Governor Terry Branstad presents his draft budget to members of the Iowa House and Senate this morning. His staff have indicated he will outline about $700 million in budget cuts, including layoffs of hundreds of workers. Branstad and Republican legislators say Iowa needs to reduce spending by $700 million to make up for the projected budget gap for fiscal year 2012, which begins on July 1.

The facts tell a different story: Iowa has a projected gap of around $263 million for the coming fiscal year. That figure was the Legislative Services Agency’s best guess as of December 2010, but it probably overstates the gap. Congress extended the Bush tax cuts for all income levels, which means higher-income Iowans will not be forced to pay more federal taxes and therefore will not have more to deduct from their state tax returns. With the Bush tax cuts in place, Iowa can expect to collect about $140 million more in state tax receipts for the 2012 fiscal year. That would be enough to cover the estimated cost of the new AFSCME contract Branstad has declared unaffordable.

The $700 million figure Branstad uses assumes Iowa will use more than $300 million from the current-year budget surplus to pay for corporate and other tax cuts. He also wants to reduce commercial property taxes, which will cost the state more money to reimburse local governments. Those are Branstad’s preferences, not policies state government is obliged to implement. It’s not that Iowa can’t afford to continue the preschool program that costs about $70 million per year, or can’t afford any allowable growth in K-12 education budgets. Republicans simply want to do other things with the public’s money.

I am curious to hear what Branstad says about transportation funding today, since he came out this week against passenger rail subsidies but for a future gas tax hike to build more roads. I also wonder whether he will propose any specific reform to tax-increment financing in Iowa. TIF was originally intended to spur redevelopment in “slum and blighted” urban areas but has become increasingly costly for state government and has created inequities in commercial property taxes.

I’ll update this post with details from Branstad’s speech and political reaction after the jump. Meanwhile, share any thoughts about the state budget in this thread.

UPDATE: IowaPolitics.com posted the prepared text of Branstad’s speech. Big surprise: he’s not planning to eliminate appropriations for preschool, just to reduce them to $43 million per year. Further thoughts are below.

FRIDAY UPDATE: At the end of this post I’ve added Senator Rob Hogg’s assessment of Branstad’s draft budget. He notes that zero percent allowable growth for K-12 schools for two years is “unprecedented in the history of Iowa’s school financing formula which was created in 1973.”

Lack of funding for various flood mitigation and watershed management programs also concerns Hogg, a Democrat representing Cedar Rapids and a leading advocate of improved flood prevention efforts in Iowa.

Branstad’s offering a two-year budget, as he promised to do, but there is no way legislators will approve a biennial budget.

From the prepared text:

In addition, I cannot leave the education discussion without renewing my commitment to ensure that every Iowa child has access to quality preschool.

This budget proposes a $43 million annual investment in providing preschool assistance to those families in greatest need.

Research shows preschool investments have the most long-lasting impact on children who come from homes with financial need. As such, our program will be targeted to those families and will give parents flexibility to choose the preschool environment that best meets their needs.

But we cannot do this alone, all across this state parents, private donors and caring organizations have for years partnered with preschool providers to ensure access. I am happy to have the state of Iowa join them-as a partner, not as the sole provider.

I want to see more details about how many families would be covered by $43 million in preschool grants rather than $70 million, but Branstad’s starting point is a lot better than the Iowa House Republicans’ desire to spend nothing on preschool.

Also from the prepared text:

While school systems across this country are reeling from massive budget cuts, this budget for the next two years holds school spending authority at the current level. No increase. No decrease – but with an assurance that we can deliver on this promise and allow our creative school leaders more flexibility and opportunity to make things work.

And let’s not forget, even while holding spending authority at current levels, last year the state underfunded its commitment by $156 million. Local school districts were left holding the bag with little choice but to levy additional property taxes to make up the difference. This budget funds that commitment with state dollars and provides direct property tax relief to Iowa taxpayers.

Nice try, but no allowable growth for two years means significant cuts for schools, because certain expenses for school districts will rise. Most school districts already reduced spending during the last couple of budget years–there’s no more fat to cut.

Toward the end of Branstad’s speech, he picked up the “covenant” metaphor from his inaugural address. From the prepared text:

When God made his covenant with Abraham and his people so many ages ago, it was a covenant that required immediate and significant sacrifice in return for a promise of incredible abundance. However, that abundance was to be years and even decades in the making.

Our new covenant between this state and its people does indeed require significant immediate shared sacrifice.

But, as with Abraham and his people, the people of Iowa can expect our efforts will lead to tremendous abundance which we, our children, grandchildren, and future generations of Iowans will enjoy.

I stand before you today older and wiser than when I first set foot in these chambers. But I am no less passionate about our future.

