Governor Chet Culver announced today that he is cutting spending 10 percent across the board in the 2010 budget. The move follows yesterday's Revenue Estimating Conference report, which projected that revenue will drop by 8.4 percent this fiscal year, leaving state government with $414 million less to spend. Culver said he doesn't support any tax hikes or increasing the amount drawn from the state's cash reserves during the current fiscal year.
Republicans have hammered Democrats for allegedly overspending in the 2010 budget, but Culver rightly noted in a statement on Wednesday,
I proposed and the legislature approved a balanced budget for fiscal year 2010, which began on July 1. This budget was based on the official REC estimates from their March meeting last spring. The budget included a nearly $100 million ending balance, and $373 million in reserves.
During an economic recession, it is not prudent to slash government spending by more than is absolutely necessary. Government cuts themselves can become a drag on the economy, and demand for government social services goes up along with unemployment. The 2010 budget was based on the latest REC estimate during the legislative session, so Republicans are wrong to charge that Democrats overspent.
On the other hand, I agree with Republican critics who say Culver should have convened a special session of the legislature to make targeted cuts. An across-the-board cut is the governor's only way to reduce spending without legislative approval. It's faster and cleaner than a special session, but in my opinion an across-the-board cut this large will affect essential services at some agencies.
Culver said he will try to find money in December or January to beef up staffing at Iowa Workforce Development, which helps unemployed Iowans find new jobs. He will also try to backfill money for certain areas of public safety, he said.
This midyear cut is off the charts compared with what any governor in recent history has faced, and it will mean unprecedented turmoil for state employees and state agencies.
Part of the reason the cut is so deep is that Culver said he wants to leave a cushion of around $100 million. The current ending balance for this budget year is $97 million. [...]
He will appoint Joni Klaassen, deputy chief of staff for aministration, to help unions to address reduction in the state government workforce.
And he will ask the Legislature to require school districts to spend money from their cash reserves rather than raise property taxes.
After spending 24 hours to think about his options, Culver chose an across-the-board cut option, rather than calling state lawmakers back for a special session.
It would have taken too long to bring the lawmakers back to the Capitol, then to secure 51 votes in the Iowa House and 26 votes in the Iowa Senate.
"We would've had 150 different opinions on where to cut. [...] But the fact is we need to act. We need to move," Culver said. I was concerned it would literally take weeks and weeks to reach an agreement."
I understand the need to move quickly, but it seems unfair to make state employees bear almost all of the pain, instead of imposing a combination of spending cuts and reductions in tax breaks. In that context, I agree with yesterday's statement from AFSCME Iowa Council 61, which I've posted after the jump.
Iowa Republican leaders say Culver's move will lead to higher property taxes, and I wouldn't be surprised if they're right about that. What they don't tell you is that the Republican-proposed spending cuts of $300 million also would likely lead to higher property taxes.
Share any relevant thoughts in this thread.
UPDATE: I should have emphasized that Culver cut spending by more than the amount needed to take the Revenue Estimating Conference's projections into account. That means that even though he didn't call a special legislative session, lawmakers will have some wiggle room during the regular 2010 session to restore funding to certain agencies.
I am tired of reading about the "unsustainable" growth in state government spending (e.g. in Todd Dorman's latest column) that doesn't acknowledge the unsustainable growth in tax breaks for business in Iowa. Spending on tax credits has risen far more sharply than spending from the general fund.
Click here and scroll down to view the Iowa Policy Project's report on Iowa's real spending problem: "tax expenditures on autopilot." Excerpt from that pdf file:
State business tax expenditures have been one of the fastest growing parts of the state budget. Business assistance tax credits, a major component of business tax expenditures, increased from $144.3 million in FY2006 to $242.7 million in FY2008, alone. The Department of Revenue has projected that these credits will grow to $405.9 million in FY2010, a 181 percent growth in just four years.1 Once enacted, these business tax credits are not subject to annual reauthorization and can grow well beyond their intended size and for activities well beyond their intended purpose.
This report doesn't even include the growth in Tax Increment Financing, which I believe accounted for more than $200 million statewide last year. Tax Increment Financing was intended to spur redevelopment of blighted urban areas but during the last decade was expanded to include lots of suburban sprawl development, including Glen Oaks and Jordan Creek Town Center in West Des Moines. The developers get a big tax break, and city and county governments need to collect more property taxes from individuals. I am hoping to get a guest diary posted here that explains this problem in more detail. My point is that the legislature needs to look beyond simply cutting spending and services to make up for the expected revenue shortfall.
In addition to being unfair, it's not even wise to slash government spending more than you need to during a recession, because that can prolong and deepen the recession. You'll never get the party of Hoover to acknowledge that, however.