# 2011 Budget



Terry Branstad's spending promises don't add up

When Terry Branstad formally announced his candidacy in January, cutting the size of state government by “at least 15 percent” over five years was one of his central campaign promises. He needed to establish credibility with the Republican Party’s conservative wing after his record of growing the state budget by far more than the rate of inflation during 16 years in office.

Branstad repeated his intention to cut state government by 15 percent in his early television commercials and on the campaign trail all winter and spring. He never provided a road map for keeping that promise, however. The budget cuts Branstad has specifically proposed so far (ending the preschool program, family planning funding, and reducing administrative costs at Area Education Agencies) would not reduce state budget obligations by 3-4 percent in the first year, which would be needed to work toward a 15 percent reduction over five years.

Since the June 8 Republican primary, Branstad has continued to hammer Governor Chet Culver on fiscal issues (using false claims), but to my knowledge he’s avoided mentioning that promise to shrink government by 15 percent over five years. Nor have we seen any details about how Branstad would balance the budget while spending no more than 99 percent of projected state revenues.

While campaigning in Marshalltown this week, Branstad made an extraordinary pledge:

Branstad said that if elected governor again, he would look at moving some of the services that have been pushed onto the local governments, particularly mental health and school funding, and making those more state funded. Along with that, he would put on a caveat that mandates those levies be abolished, which he said would provide instant property tax reductions for all classes of property across the board.

He said he did something very similar when he was governor before, but critics have since tried to distort his record on those issues.

“That was property tax relief and they called it spending,” he said.

Branstad is borrowing one of Bob Vander Plaats’ key economic ideas here: helping counties provide property tax relief by having the state assume responsibility for mental health and some educational services. As a campaign tactic, it makes sense, because Vander Plaats nearly matched Branstad’s vote total in Marshall County and carried several nearby counties (click here to download the GOP primary results by county).

But think about this for a minute. Branstad now proposes to have the state take over some big new funding obligations. How would he pay for that? He supports at least $80 million in corporate tax cuts and appears to reject using federal funds or reserve money to help balance the budget.

Maybe Branstad hopes that Iowans will forget his earlier campaign promises. But it’s past time for Branstad to show how he would make the numbers add up. The final budget for fiscal year 2011 is now in effect. Let’s see a rough budget document for fiscal year 2012, which doesn’t dip into reserve funds, cuts general fund spending by 3-4 percent, and has the state take on more responsibility for funding mental health and education services.

Speaking of state budgets, did anyone else notice the Branstad campaign’s silence last week regarding Iowa’s improving fiscal condition? The Legislative Services Agency and the Department of Management both reported better than expected revenues and a larger surplus than anticipated at the close of FY 2010. The Branstad campaign said absolutely nothing. We know his staff keeps track of such reports, because a few days earlier they jumped all over a draft Legislative Services Agency document on school districts and property taxes.

Branstad has a habit of ignoring inconvenient facts. We’re still waiting for him to say something, anything, about numerous documents showing he and senior staffers did Republican campaign work on the public’s dime.

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Two more votes of confidence in Iowa's fiscal health

Three of the world’s leading bond rating agencies agree that Iowa deserves the highest possible credit rating. This month Fitch Ratings and Moody’s Investors Service increased their ratings for Iowa to AAA and Aaa, respectively. The ratings boost is related to decisions at both agencies to “recalibrate” the way they assess default risk for municipal bonds. A third leading agency, Standard and Poor’s, gave Iowa the AAA rating last summer.

State Treasurer Mike Fitzgerald noted yesterday, “For the first time in our history, we have the highest ratings from all three rating agencies. Only seven other states have an across-the-board AAA rating.”

The credit ratings are important for two reasons. First, they represent a strong overall assessment of Iowa’s fiscal health. These agencies don’t care whether Governor Chet Culver is re-elected or whether Iowa Democrats retain majorities in the state House and Senate. Their analysts serve professional investors who need to know the risk of default on outstanding obligations. They look at a broad range of factors, including levels of revenues, spending, reserve funds and per capita debt load.

Second, the top-level credit rating means Iowa will be able to borrow at lower interest rates when the next batch of bonds for the I-JOBS infrastructure initiative are sold. When I-JOBS bonds hit the market last summer, strong investor demand drove down the interest rate and, consequently, reduced the state’s repayment costs by approximately $12 million per year for the life of the bonds.

One other point is worth noting: Moody’s gave Iowa a “stable” outlook rating. If professional market analysts believed Iowa legislators had approved unsustainable levels of debt or spending, as State Auditor David Vaudt and many other Republicans have claimed, we would be among the states that received a “negative” outlook from Moody’s.