If we make the right choices, the days before us will be ones of abundant growth and new jobs:

* Enough abundance to bring back our sons and daughters and those who wish to join us.

* Enough abundance to meet the needs of our kids, and our elderly, and the sick and the vulnerable.

* Enough abundance to make the future the golden years in Iowa history.

We stand at the crossroads of that history. Which path will we take?

I know that this institution is fueled by compromise; but we cannot compromise on the future of Iowa.

It strikes me as absurd (not to mention blasphemous) for Branstad to compare his package of trade-offs for Iowa to how God offered a covenant to Abraham, promising abundance for him and his descendants.

Bad but expected news on the transportation front: Branstad’s budget appropriates no money for extending passenger rail from the Quad Cities to Iowa City.

From State Senator Robb Hogg:

EMAIL UPDATE (January 28, 2011)

Branstad Budget Shows State Is ALREADY Fiscally Sound

Yesterday, Governor Branstad presented his budget to the Legislature with a “stern talking to” because, apparently, he believes the Legislature had been doing a bad job of budgeting.  I believe the facts in his own budget show otherwise, and thus many of the cuts he seeks to implement are unnecessary and unwise.

Fact Number 1:  The nonpartisan Legislative Services Agency (LSA) reports that Governor Branstad’s proposed budget starts with an ending balance of $433.4 million for our current fiscal year (FY11), or more than 8% of the FY11 budget.  (LSA, Preliminary Summary of Governor’s FY2011, FY2012, and FY2013 Budget Recommendations, January 27, 2011, page 3).

Fact Number 2:  The LSA reports that Governor Branstad’s proposed budget for FY12 increases general fund spending by $842.7 million, or a 15.8% increase.  (LSA, Preliminary Summary, page 9).

Fact Number 3:  Despite such a large increase in general fund spending, the LSA reports that the state’s existing rainy day funds – the cash reserve fund and the economic emergency fund – would be at their statutory maximum of $615.5 million by the end of FY12, and that an additional $254.8 million would be transferred back to the general fund for FY13.  (LSA, Preliminary Summary, page 11).

Fact Number 4:  This projected surplus of $254.8 million would result despite Governor Branstad’s proposal to cut corporate income taxes by $172.8 million in FY11 and FY12 with even larger cuts planned in the future.  (LSA, Preliminary Summary, page 5).

The point of sharing these facts with you is, in part, to show that the State’s budget situation is not nearly as dire as Governor Branstad and House Republicans have suggested with their campaign rhetoric, and that the Democratic Legislature was fiscally responsible during the last four years of our control.

More importantly, however, I want you to know these facts because there is absolutely no budgetary reason for Iowa to scrap or scale back our key investments in education, economic development, or watershed management and flood protection.

If you want to read the LSA report yourself, please visit the Legislative web site at www.legis.iowa.gov and click on “LSA Publications,” then “Fiscal Analysis,” then “Annual State Budget Analysis,” then “LSA Preliminary Analysis of the Governor’s FY2012 Budget Recommendations.”

Branstad Budget Cuts Education and Economic Development

Despite our strong fiscal position, Governor Branstad is proposing severe cuts to the state’s investment in education and economic development, in other words, our investment in goods jobs with benefits and the workforce of our future.  Here are the details:

1.  Preschool.  Governor Branstad would scrap the voluntary preschool program ($69.9 million), Empowerment preschool assistance ($4.5 million), and the Shared Visions preschool program ($4.6 million) in favor of his proposal for vouchers for low-income families for preschool ($43.6 million).  This not only cuts $35.4 million in preschool aid for middle class families, it would also undercut the capacity for quality, accessible preschool that school districts and their partners (like St. Matthew’s in Cedar Rapids) have developed over the last four years.  Preschool is a great investment in making sure students are ready for kindergarten so all students have a stronger start and can move ahead together.

2.  Allowable Growth.  Governor Branstad proposes 0% allowable growth for our K-12 schools for the next two years.  This is unprecedented in the history of Iowa’s school financing formula which was created in 1973.  Since then, only one year (2003) was allowable growth limited to 1%; every other year provided 2% allowable growth or more.  Zero percent allowable growth will cause layoffs of teachers, paraeducators, and support staff; higher class sizes; and the loss of extracurricular and other enrichment opportunities.  For a Governor who says he wants to “make our schools among the best in the world,” it is hard to see how that is done without allowing schools to access the resources they need to do the job.  I support at least two percent allowable growth at a cost of $60 million.

