In late April of 2016, on the last day of session, the Iowa General Assembly passed a (presumably) balanced budget for the upcoming Fiscal Year 2017 , which runs from July 1, 2016 through June 21, 2017 – i.e., we’re more than half way through FY 2017. The Legislature created the FY 2017 $7.350 billion budget using the March 2016 “Revenue Estimating Conference” estimate (What’s the REC? It’s this.) that there would be $7.425 billion in available funds ($7.380 billion in revenue and $45.6 million in carry forward from the FY 2016 budget surplus). (Here’s a link to a simple synopsis of the the budget process in Iowa)
Unfortunately, according to the December REC FY 2017 estimate, FY 2017 receipts will only total $7.211 billion, and there will be only $24.6 million in carry forward, totaling $7.236 billion (not $7.425 billion) in available funds. These numbers, along with some other necessary adjustments, result in a budget shortfall for Fiscal Year 2017 (which again, we’re more than halfway through) of approximately $113 million. And since the current fiscal year budget is no longer balanced, the Governor and the Legislature need to balance it, quickly, so that we can start working on the budget for the upcoming fiscal year.
There are at least two ways to resolve the FY 2017 budget shortfall, and I know which one I prefer, but first – it’s odd that Iowa is facing a current fiscal year budget shortfall when Iowa’s economy (like our country’s economy) is indisputably growing. What’s up with that?
The above chart illustrates one of the reasons that the State currently finds itself underwater. Over the past several years, Iowa’s General Assembly (helmed by a Republican Governor and a Republican House) has used one-time money to fund on-going expenses over and over again. In each of the past three budgets that the House has passed, more dollars were spent than taken in. Each year, the resulting shortfall was taken out of the prior fiscal year surplus, and … as was almost guaranteed to happen, we are now left with no prior year surplus to carry forward, and with a current fiscal year budget shortfall.
Note that the steepest growth in appropriations took place following the 2013 legislative session (FY14). During that session, the Governor and the House majority party pushed for an education reform package and massive corporate tax giveaways that now cost the Iowa taxpayers over $500 million annually. Hundreds of millions of the income taxes paid by middle class working Iowans are being used to back fill the gap in local property tax revenue that corporations (often out of state or even out of country corporations) are no longer required to pay. And yes, I voted for the commercial property tax reform bill, because we were promised that it would trigger economic growth across Iowa, and Clinton County’s business community told me we definitely needed economic growth, and the bill represented a compromise that had been worked out by the then Democratic Senate majority party and the Republican House majority party, and it did provide some small measure of assistance to middle income Iowans in the guise of an expansion to the earned income credit, but …. in hindsight, the bill was unrealistic in its assumptions, and it hasn’t delivered as promised in Clinton County, or in most of Iowa’s rural counties.
So anyhow … it happened, mistakes were made, there’s a $113 million current fiscal year budget shortfall, and Senate File 130 is the “solution” that has been agreed upon by the Governor, the House (Republican) majority leadership and the Senate (Republican) majority leadership. It was passed out of the Iowa Senate this past Thursday (on a party line vote), and will be debated in the Iowa House on Monday, where (spoiler alert) it will also pass, also on a party line vote. I’ll be voting NO, along with the rest of my House Democrat colleagues.
Why do I have a problem with Senate File 130? Here’s why: it chooses to eliminate the current fiscal year budget shortfall by selectively cutting millions of dollars from the FY 2017 operating budgets of Iowa’s judicial branch, Iowa’s public universities and community colleges, Iowa’s Departments of Corrections and Public Safety, Iowa’s Department of Human Services, and other agencies and departments that provide important services to Iowans. These budgets were all set back in April or May of 2016, in good faith, based on the Legislature’s promised appropriations, and it is unrealistic to believe that the targeted departments can deliver the mandated “savings” by June 31st without negatively impacting the quality of the services provided, which will in turn negatively impact Iowans in general.
Additionally, Senate File 130 wipes out the $12 million dollar Grow Iowa Values Fund and the $6 million dollar balance in Iowa’s Cultural Trust Fund, which in my opinion sends a sorry message about Iowa’s priorities. The Grow Iowa Fund serves as a major funding source for projects that are focused on job creation or retention, value-added agriculture and entrepreneurial efforts, and it has been responsible for creating or retaining thousands of good paying jobs in Iowa. Interest generated by the Cultural Trust Fund’s capital is used to help fund hundreds of important projects (for example, Clinton’s Sawmill Museum) that have enriched the quality of life for Iowans across the state. Obviously, a zero trust balance generates zero interest, and gutting the Cultural Trust Fund tells anyone listening that Iowa’s government has zero interest in encouraging and contributing to the cultural enrichment of its citizens.
