Vander Linden Capitol Update – January 19, 2017

Week two of the 2017 Legislative Session brought more information and some movement of legislation. The budget shortfall is still the major focus for House Republicans and we are doing everything we can to provide necessary services, while allowing Iowans to keep more of their hard earned money. Below you will find some helpful information concerning some issues the legislature is addressing this session. Please contact me with any questions or concerns you may have.

FY 2017 Deappropriations Bill

The state is facing a $117 million shortfall in revenues to maintain the spending levels approved by the 2016 Legislature. To fix this problem, the 2017 Legislature needs to reduce spending levels so they do not exceed revenue.

The state cannot spend money it does not have. When the Legislature adjourned in April, total spending was less than available revenue. Since then revenue has dropped creating the need to reduce costs to maintain a balanced budget and prevent a tax increase.

In future it may be wise to hold down overall spending below amounts allowed by the state’s 99% Expenditure Limitation Law.

Thankfully, House Republicans fought off additional spending plans by House Democrats totaling $532,181,814. Had those plans been approved, the $117 million hole facing the Legislature today would be far, far bigger.

Community Colleges

House Republicans have been long-time supporters of community colleges. We know that in this economic environment when many workers need to learn new trades, the community colleges are there to answer that call, ensuring our workforce is trained and ready to take up the jobs that are being created every day. We’ve shown our commitment to those efforts over the last several years as the majority party in the House.

Prior to House Republican control, the Community Colleges weathered a $32 million reduction in state funding during the 2008 recession ($180 million to $148 million from 2009 to 2010). Since taking control in 2011, House Republicans have increased general fund appropriations to the community colleges by $55 million (a 37% increase in funding).

Legislative Services Agency Reports on Spending, Revenue Trends

At its first meeting of the 2017 legislative session, the House Appropriations Committee heard from lead analysts of the Legislative Services Agency on the state’s economic status and the future of spending and revenue.

Dave Reynolds, who leads the Fiscal Division’s work on Appropriations, presented the agency’s projection for spending and revenue growth through Fiscal Year 2022. The LSA forecast utilizes the existing revenue forecasts for FY 2017 (+4.2%) and FY 2018 (+4.8%), and then projects revenue growth of 3.1 percent annual growth in FY 2019-2022. On the spending side, the LSA forecast expects Medicaid costs to the General Fund to increase by 4.5 percent, other programs to grow by 2 percent, and other standing appropriations to remain at their current levels. The one major variable was supplemental state aid to schools.

The LSA projection had two different figures for school aid – 0% growth and 2 % growth. While each scenario produced balanced budgets inLr the future, the 2% projection left little room for maneuverability. The state would have very small ending balances under that projection, which could create an issue if General Fund revenue were to experience even slight downward dip in collections.

During the presentation by Jeff Robinson, lead analyst for revenue issues at LSA, the focus changed to revenue and Iowa’s economy. While many factors continue to show Iowa’s economy is on solid ground, a couple stood out as cautionary signals. The first is the employment-population ratio. Currently, over sixtyseven percent of Iowans are working. This makes Iowa one of the national leaders in the percentage of residents who are employed. Wage growth for those Iowans who are working continues to occur. Since 2011, wage and salary growth has exceeded 2 percent each quarter. While these items show a fairly healthy state economy, future growth in employment and revenue may be impacted by a demographical shift.

Another chart presented to the Committee showed the change in the population of working-age Iowans. Between 2001 and 2012, the number of Iowans between the age of 19 and 65 grew annually by at least 8,000. This number dropped to growth of just 4,000 in 2013 and in FY 2017, it is expected that there will be a reduction in this number. This reduction will continue well into the next decade, with the next year of positive growth not expected until 2027. Iowa would see working-age population growth like it experienced in the previous decade until 2039, according to LSA’s forecast.

All these factors present a complex picture to policymakers. While Iowa’s economy continues to grow, the downward shift in the number of Iowans of working age poses a challenge to continuing state revenue growth over the next decade. Wage growth may not make up for a decline in the number of Iowans in the workforce.