Links on making ends meet in the 2010 budget

With the economic recession continuing to drag down tax revenues, the 2010 budget that the Iowa Legislature approved in April is likely to require significant adjustments.

In June the Legislative Council agreed to cut more than 10 percent from the Legislature’s budget in 2010. The cost-saving measures “include a pay freeze for all legislative employees, reducing travel budgets, and cutting back next year’s legislative session by 10 days.”

A State Government Reorganization Commission will look for other ways to cut spending next year. It will be interesting to compare that commission’s proposals with the kind of cuts Iowa Republicans have been advocating. During the last legislative session, Republicans called for $300 million in spending cuts, but I have been unable to find a link to a document with details about that proposal. (Note: I’ll have more to say in a future post about the state budget reforms Iowa Republicans proposed yesterday.)

After the jump I’ve posted some links and analysis related to the budget constraints facing Iowa and just about every other state right now.

Iowa Republicans continue to criticize Governor Chet Culver for not calling a special legislative session to bring the fiscal year 2009 budget into balance and begin cutting spending in for fiscal year 2010.

I think Culver is right to wait until after the final numbers for 2009 come in next month before deciding whether to call a special session. (Governor Tom Vilsack waited for the September numbers before calling a special session in October 2001.) But I would caution the governor and his staff not to get into public fights with the Legislative Services Agency. If the governor’s budget director uses different methodology for revenue projections, so be it. The important point is that everyone agrees final numbers in September will determine whether a special session is called.

Republicans will never admit it, but the approach taken by Vilsack and Culver to state budgeting has been far more responsible than how Terry “two sets of books” Branstad governed during his first three terms.

Chase Martyn raised another important point last month:

The nonpartisan Legislative Services Agency projected much higher revenue through the end of fiscal year 2009 than what the state ended up receiving. Democrats fulfilled their responsibilities in this year’s session by passing a budget that fit within official, nonpartisan estimates. That’s what they were supposed to do. At the time, the alternative would have been to assume that the experts’ revenue estimates were wrong and to make deeper cuts to state services than what might have been necessary.

That would have meant laying off state employees, closing courthouses for even more days, covering health care for fewer children, or even raising taxes. Those are things legislators should only do when they are absolutely necessary, and at the time, the numbers said they weren’t. […]

Many of the Republicans now attacking Culver over this year’s budget were instrumental in passing the faulty budgets for fiscal years 2001 and 2002. I can only assume their press releases from back then were a little less vitriolic.

Speaking of balancing budgets, I hope that adjustments made to the 2010 budget don’t come entirely from further spending cuts. As I have written before, cutting spending too deeply during a recession can delay the recovery (click here for supporting evidence).

Iowa has obsolete tax loopholes that cost the state far more than they benefit the economy. The Iowa Policy Project has identified “wasteful, secret subsidies to big companies through the tax code.” (pdf file) Some of those companies should share in the sacrifices that need to be made in the coming year.

Along these lines, I recommend reading the Iowa Fiscal Partnership’s recent report on “Deteriorating Iowa Tax Revenues and the 2010 State Budget.” Excerpt:

Both the revenue and expenditure sides of the state budget should be subject to review. Additional cuts in state expenditures almost surely will result in layoffs and exacerbate Iowa’s recession and unemployment levels, which have continued to rise. Cuts to essential services will leave additional burdens for Iowans who are already struggling to get by. The Governor and the General Assembly made effective use of fiscal stabilization and Federal Medical Assistance Percentage (FMAP) funding available to Iowa through the ARRA to avert making drastic cuts in the 2010 budget, but further action may now be needed.

Iowa is not alone in experiencing a major state budget deficit. According to the Center on Budget and Policy Priorities (CBPP), 48 of the 50 states have deficits and many of these are continuing to grow. Increasingly, states are looking at their tax codes to address part of the deficit and have taken actions to raise revenues through changes in personal income taxes (11 states), sales taxes (12 states), business taxes (11 states), and tobacco and alcohol excise taxes (15 states). CBPP’s analysis also showed that states that raised taxes during the 2001-04 recession did not experience lower economic growth rates over the 2004-07 period than states that did not. Some states that did not raise taxes (or that cut them) during that period, including Iowa, subsequently saw slower-than-average economic recovery. [1]

Budgets are a two-sided ledger of revenues and expenditures. No magic answer to Iowa’s budget challenges will be found in only one side of that sheet if a balanced budget also means a balanced approach to lawmakers’ responsibilities to identify needs and to pay for them.

I can’t say I’m optimistic that lawmakers will find the political will to close some of Iowa’s tax loopholes in the coming year, but long-term thinking is in order. As Iowa State University economist Dave Swenson has observed, it will take “an extra year or so for the state’s revenues to pick up” after the national economy comes out of recession.

Share any relevant thoughts in this thread.

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