As I recently discussed here, Republican candidates for governor keep talking about a so-called billion-dollar budget deficit projected for next year, even though the Iowa legislature approved a balanced budget for fiscal year 2011. Instead of acknowledging that fact, Republicans are shifting the goalposts, complaining that Iowa supposedly will have a huge budget gap for fiscal year 2012. Fitzgerald was pitch-perfect yesterday in response this doom-and-gloom talk:

Last week Vaudt criticized the Legislature and Culver for building a fiscal 2011 spending plan so heavily reliant on $736 million in one-time funding sources that it promises a budgetary “cliff” for the following year when state officials will face another projected funding gap exceeding $1 billion.

“The state auditor says that every year and the budget he’s talking about is a year from next July,” Fitzgerald said in an interview. “Well, my goodness gracious, volcanoes can blow up, meteors can hit the earth, who knows what’s going to happen. That’s just speculation.”

Economic and fiscal issues will be at the center of this fall’s election campaigns, creating a challenge for Iowa journalists. The “safe” way to report this issue would be the usual “he said, she said” format: [Republican’s name here] says Democrats are running deficits and driving us too deep in debt, while [Democrat’s name here] says the governor and legislature have kept Iowa in a strong fiscal position.

The alternative is to ask Republicans to defend their assertions in light of these facts:

*Independent analysts for the Pew Center on the States put Iowa in the group of states “least like California” in terms of budget problems.

*Moody’s, Fitch and Standard and Poor’s agree that Iowa deserves the highest possible credit rating.

*Iowa legislators approved balanced budgets year after year amid the biggest revenue collapse in six decades.

*Governor Culver made mid-year spending cuts when necessary in order to preserve our state’s fiscal health. He didn’t keep two sets of books like Terry Branstad, or fully deplete the state’s reserve funds like Minnesota Governor Tim Pawlenty.

Analysts who don’t have a dog in this fight say Iowa is in good shape coming out of the most severe recession since World War II.

P.S.-In case you missed this story last week, Forbes magazine has ranked Des Moines as “the No. 1 city in America for businesses and careers” and Cedar Rapids the “No. 1 city for projected job growth.”

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Beware of Republican fuzzy math on property taxes

Later today the three Republican candidates for governor will hold their first debate. When discussing state fiscal issues, they are likely to advance two contradictory arguments. First, they will criticize alleged “overspending” by Iowa Democrats, ignoring the good marks our state has received for fiscal management and the fact that severe state budget cuts would be a big drag on the economy. I will address those points in a future post.

Second, the Republican candidates for governor will criticize spending reductions Democrats included in next year’s budget, on the grounds that those cuts will force corresponding increases in property taxes statewide. It’s true that many Iowans will pay more in property taxes because of changes related to the “rollback” calculation, which “determines the percentage of a property’s actual value that will be taxable” in a given year. Former GOP gubernatorial candidate Chris Rants explained here why the rollback figure is on the rise. It has nothing to do with the tough choices Democrats made on the 2011 budget.

Rants and other Republicans are wrong to suggest that any cut in state spending will automatically lead to further property tax hikes. (They’ve been making that claim since Governor Chet Culver’s across-the-board budget cut last October.) Here’s just one example of why their assumptions are flawed. The Des Moines Register reported Tuesday on how Des Moines area school districts are coping with budget shortages. All of the districts will receive less from the state in the next fiscal year. Thankfully, the cuts are smaller than the worst-case scenarios floated in February, because Iowa House and Senate Democrats sought to protect K-12 education from severe budget cuts.

Anyway, all Iowa school districts are adapting to the reduction in state funding. But contrary to what Iowa Republicans are telling you, many districts, including the state’s largest in Des Moines, have ruled out property tax increases. Of the 10 central Iowa school districts mentioned in this article, only three are raising property taxes, and one more is considering that step. The others are cutting expenses and in some cases using money from cash reserves to cover the shortfalls in the coming fiscal year.

Some local governments in Iowa will raise property tax rates, but as with school districts, many will get by with spending or service cuts instead. I support additional federal fiscal aid to local and state governments, because the collapse in revenues is the most severe in six decades, and spending cuts could hamper the economic recovery. But naturally, the same Republicans who scream about property tax hikes are against using “one-time federal money” to help balance budgets.

Share any relevant thoughts in this thread.

Catch-up thread on Culver's budget blueprint

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.

The complete budget document can be downloaded at the governor’s official website, and you can view Culver’s press conference on the budget here.

For more links, reactions and commentaries, follow me after the jump.

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