Iowa's fiscal condition, economy looking stronger (updated)

While Iowa Republicans keep talking down our state’s economy and misleading voters about our fiscal condition, facts and figures compiled by professional analysts paint a different picture.

Links on encouraging revenue projections and economic indicators are after the jump.

Fiscal year 2010 ended yesterday, and the Legislative Services Agency released a new monthly revenue memo today (pdf file). State revenues for the year that just ended were down on 2009 levels, but not by as much as previously estimated. In fact, total revenues for fiscal year 2010 came in about $265 million higher than the level predicted by the Revenue Estimating Conference in March. The books don’t close on FY 2010 until the end of September, but the ending balance for the year is likely to be much higher than the approximately $100 million anticipated in the state budget.

Rod Boshart reported yesterday that Iowa’s budget condition is “better than expected.”

While state revenue has not rebounded, it appeared the gross receipts were down slightly more than 3 percent from fiscal 2009 and in better shape than the 5.7 percent decline set by the state Revenue Estimating Conference in March. That likely will mean a larger ending balance when the fiscal 2010 budget books are officially closed in September.

“It looks like we’re going to have as much as $100 million above projections at the end of the fiscal year in terms of revenue,” [Governor Chet] Culver told reporters Wednesday. “We’re going to have $500 million in our cash reserves and our emergency funds and our ending balance. We’re better positioned than any state in America today in terms of economic recovery.”

Culver credited tough decisions made last fall to cut state spending by $564.4 million with a 10 percent across-the-board reduction to executive-branch agencies and help from the Iowa Legislature in identifying $275 million in savings via government reorganization and efficiencies that included an early-retirement incentive that attracted about 2,100 participants.

“We’re coming out of this recession and our revenue is starting to pick up,” the governor said. “We’ve made the tough decisions, we have a balanced budget and we’re growing as fast if not faster than any state in America. We are on our path to a strong, vibrant recovery where we’ll create jobs all over this state. We’ve got a ways to go, but we’ve made enormous progress.”

Today Iowa House Speaker Pat Murphy and House Majority Leader Kevin McCarthy released the following statement:

“The strong revenues and surplus show our efforts to balance the state budget without raising taxes and strengthen our economy are beginning to pay off.  The better than expected revenue growth is yet another sign that Iowa ‘s economy is beginning to recover.

The surplus proves that the doom and gloom rhetoric from Republicans about the state’s finances is just plain wrong.  Since state revenues beat the REC estimate by $265 million, our state savings accounts will be nearly full at the end of next year.

The state surplus is just the latest in a string of good news pointing to an economic recovery in Iowa.  At the same time Iowa businesses forecast a positive economic outlook for the next six months, Iowa’s unemployment rate dropped last month and is the 9th lowest in the country. We are also one of just seven states to earn the “triple crown” of credit ratings from the major agencies that rate fiscal health for businesses and governments in the country and are tied for 2nd best in the nation for fiscal strength from the non-partisan Pew Center on the States.”

While Terry Branstad, Kim Reynolds and State Auditor David Vaudt try to frighten Iowans about a so-called “billion dollar deficit,” the truth is that our cash reserves could hardly be in better condition. Iowa law stipulates that the state savings accounts should not exceed 10 percent of the annual budget, so a balance of approximately $500 million at the end of fiscal year 2011 would indeed make them nearly full.

In related news, the Iowa Department of Revenue released May 2010 numbers for the leading economic indicators index (a pdf file can be downloaded here). Excerpt:

The Iowa Leading Indicators Index (ILII) rose to 100.0 (100=1999) in May 2010 from 99.4 in April. […]

The ILII’s value increased 0.6 percent in May. Although the increase was just half of the 1.2 percent rise experienced in April and the smallest rise since November 2009, May’s increase extended the streak of positive changes in the index to eight months. […]

In May, six of eight Iowa Leading Indicators Index components contributed positively. The positive contributors were average weekly manufacturing hours, the new orders index, the Iowa stock market index, unemployment insurance claims (inverted), diesel fuel consumption, and new residential building permits. The negative contributors were the national yield spread and the agricultural futures price index.

The economy is not in great shape, but it appears to have hit bottom around March of this year. A survey the Iowa Business Council conducted this spring, which was released on June 1, showed strong gains:

A new survey of Iowa businesses issued today indicates a marked improvement in prospects for employment, sales and capital spending for the coming six months.

The quarterly business index compiled by the Iowa Business Council last month rose to 62.3 – the highest level in nearly two years. The index measuring Iowa’s overall economic outlook based upon survey results by 20 corporate members in Iowa rose by eight points over the past three months and was up 24 points from one year ago.

“These survey results provide evidence of a growing confidence by business leaders in the long-term prospects for the markets they serve,” said Tom Aller, president of Cedar Rapids-based Interstate Power & Light – an Alliant Energy company – and 2010 chair of the Iowa Business Council. […]

“[T]he IBC Economic Outlook sales index indicator has moved noticeably higher after bottoming back” in the first quarter of 2009, Aller said. “This suggests companies of all sizes in Iowa are beginning to adjust production levels and inventories in anticipation of increased business activity. The Iowa economy often is quite resilient in the face of challenging times, and these improved survey numbers are proof of that.”

