Speaking to the annual meeting of the Iowa Farm Bureau Federation today, Governor Chet Culver said the way Iowa drafts its budgets should be changed:
Currently, the governor said he is required to submit a state budget by the end of January based on projections set by the state Revenue Estimating Conference in December, but then lawmakers craft their spending plan after the REC’s next quarterly estimates in March.
“That makes no sense at all. For three months, we sit around and wait for the March number in many cases before serious budget discussions take place,” he said. “We have a moving target. It is terribly frustrating and we need to make some changes.”
Several accounting experts have told me that it is impossible to estimate state revenues accurately. The current system leads to budget surpluses when the economy is doing well and shortfalls requiring rapid cuts when the economy heads downhill.
As usual, Iowa State University economist Dave Swenson has a better idea. Speaking to the Des Moines Register in October,
Swenson said he believes the budget-setting system is backward. Government should look at annual needs and adjust taxes and fees to accomplish goals. Instead, officials adjust needs by what’s available.
“It is a stupid system and makes no sense,” Swenson said.
The most recent Iowa poll for the Des Moines Register showed that broad majorities support increased state spending on various programs that Democrats have expanded in recent years. Even a majority of self-identified conservatives supported maintaining higher spending levels for teacher pay, state aid to schools, renewable energy research and development, health care coverage for children and repairing roads and bridges.
If politicians evaluate our state’s needs and then search for a way to fund them, we are likely to get some changes on the revenue side of the equation. Eliminating certain tax credits could increase revenue, and Culver has created a panel that will evaluate all of the state’s current tax credits before making recommendations for state legislators.
Our state income tax structure should also be on the table. A new poll by Selzer and Associates for the Iowa Fiscal Partnership found that a majority of Iowans would support eliminating federal deductibility, which mainly benefits high-income taxpayers. During the 2009 legislative session, Culver and legislative leaders agreed on a tax reform package that would have ended federal deductibility, but Iowa House leaders were unable to find 51 votes to pass that bill.
UPDATE: More details from the Des Moines Register are after the jump.
The governor, who is required to propose a budget in January, uses the most current projections, those announced by the three-member estimating conference in December.
The Legislature also is required to use the December figures, although lawmakers often invoke a provision that allows them to consider the March figures instead if they’re higher.
Culver said both sides should use December estimates if the March number is higher, and earmark revenue that exceeds the early projection for the state’s reserve accounts.
“Who can tell me that it makes any sense at all for a governor to use a December number and the Legislature to use a March number?” Culver said. “Let’s all use the same December number. If we have additional funds, we’ll roll those into the reserves in March.”
Sen. Mike Gronstal, leader of the Democrat-controlled Senate, said that he was open to the idea, but that Culver’s suggestion would tinker with the balance of power between the legislative and executive branches.
The Legislature often can take credit for restoring funding for programs targeted by the governor for cuts or smaller increases, if the March estimate is rosier than December’s.
I don’t care for that idea. What if the March revenue numbers are lower than December’s, as was the case in 2009 if I recall correctly? If the legislature used December figures, deeper mid-year budget cuts would be required later.
It probably makes more sense to move away from estimating revenues, as Swenson suggests.