DES MOINES — Gov. Kim Reynolds and majority Republicans in the Legislature agreed on broad goals for balancing the state’s budget this year and next, but differences emerged Tuesday on how and what to fund that may carry implications for programs and institutions that depend on government funding.
Reynolds indicated her spending priorities are built on using a share of the state’s windfall from federal tax cuts to help cover a projected $34.7 million shortfall by June 30 and stretching the period to repay money borrowed from the state’s reserves so K-12 schools can get a $54 million state aid increase in fiscal 2019 — two items that drew concerns from legislative Republicans.
“I think it’s a good start,” Sen. Charles Schneider, R-West Des Moines, chairman of the Senate Appropriations Committee, said of the governor’s inaugural budget plan. “There will be differences to iron out. I’m sure we will find some common ground in short time.”
Education, health care and Iowa courts would get most of the $175.3 million in new state money available for budgeting in fiscal 2019 under Reynolds’ budget plan. At the same time, Republicans are committed to an individual income tax reform that will allow Iowans to keep at least $109.7 million in tax relief spurred by a federal tax package that will be felt in February wage withholdings.
In her first state budget presentation to state lawmakers, Reynolds proposed a $7.447 billion general fund spending plan that would be about 2.7 percent more than the current revised budget that will have to be pared back by another $34.7 million via a mix of cuts and adjustments by June 30. Cuts yet this fiscal year are targeted for regent universities ($5.13 million), correctional facilities ($3.4 million), human services ($3.32 million), community colleges ($1.81 million) and the court system ($1.61 million).
To erase the projected shortfall in the current budget year, the governor is seeking to de-appropriate $19.4 million in selective cuts to various budget areas, while also making a $10 million adjustment in Medicaid spending and using about $11.2 million in revenue the state will gain when Iowans begin seeing lower federal wage withholdings in February that they will owe state tax on. She proposes plowing any future state gain from the federal tax changes into lower individual state income tax rates, eliminating federal deductibility and simplifying Iowa’s complicated tax system.
“I don’t know how you cut taxes when we can’t even balance our budget now,” said Rep. Mary Mascher, D-Iowa City. “The numbers are going to be the telling part. The increases for public education are so inadequate. That’s going to be a real challenge.”
For fiscal 2019, Reynolds proposed a 1.5 percent increase in K-12 state aid, or $54 million, and statutory flexibility to allow them to use another $35 million previously earmarked for class-size reduction as they see fit for their individual needs. She also offered an extra $77 million to cover Medicaid and childcare needs, $13 million for higher education — including $7.5 million to regent universities and $3 million to community colleges – along with $8 million to fund education reforms, $2.6 million to fund workforce readiness initiative and a $14 million pass-through request from the state court system.
Reynolds declared $109.7 million in projected state revenue growth in fiscal 2019 via the federal tax cuts to be off limits for state spending, but she pushed the timetable for paying back $111 million that was borrowed from cash reserves to balance the fiscal 2017 budget into two payments of $55 million in fiscal years 2019 and 2020.
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“That’s a new proposal we’ll have to talk about but I know last year we wanted to try to get that paid back as fast as possible,” said Senate President Jack Whitver, R-Ankeny.
Schneider said he believed lawmakers would want to stick to their plan of paying back the money borrowed from state reserves in fiscal 2019. He also expected GOP legislators would balk at using any of the federa tax cut revenue to erase this fiscal year’s shortfall, meaning they likely would look for budget areas where they could make deeper cuts and leave a bigger ending balance for June 30 that the $3.6 million surpluse in the governor’s spending plan.
The first order of business, he said, will be to make the adjustments needed to balance the current budget, which will give legislators and the governor a better sense of what the state can afford in fiscal 2019 such as a 1.5 percent boost in state supplemental aid to schools that Reynolds is seeking.
He also doubted Senate Republicans would agree to use any of the federal tax cut windfall to erase this year’s shortfall.
“It’s a conversation starter. We’ll see how far it goes,” said Schneider. “I think the mood of our caucus would be to apply any additional revenue from the federal tax bill to rate reductions for Iowans so that they can keep more of their money in their own pockets so we can put it to work in our state and grow our economy. That’s our preference.”
“We’re going to take everything in totality,” said House Majority Leader Hagenow, R-Windsor Heights. “In terms of how we put together a de-appropriations bill, I want to see the whole plan first. I won’t say no, but philosophically we believe those dollars that come in are a result of Iowa’s tax burden going up and should be directed back to the taxpayers.”
During her Condition of the State address, the governor noted that “it’s no secret we are working through difficult times with our state budget” but told legislators “education is a priority, and we will continue to back that up with real money.”
Overall, the governor’s budget directs 36 percent, or $62 million, in new money to preK-through-12 education, 44 percent to human services ($77 million), and 7 percent to higher education.
“The governor painted a very rosy picture of the state’s condition notwithstanding the fact that the budget is in crisis. I think we’re going to continue to struggle,” said Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee. “I think she’ll probably get good marks for the speech, but when you look below the surface I think there are some pretty serious financial problems for the state.”