3.  Other K-12 Education.  Governor Branstad proposes other damaging cuts in K-12 education, including a 6% cut in our state’s math and science initiative ($100,000); eliminating the model core curriculum that Iowa has been using to raise standards and expectations throughout the state ($3 million); and cutting an additional $20 million from area education agencies which provide services to special education students, professional development for teachers, and collaboration between school districts to reduce costs and improve service.  (He also fails to propose anything to help Iowa overcome the achievement gap, as I proposed in Senate File 63 to double the at-risk pupil funding for districts that qualify by having superior programs for helping at-risk students at a cost of up to $13 million.)

4.  Community Colleges.  Governor Branstad proposes to cut significant funding from our community colleges.  He does not support restoring a $6 million mid-year cut that Governor Culver enacted on January 3 (which he was required to do in order to comply with last year’s unduly conservative budget forecasts), and the news is even worse for community colleges in Governor Branstad’s FY12 recommendations:  an additional $8.4 million cut in general aid, and eliminating community college infrastructure funding ($5.5 million), workforce training ($2 million), a faculty salary line item ($800,000), and renewable energy training through the Iowa Power Fund ($2.5 million).

5.  Our Universities.  Governor Branstad proposes significant cuts to our universities’ operating budgets and their economic development programs.  His budget reduces the three university operating budgets by $28 million and their already meager economic development programs by $200,000.

6.  Iowa Power Fund.  Governor Branstad proposes to eliminate the Iowa Power Fund ($19.6 million) which has been investing in public and private research and development of next generation renewable energy sources and workforce development to reduce our dependence on foreign oil, grow jobs in Iowa, and provide sustainable, long-term economic prosperity.

7.  Rail Development.  Gvernor Branstad proposes to eliminate the state’s matching funds for high-speed rail development for passengers and freight ($6.5 million).  I support the rail development from Chicago to Iowa City (and beyond) because it will create jobs in the short run and provide a long-term, affordable, sustainable transportation alternative, which is especially important as gas prices continue to increase and we need to reduce greenhouse gas emissions.

8.  Community Attraction and Tourism.  Governor Branstad proposes eliminating the community attraction program ($16 million) which helps makes communities across the state more attractive to workers and businesses, like the restoration of Theatre Cedar Rapids and the National Czech and Slovak Museum and Library in Cedar Rapids, and could help us develop future projects like the NewBo City Market.

9.  Business Development.  Governor Branstad proposes to cuts our primary business assistance program known as the Grow Iowa Values Fund by an additional $13 million to a level less than half of what it was when originally enacted.  This program has been used extensively by businesses in Cedar Rapids to expand and create high-wage jobs that provide benefits.  We need this program for the high-wage, high-tech, good-benefit job creation that leads the economy.

Branstad’s Budget Drops The Ball On Watershed Management

Finally, Governor Branstad’s proposed budget is almost a total failure on the issue of watershed management and flood mitigation.  You may have seen that last week I introduced Senate File 53 to provide $60 million per year for 10 years for comprehensive watershed management and flood mitigation.  For details, you can visit my web site, www.robhogg.org.

In his budget, Governor Branstad includes only two portions of that proposal:  $1.3 million to continue the Iowa Flood Center at the University of Iowa, and $2 million to continue the floodplain program at the Department of Natural Resources.  While I am grateful for this minimal effort, I also need to point out what else his budget does that will hurt our efforts to prevent future flood damage.

Governor Branstad’s proposal would reduce funding for the REAP program by $3.5 million; it would eliminate funding for the Watershed Improvement Review Board which was $2 million last year; it would cut the Department of Natural Resources operating budget by $800,000; and it would cut the Conservation Reserve Enhancement Program for wetland projects by $500,000.  I might be okay with these individual cuts if his budget funded my proposal for comprehensive watershed management, technical assistance, watershed project grants, and pre-disaster hazard mitigation assistance to cities and counties.  But it does not.  His budget proposal is a recipe for another round of inaction on prevention of future flood damage.  Iowa simply cannot afford to have that happen again.

The Bottom Line

Governor Branstad’s budget shows that Iowa is in a strong fiscal position and does not need to make the cuts he is proposing.  If you add up all of the cuts he wants to make that I have listed above, and include the $13 million for overcoming the achievement gap (SF63) and the additional $56.7 million investment in comprehensive watershed management and flood mitigation (SF53) that I have proposed, it totals $301 million – much less than the $427.6 million he wants to use for corporate income tax cuts and for carry-over to FY13.

In my view, we should skip the corporate income tax cuts, make the investments we need to make in education, economic development, and watershed management, and use left-over money to expand our rainy day fund beyond its current statutory cap so we are really ready for the next recession or the next disaster.  But whatever your views, this is the decision before us – please let legislators of both parties and Governor Branstad know what your priorities are.