So – if I’m a NO on Senate File 130, what’s my proposed solution to Iowa’s budget crisis? Good question. First, while eliminating or reducing tax credits and tax cuts won’t solve the current fiscal year budget emergency, going forward the Legislature needs to systematically review and, when appropriate, reduce or eliminate the commercial tax cuts and tax credits that are being awarded and paid out to big corporations – some of which are based in other states or other countries, and some of which don’t pay a dime in Iowa taxes (Here’s some good background on Iowa’s “Research and Development” tax credits.) I would also propose that in the future, the taxpayer dollars being paid out to local governments to make up for the reduction in commercial property tax revenue should be restricted to those counties and cities (like Clinton) that have experienced little if any of the economic growth we were promised back in 2013 – targeting the back fill in this evidence based manner would considerably reduce the $500 annual back fill price tag.
As far as dealing with the current $113 million FY2017 budget shortfall … the reason that I can’t support Senate File 130 and its inequitable and unrealistic budget cuts is because there’s another, better (in the short and long term) option – an option that has never been given a full and fair hearing (or any hearing at all) by the Senate and House majority party. The Economic Emergency Fund was created by Iowa Code 8.55, and one of its statutory purposes is to allow the State to maintain a positive fiscal balance in the event of a current year budget shortfall – i.e., under 8.55(3), a current fiscal year budget shortfall is specifically referenced as an “economic emergency” for which EEF funds can be used. Iowa has over $750 million in its combined Economic Emergency and Cash Reserve Funds – the combined funds’ balance is made up, in part, of state income taxes paid by hardworking Iowans, who pay those income taxes with the reasonable expectation that the State will use those hard earned dollars to take care of the people’s business.
While the rules that govern the use of the EEF are convoluted, bottom line, the General Assembly can appropriate up to $50 million from the fund quickly and with a minimum of fuss (and under the current fact scenario, that $50 million appropriation would not have to be “repaid” to the fund at the end of FY 2017). Instead of sitting dormant, that $50 million could be used to either altogether eliminate the need for some of the tax cuts set out in Senate File 130 (e.g., no tax cut to the Judicial Branch and Community Colleges and the DOC), or to reduce all of the proposed cuts by about 50% across the board. While I’m sure that the targeted departments would find any budget cuts difficult to absorb this late in the fiscal year, I believe that a 50% reduction to those proposed cuts would prevent lay offs, and would at least serve to mitigate any reduction in services to Iowa’s children and families.
Note that I am NOT proposing “spending one time money for ongoing expenses.” A budget shortfall is not an ongoing expense, it’s an anomaly, especially during a period of economic growth. [The last time this happened was in 2009, when the bottom fell out of the United States economy and the federal government stopped paying its bills to state governments]. Iowa is currently looking at a projected economic growth rate of at least 4%, and now that we’ve all been forced to acknowledge the negative (short and long term) impact that out of control tax credits and tax cuts can wreak on our state budget, it’s a reasonably safe assumption that Iowa won’t be facing another current fiscal year budget shortfall in the foreseeable future.
So I really want to know – why isn’t appropriating $50 million from the EEF the fiscally responsible thing to do? The Economic Emergency Fund was created to allow the State to deal with an economic emergency in a timely and responsible manner – and while the Governor and the House and Senate majority leadership can all insist that a $113 million current fiscal year budget shortfall doesn’t qualify as an economic emergency, Iowa Code 8.55 and a whole lot of angry, anxious, frustrated Iowans say otherwise. Seriously, why should a single Iowa taxpayer lose a single day of salary (which is definitely going to take place under Senate File 130) if the Legislature can prevent that from happening by simply doing our job? And if the Legislature can resolve this current budget shortfall without reducing Iowans’ access to important services by using EEF funds that are intended to be used for just this purpose, shouldn’t we do so?
Of course we should do so (in my opinion), but we obviously aren’t going to do so. And why not? I suspect in part because appropriating $50 million from the Economic Emergency Fund balance in order to apply it towards the current FY 2017 shortfall – one of the statutorily designated purposes for which the EFF was created – is still … spending taxpayer dollars, and thus an elected official who advocates in favor of that option could be accused of … I don’t know what, exactly, but it must be bad, because why else is almost no one talking about this?
I sincerely believe that if Iowa’s elected officials had been given the opportunity to share with our constituents the fact that there exists a viable, reasonable and fiscally responsible alternative to Senate File 130’s draconian and inequitable budget cuts, common sense would have prevailed and Senate File 130 (at least in its current form) would be off the table. But Senate File 130 was filed on Tuesday, January 26th and was debated and voted out of the Senate two days later – this ridiculously expedited time frame made it impossible for me/my colleagues to have a meaningful discussion regarding the bill (and re any possible alternatives) among ourselves, much less with our constituents. This refusal on the part of the Governor/House/Senate leadership to provide us with a reasonable amount of time in which to do our due diligence on a very important bill does not bode well for this session, or for the State – there’s a better way, and this isn’t it.