The quarterly business survey found that 85 percent of responding Iowa corporations expected hiring levels for the next six months to remain steady or to grow. […]

Also, 90 percent of the survey respondents expected steady or increased sales for the remainder of 2010, while 10 percent expected sales levels to decline over the next six months. […]

All but 5 percent of the participants in the latest IBC survey expected investments in facilities, equipment and other capital spending to be steady or increase through November [….]

Retiring State Senator Steve Warnstadt mentioned other positive indicators for Iowa in a recent guest editorial for the Sioux City Journal (hat tip to the Iowa Senate Democrats blog).

Republican doomsday talk about the state budget and economy sounds less plausible than ever, but don’t expect it to stop anytime soon. The GOP stands to gain politically if Iowans believe Democrats have been “overspending.” Vaudt has inexcusably undermined the integrity of his office by bolstering the GOP’s talking points instead of looking at the real budget numbers. I am so glad Jon Murphy stepped up to run for state auditor. That campaign will be fun to watch.

UPDATE: Vaudt’s distortion knows no limits, I infer from his comments in Fort Dodge yesterday:

Years of deficit spending combined with the end of federal stimulus money has Iowa on the edge of a budgetary cliff, according to state Auditor David Vaudt.

“We’re heading in the wrong direction at a very fast pace,” he told members of Well-Informed Webster People Wednesday evening.

Vaudt reviewed the nearly $6 billion state budget for the fiscal year that begins today and offered some thoughts on what state officials will face in January when they start work on the 2011-2012 budget.

Iowa hasn’t even had one year of “deficit spending.” During the recession, spending exceeded state revenues because we dipped into reserve funds and used federal stimulus money for their intended purpose. It would have been foolish to leave federal fiscal aid on the table during the recession. State budget cuts create a significant drag on the economy.

SECOND UPDATE: Vaudt is right about one thing: Iowa’s fiscal year 2011 budget includes federal Medicaid money (Federal Medical Assistance Percentage funding) that Congress appears unlikely to approve. Vaudt told his Fort Dodge audience that the budget counts on $125 million from this program, while Iowa House Speaker Pat Murphy’s communications director, Dean Fiihr, provided a figure of $119.5 million to me. Either way, that’s a decent chunk of change. But what Vaudt doesn’t tell you is the FY 2011 budget has an ending balance of $182.6 million. So, even if revenues don’t exceed projections at all in the coming fiscal year, there is a big enough cushion to absorb the loss of the expected federal Medicaid assistance.

THIRD UPDATE: The latest figures from the Iowa Department of Management are slightly different but also show better than expected state revenues for the fiscal year that just ended. The Department of Management sees 2010 revenues exceeding projections by about $175 million, leading to a final ending balance of about $275 million. As I mentioned above, the Legislative Services Agency expects revenues to come in $265 million above projections, leading to an ending balance around $365 million. But the LSA estimate “does not take into consideration transfers from the Lottery and certain other accounts to the General Fund, expenditures and other obligations that must still be paid by the state, and tax refunds that have yet to be paid by the state.”

We’ll know the final number after the books close on fiscal year 2010 in September. The bottom line is that Iowa will finish the year with a larger than expected surplus, not the “budget deficit” Republicans keep campaigning against.

FOURTH UPDATE: Iowa Senate Minority Leader Paul McKinley seems to get some numbers wrong in his latest e-mail blast:

This past session, legislative Democrats authorized $5.3 billion dollars in spending using ongoing funds – but that is only part of the picture.

Beyond the $5.3 billion, there is also $732 million in one-time dollars that will be used for ongoing expenses. These one-time dollars are found from raiding many of Iowa’s important savings accounts. In addition, they also exhausted any existing federal dollars that were sent to Iowa as part of President Obama’s bailout in early 2009.

Added together, it surpasses over $6 billion dollars in spending which includes millions of dollars in wasteful pork-barrel projects.

On this page of the Iowa legislature’s website you can download a “General Fund Balance Sheet” near the top of the page. That document shows the appropriations for fiscal years 2010 and 2011. McKinley claims total spending exceeds $6 billion, but I can’t see where he is getting that information. The general fund balance sheet shows about $5.28 billion in general fund appropriations, plus $267.4 million in state reserve funds, plus $324 million in American Recovery and Reinvestment Act dollars (that’s from the federal stimulus of 2009). The total appropriation is about $5.87 billion–less than what McKinley claims.

I don’t see where McKinley gets his figure of “$732 million in one-time dollars” that Democrats supposedly spent on top of the $5.3 billion in general fund appropriations. The general fund balance sheet shows a total of $591.3 million in reserve funds plus federal stimulus money, which seems to be what McKinley means by “one-time dollars.”

As usual, Iowa Republicans still don’t understand the point of last year’s stimulus bill, which McKinley spins as “President Obama’s bailout.” Three-fourths of federal stimulus money in Iowa’s 2011 budget ($240.2 million) is for the Medicaid program. The recession increased the number of people eligible for Medicaid, and the stimulus was meant to support state Medicaid budgets. Republicans call that “overspending”?

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