Governor Chet Culver submitted his draft budget to the Iowa legislature last Wednesday, but with the State of the Union and other news of the day, I didn’t have time to write up the story.
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Culver’s press release on the budget document emphasized the following points:
Governor’s Budget Facts
* Just like every other year, the Governor’s budget recommendation is balanced
* Smaller budget than when the Governor took office (FY07: $5.384 billion; FY11: $5.320 billion)
* Provides for a surplus of $382 million
* Will help us maintain our state’s AAA bond rating
* Does not raise taxes and protects key priority areas
Creating new jobs and opportunities for Iowans
* Continuing our commitment to green-collar jobs by investing $25 million in the Iowa Power Fund
* Helping Iowans in search of work by providing much needed resources to Iowa Workforce Development, and funding job training programs
* Investing $150 million in job creation and infrastructure investment through the Culver/Judge I-JOBS program
* Providing $6 million for community colleges and $31 million for Regents institutions in both FY10 and FY11, which will help leverage more than $125 million in federal higher education dollars
Preserving our commitment to children and vulnerable Iowans
* Ensuring that our children have access to quality, affordable health care by providing an additional $10.5 million for children’s health insurance programs, as well as increasing Medicaid $180.9 million
* Making the final installment in our 4-year, $60 million commitment to the state’s voluntary pre-school program
* Fully funding 2% allowable growth for the coming school year, which increases K-12 education funding $233 million
* Committing $100 million of the state reserves for K-12 education, which will help offset any future property tax increases
* Allowing Iowa’s children to reach their dreams of a college education by investing $62.7 in college financial aid programs
Protecting Public Safety
* Protecting the safety of Iowans by providing new funding for the Departments of Corrections and Public Safety, which will avoid layoffs and help keep our streets safe
Creating a leaner, more efficient state government
* Enacting the recommendations outlined in the Government Efficiency Review, a savings of more than $340 million
* Calling on the legislature to act on the recommendations of the Tax Credit Review Panel, which will save $52 million
Jason Clayworth covered more details in this post at the Des Moines Register’s blog. To keep the budget balanced, Culver incorporated the assumptions and recommendations of the consultant he hired to report on reorganizing state government. However, the bill on government reorganization that the Iowa legislature is likely to pass won’t save nearly as much money as the $200 million that Culver’s blueprint assumes. Estimates vary, but the nonpartisan Legislative Services Agency has said Senate Study Bill 3030 would save around $43 million in the next fiscal year. The LSA also questioned other assumptions in the governor’s budget draft.
Culver’s budget also includes some cost-shifting away from the general fund, most notably having the Road Use Tax Fund cover the Iowa Highway Patrol’s budget. I think that idea is worth considering, but by all accounts state legislators have no interest. Pursuing that course would slightly reduce available funds for road construction and repair.
Culver’s budget assumes $52.5 million in savings from eliminating some state tax credits and curtailing others. He has incorporated the recommendations of a commission he appointed last fall to examine all of Iowa’s tax credits. It’s too early to know what legislators will do about tax credits, but $52 million strikes me as a realistic amount to save in this area. Scrapping the film tax credit alone would save tens of millions in the coming year. State Senator Herman Quirmbach has introduced a bill to end the film tax credit, and he makes a strong case:
“It’s a boondoggle we should have never gotten involved in,” said Quirmbach, one of two senators who voted against making the film industry’s tax breaks more lucrative in 2007.
Quirmbach said legislators should keep tax incentives that are creating jobs. But with the kind of incentives film industry supporters want, lawmakers could jump-start just about any industry at half the cost, he said.
“This last year, the (film) credits cost $38.6 million,” he said. “For that kind of money, I could save the jobs of 1,000 teachers. You tell me what’s more important to the future of Iowa: 1,000 teachers or having Meryl Streep come visit.”
Supporters of the film industry have proposed ways to tweak the tax credit, and if they are able to convince enough legislators to go along, we may not save nearly as much money here. Politically it will be more difficult to go after other business tax credits, such as the one for research and development.
Republicans are attacking Culver’s draft budget on several fronts. First, they claim he is still spending more than the state takes in. Culver includes some federal money for Medicaid and other programs and takes $200 million from the reserve fund.
I don’t know what’s more ridiculous: Republicans ignoring the risks of deep state budget cuts, or Republicans pretending that during the most severe recession in decades it’s wrong to take money from the reserve fund. The federal stimulus bill included extra money to support state budgets because deep cuts in state budgets also depress private-sector growth. That’s why economist Brad Delong has worried about “fifty little Herbert Hoovers at the state level.”
In addition, rainy day funds are meant to be tapped at times like these. Culver isn’t calling for using the whole reserve fund, just a part of it. If the GOP wouldn’t touch the reserve fund in a year like this one, when would they use it?
Second, Republicans claim Culver is indirectly raising taxes. They point to certain fee hikes and say school districts and local governments will need to raise property taxes. (Democrats in New Jersey used this line of attack successfully after Republican Governor Christie Whitman left office. She had bragged about not raising taxes, but most residents faced higher property tax bills.) Iowa Democrats are right not to raise sales or income taxes at this time, but I continue to believe that Culver and legislators should not stake this year’s campaign on “we didn’t raise your taxes during the recession.” That won’t be a comforting message to Iowans who receive a larger property tax bill in September 2010.
Third, Republicans claim Culver’s numbers don’t add up. For instance, they think the governor is exaggerating the savings from government reorganization. Along similar lines,
[Republican] Iowa Agriculture Secretary Bill Northey took issue with Culver’s contention that the budget the governor proposed on Wednesday could be achieved without a new round of employee layoffs or furloughs after July 1.
Northey said the $16.8 million general fund appropriation Culver targeted for his agency would create a $3.29 million gap and require him to reduce his staff by another 50 positions on top of the five layoffs and 44 vacant positions left open in the current fiscal year.
Culver’s proposal is just a draft. State legislators will spend more on some programs than the governor proposes, and they will spend less on others. I believe they will fully fund the voluntary pre-school program and the Power Fund, which supports renewable energy projects. However, they may not allocate $100 million from the reserve fund for K-12 education, for instance. Kathie Obradovich predicted that lawmakers will pass revenue increases not in Culver’s blueprint: “Culver will be able to tell voters he tried to balance the budget without the extra money, but lawmakers just wouldn’t go along.”
Democrats in control of the legislature have a difficult job to do in the next 60 days. Cutting government spending too deeply during a recession is bad for the economy. But not cutting deeply enough is bad politics. Revenues in the current fiscal year fell short of the estimates on which the 2010 budget was built, prompting Culver’s 10 percent across-the-board cut in October 2009. It is paramount that legislators leave enough of a cushion to keep the 2011 budget balanced without the need for a special legislative session or across-the-board cut on the eve of the November election. Republicans will attack Culver’s handling of the budget no matter what, but it would be a shame to hand them more ammunition this fall.
Final note: Democrats won’t just be playing defense on budget issues this year. The likely Republican nominee for governor, Terry Branstad, was so fiscally irresponsible that he almost lost his own party’s primary as a three-term incumbent in 1994. Last week the Iowa Democratic Party highlighted contrasts between Culver’s approach to budgeting and Branstad’s. IDP chair Michael Kiernan also pointed out that Branstad’s final budget was larger in today’s dollars than Culver’s proposal for the 2011 fiscal year.
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