DES MOINES — Education, health care and public safety would get most of the $175.3 million in new state money available in fiscal 2019 while Iowa taxpayers will collect the benefit from federal tax cuts under a spending plan unveiled by Gov. Kim Reynolds on Tuesday.
In her first state budget presentation to state lawmakers, Reynolds proposed a $7.4 billion spending plan, about 2.7 percent more than the current revised budget that must be pared back another $34.7 million by June 30.
To erase the projected shortfall in the current budget year, the governor is seeking to cut $19.4 million 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 tax system.
For fiscal 2019, Reynolds proposed a 1.5 percent increase in K-12 education aid, or $54 million, and flexibility to allow schools to use another $35 million previously earmarked for class-size reduction as they see fit. She also proposes an extra $77 million to cover Medicaid and child care 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 a workforce readiness initiative and a $14 million pass-through request from the state court system.
Reynolds declared $110 million in projected state revenue growth in fiscal 2019 from federal tax cuts to be off limits for state spending, but she pushed the timetable for paying back $111 million borrowed from cash reserves to balance the fiscal 2017 budget into two payments of $55 million in fiscal years 2019 and 2020.
During her Condition of the State address to a joint session of the 87th General Assembly, the governor noted “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 pre-K-through-12 education, 44 percent to human services ($77 million), and 7 percent to higher education.
“We have also maintained our commitment to school choice, which offers families the option to teach their values, beliefs and viewpoints to their children. That’s why my tax reform plan will expand 529 plans to include K-12 education,” the governor said.
“But we also can’t fall into the trap of measuring the quality of our education system by the sheer number of dollars we put into it. If we’re not focused on preparing our young people for the future, then we are failing,” Reynolds added in touting her Future Ready Iowa workforce initiatives.
There were early indications legislative Republicans would part ways on several of Reynolds’ proposals, however,
Sen. Charles Schneider, R-West Des Moines, chairman of the Senate Appropriations Committee, said he believed lawmakers would 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 federal 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 than the $3.6 million surplus in the governor’s spending plan.
“I think it’s a good start. We will take a look at it ourselves and have further conversations,” said Schneider. “There will be differences to iron out. I’m sure we will find some common ground in short time.”
The first order of business will be balancing the current budget, he said, which will give legislators and the governor a better sense of what the state can afford in fiscal 2019.
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.”