DES MOINES — Iowa’s downward revenue projection slide has created major ripples in state budgets as Gov. Terry Branstad and GOP legislators look to backfill an immediate $131 million gap with reserves and begin to fashion spending plans for the next two fiscal years shaken by this week’s taxing developments.
Appropriations Committee leaders in the House and Senate say the roll back of about $191 million in revenue growth they expected in fiscal 2018 coupled with current year cuts, transfers and money shifts leaves them with $6.1 million in new money to work with next year.
That news comes after the Legislature already approved, and Branstad signed, $40 million in increased state aid to the state’s 333 school districts for the budget year beginning July 1. Budget-makers also project Iowa’s Medicaid program will need $42 million in the coming fiscal year, along with other funding needs that are putting a crunch on the budget even before Republicans have fashioned their fiscal 2018 spending targets.
“We’re going to have to be very judicious about how we spend money next year and we’re going to continue to make tough choices,” Sen. Charles Schneider, R-West Des Moines, chairman of the Senate Appropriations Committee, said Wednesday.
His House counterpart, Rep. Pat Grassley, R-New Hartford, echoed those sentiments in warning that legislators will have to find savings and make cuts in other areas to fund their priorities and pay back the reserve money scooped to balance spending through June 30.
“I can’t tell you where those specific cuts will come from, but to fund the commitments we’ve already made in this session we’re going to have to find savings in the budget,” said Grassley, chairman of the House Appropriations Committee.
Branstad painted a less dire view for fiscal 2018, saying more revenue will be available for budgeting if plans to repay the reserve account used to balance this year’s ledger are spread over two fiscal years, which is his preference.
“We think that it’s not realistic probably to pay back all of the money that’s taken from the cash reserve in fiscal 2018,” Branstad said in an interview Wednesday. “We think the prudent and appropriate thing to do is to use $131 million from the cash reserve to meet this shortfall and then have that paid back over the next two fiscal years.”
Three downward revisions in the growth of state tax collections this fiscal year delivered a nearly $220 million punch to the budget over the course of six months.
Revenue forecasts now project 3.6 percent growth for each of the next two fiscal years, which would generate about $260 million in new money annually.
“Iowa is growing, but not at the rate that we thought it would or had hoped that it would,” the governor said. “I think we’re going to be financially in a solid position to meet the obligations, but we’re going to have to be very frugal and very careful in the way that we spend money.”
The new estimates require Branstad to revise the two-year spending plan he outlined in January, but he noted both fiscal years he proposed had year-end cushions. With the ending balance for fiscal 2019 projected at nearly $250 million, there is room to make adjustments, he said.
Grassley said planning discussions are in the early stages and everything will be on the table, including tax credits the state provides for myriad purposes as well as a search for efficiencies, savings and program reductions or eliminations.
Sen. Joe Bolkcom, D-Iowa City, ranking member on the Senate Appropriations Committee, said he hopes the majority party doesn’t rely just on cuts.
“We have a very, very bleak budget in 2018 and it looks like there will be more cutting of existing services to Iowans and tuition increases to every college kid in the state in order to balance a budget going into 2018,” he said.
Rep. Kirsten Running-Marquardt, D-Cedar Rapids, said Iowa is experiencing steady economic growth but the budget has gotten out of control due to “tax credits gone wild” and needs to be refashioned to reflect the priorities of Iowans.
“We have a budget in crisis because of their poor mismanagement,” she said.
Grassley called Democratic criticism “disingenuous” when the party’s lawmakers continuously offer amendments to spend more money. He ruled out talk of raising revenue to ease current pressures.
Republicans continue to indicate they will offer plans to revamp Iowa’s income tax system and establish educational savings account, although the tight money situation may force them to consider phasing in any such proposals.
Branstad, while supportive, offered a cautious view of tax reform and school savings plans:
“You’ve got to look at the whole picture and you’ve got to look at what’s affordable. You could start some of these programs in the future.”
However, Bolkcom was adamantly opposed to both proposals, given the fiscal condition.
“We are broke, the state is broke. We are in the ditch,” he said. “We’ve got to take back some of the tax credits and the tax giveaways to fund the things the people in Iowa expect us to fund and that’s the schools, the health care, the safety and that’s it.”
l Comments: (515) 243-7220; [email protected]
James Q. Lynch of The Gazette contributed to this report.