Vander Linden Capitol Update – February 9, 2017
Spending and revenue are a major focus for House Republicans. We are looking to next year’s budget and letting all of you keep your 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.
What Iowa law Provides for New Revenue in Fiscal Year 2018
Advocates for additional government spending are telling Iowans that the state has $345 million of new money to spend this year. This claim is confusing as House Republicans have asserted that the state has a ceiling of $200 million in additional revenue to spend. So which number is correct?
Groups like the Iowa State Education Association are using the difference between the Revenue Estimating Conference’s forecasts for state revenue in FY 2017 and FY 2018 as the available new revenue. At its December meeting, the three-member forecasting group projected that the state would collect $7.2119 billion in FY 2017 (the current budget year) and $7.5563 billion in FY 2018 (next budget year). The difference between these two numbers is $344.4 million. Here is that calculation:
FY 2018 Revenue Estimate 7.5563 billion
– FY 2017 Revenue Estimate 7.2119 billion – Difference 344.4 million
If these were the numbers the Legislature was allowed to use in putting together the state budget, then the $344.4 million is correct. But that’s not the law.
Once the Revenue Estimating Conference has set the revenue estimate for the next budget year, then the state’s 99% Expenditure Limitation law takes over. Iowa Code section 8.54 says that the General Assembly can only spend 99% of the REC’s revenue estimate after including any remaining ending balance and revenue adjustments. According to the non-partisan Legislative Services Agency, the calculation for the FY 2018 budget looks like this:
FY 2018 Revenue Estimate x 0.99 7.4807 billion
+ Revenue Adjustments enacted by the Legislature 0
+ Remaining Ending Balance from FY 2017 0 – FY 2018 Expenditure Limitation 7.4807 billion
The maximum amount allowed under law is $7.4807 billion. That figure will be reduced by another $25.2 million, as House Republicans have agreed with the Governor and Senate Republicans to make this reduction due to the use of certain funds in the FY 2017 budget. So, the maximum that the FY 2018 budget will be is $7.4555 billion.
FY 2018 Spending Limit $7.4555 billion
– FY 2017 Appropriations $7.2546 billion – Additional Revenue in FY 2018 200.9 million
When you subtract $7.2546 billion from $7.4555 billion, the new revenue available to the state is $200.9 million. However, the bottom line is that regardless of how you calculate new revenue or revenue growth, the ceiling for available revenue for the state $7.4555 billion. Everything must fit underneath that figure.
How Are Other State Budgets Fairing in Fiscal Year 2017?
With completion of legislation to implement $117 million in budget adjustments to Iowa’s Fiscal Year 2018 budget, many Iowans are asking how Iowa’s fiscal situation compares to other states. Iowa was not alone in having to make spending adjustments to the current budget. It’s believed that as many as 31 states started their 2017 legislative sessions needing to address revenue shortfalls in their current budgets. Here is a look at the fiscal condition of some of Iowa’s neighboring states.
NEBRASKA – In Nebraska, their 2017 legislative session started with a very bleak revenue forecast. For their next two-year budget, Nebraska will have to reduce spending by $870 million as part of their FY 2018 & FY 2019 budget. But first, members of the unicameral legislature in Lincoln need to take action by finding ways to fill a $276 million gap in the current year’s budget. Total non-federal spending for the state in the current fiscal year is approximately $6.5 billion.
A proposal by Governor Pete Ricketts would exempt K-12 education and some health and human services programs from cuts in the current year, but would implement significant cuts to the remainder of state government. Among those areas seeing reductions as part of the $171 million of cuts proposed by Ricketts would be the state’s flagship school, University of Nebraska-Lincoln. Funding to the schools would be reduced by 2.3 percent, a smaller amount than the reduction being applied to other agencies. Additionally, the Ricketts plan would use $96 million from Nebraska’s rainy day fund. Implementation of this plan is moving forward in the Nebraska legislature.
MISSOURI – In Missouri, new governor Eric Greitens used part of his first day in office to announce $146 million in reductions to the current year budget for the Show-Me State. The bulk of these cuts are coming out of Missouri’s public higher education system, which would have their funding cut by $82 million. Greitens’ inaugural day reductions are on top of $200 million in cuts made by his predecessor, Jay Nixon. These two sets of adjustments are still not enough to balance the state’s budget, which was $27 billion for the fiscal year. Even with the latest round of cuts, Missouri is still $40 million in the red for FY 2017. Moving forward into FY 2018, legislators in Jefferson City are being told that state revenue is expected to be $456 million lower than current year.
KANSAS – The situation in Kansas is somewhat similar. The 2017 legislative session begins in Topeka with the Sunflower State facing another year of revenue not meeting state projections. Legislators there are facing a $346 million revenue shortfall in the current fiscal year. One idea discussed before the start of their session was the implementation of a 6.9 percent across the board reduction. Lawmakers have instead come forward with a plan that raises income taxes by $660 million over the next two years and a $128 million reduction in school aid for the current
school year.
SOUTH DAKOTA – In South Dakota, the state currently has a $26 million shortfall in revenue. This is after an increase in the half percent increase in sales tax was passed last session. Governor Dennis Daugaard said that the decline in revenue is partially due to a slowdown in sales tax revenue. The Governor is calling for selective reductions in spending this year and a conversion of unclaimed property stock held by the state.
MINNESOTA – In Minnesota, the state is expecting to end its two-year budget with a $678 million surplus. This will give the state $1.4 billion ending balance as they work on the budget for fiscal years 2018 and 2019. Much of this comes from a lack of agreement on taxation and infrastructure bills which were expected to cost $730 million.
Other states face more serious budget situations. California Governor Jerry Brown revealed last month that his administration had made an accounting error in projected Medicaid costs for the state. The size of the error – $1.9 billion. And in Illinois, legislators and Governor Bruce Rauner are seven months into the fiscal year without completing a budget for the second year in a row. The state faces the real prospect of having its bond rating lowered to junk bond status without action on the current year budget and a longterm plan to bring fiscal sanity to the Land of Lincoln.
