain costs.”

Roederer said state agencies have not been directed to take any belt-tightening action, but noted “we pretty much have a real restricted hiring going on right now which we constantly monitor all the time. We’ve told agencies that revenues are not coming in as we previously projected.”

The state’s budget uncertainty comes at a time when legislative Republicans who soon will control both chambers of the 87 General Assembly are formulating their 2017 agenda which includes campaign promises to ease Iowans’ tax burdens — a change that may require offsetting reductions on the spending side.

Sen. Jack Whitver, R-Ankeny, who will be installed as the new Senate president when the 87 General Assembly convenes Jan. 9, said incoming majority Senate Republicans are combing existing state spending areas looking for savings that could be implemented next session.

Sen. Robert Dvorsky, D-Coralville, outgoing chairman of the Senate Appropriations Committee, said the shortfall is the product of slippage in revenue and a shrinking ending balance but appears to be something that is manageable and may be related to timing issues of when some taxes are collected.

“Obviously, it’s not very good news, but I think that it’s news that we can deal with,” he said.

 l Comments: (515) 243-7220; rod.boshart@thegazette.com

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