The state of Iowa’s contract with Workday to upgrade computer systems “is not an allowable expenditure” under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the U.S. Treasury’s Office of Inspector General informed Iowa Department of Management Director David Roederer on October 16.

The State Auditor’s office released a copy of the letter on October 21. State Auditor Rob Sand announced two days earlier that he had also informed Governor Kim Reynolds and Roederer that spending $21 million on Workday-related costs was “not an appropriate use” of the Coronavirus Relief Fund.

Governor Kim Reynolds erred in directing that $21 million in federal funding from the Coronavirus Aid, Relief and Economic Security (CARES) Act be used to cover the cost of a software system purchased before the COVID-19 pandemic, according to State Auditor Rob Sand.

Sand announced on October 19 that he and the U.S. Treasury Department’s Inspector General “have advised Iowa Governor Kim Reynolds that her decision to use millions of CARES Act dollars to help implement a new software system for state government was not an allowable use of the funds.” The Treasury Department and governor’s office did not respond to requests for confirmation and comment.

Sand also described as “questionable” the use of CARES Act funds to pay the governor’s permanent staff. Bleeding Heartland was first to report last month that Reynolds directed $448,449 in COVID-19 relief funds to pay a portion of salaries and benefits for 21 of her staffers from mid-March through June 2020. Sand warned that a federal audit may eventually determine that the payments did not meet requirements, so reallocating the funds to purposes clearly allowed under the CARES Act would be less risky for taxpayers.

State Auditor Rob Sand had “great news” to share with members of the Iowa House and Senate Appropriations Committees in May. Federal officials had agreed not to demand repayment for alleged overbilling, provided that Iowa changed its billing practices for future audits. The savings to the state would amount to tens of thousands of dollars for each fiscal year.

Documents Bleeding Heartland obtained through a public records request confirm that key Reynolds administration officials were on board with the reform plan, and Iowa Senate appropriators took it up in June as the legislature was completing its work.

The records also show that State Representatives Gary Mohr and John Landon refused to move the fix through the Iowa House.

What they don’t explain is why.

Catching up on news overshadowed by the biggest Iowa politics story of the week: on May 23 a group of Iowa House Democrats dropped their legal challenge to Governor Kim Reynolds’ use of emergency funds without legislative approval last September. Reynolds transferred $13 million from the Iowa Economic Emergency Fund to cover a shortfall in the fiscal 2017 budget, despite a warning from State Treasurer Michael Fitzgerald that Iowa law did not permit that action.

State Representative Chris Hall, the ranking Democrat on the Iowa House Appropriations Committee, filed suit in January, charging that Reynolds and Department of Management Director David Roederer “conspired together to unlawfully appropriate and misuse state funds.” The lawsuit alleged that the governor acted unilaterally in order to avoid the political fallout from calling the legislature back for a special session. House Democrats Marti Anderson, Liz Bennett, Bruce Hunter, Jerry Kearns, Monica Kurth, and Amy Nielsen joined the legal action a few weeks later.

Republican legislators tacitly acknowledged that Reynolds broke the law. They added language to a bill cutting current-year spending that retroactively legalized the governor’s action and appropriated $13 million from the emergency fund to the general fund for fiscal year 2017. (See page 8 of Senate File 2117, which both chambers passed along party lines in March.)

“Our legal challenge held Governor Reynolds and Republicans accountable, and it did so without costing taxpayers a single dime,” Hall said in a news release enclosed in full below. “We have seen too many cover ups and not enough leadership from the Reynolds administration. This is a victory for taxpayers and ensures that our tax dollars will be spent according to the law.”

UPDATE: I should have mentioned that there would be little to gain by following through with this lawsuit. Once the legislature passed and Reynolds signed Senate File 2117, a court would almost certainly have dismissed the case as moot.

UPDATE: Plaintiffs dropped this lawsuit in May 2018 after Republican legislators retroactively legalized the governor’s fund transfer. Original post follows.

State Representative Chris Hall filed a lawsuit today, charging Governor Kim Reynolds and Department of Management Director David Roederer “conspired together to unlawfully appropriate and misuse state funds.” The ranking Democrat on the Iowa House Appropriations Committee is seeking to void “all actions taken as a result of the unlawful Official Proclamation signed on September 28, 2017,” which transferred $13 million from the Iowa Economic Emergency Fund.

That order allowed Reynolds to cover a projected budget shortfall at the end of fiscal year 2017 without calling a special legislative session. But State Treasurer Michael Fitzgerald warned the governor that the planned transfer “would not be in compliance with Iowa law.” Hall’s petition, enclosed in full below, points to the same Iowa Code provision Fitzgerald cited in his letter to the governor.

Sounding more like a Republican loyalist than a hard-nosed fiscal analyst, State Auditor Mary Mosiman told reporters this week that Iowa’s budget for the year beginning July 1 is “stable” and “responsible.”

Mosiman also asserted that Iowa has “practically eliminated using one-time revenue sources for ongoing expenditures,” even though Governor Kim Reynolds recently confirmed the state will need to dip into reserve funds a second time to cover a third major revenue shortfall during the current fiscal year.

While speculating on why Iowa’s revenues have fallen well below projections, Mosiman echoed excuses offered by leading Republican politicians, ignoring a new business tax break that has been a far more important factor.

Iowa’s self-styled “Taxpayers Watchdog” may come to regret staking her credibility on the wisdom of GOP budget planning.