DES MOINES — After some rocky years of budget shortfalls and cutbacks, Iowa lawmakers will return to the Statehouse with a treasury surplus. But Republicans who control of both chambers plan to keep a tight hold on the purse strings.
“We’re in a very solid position, and that hasn’t come about by accident,” said Senate President Charles Schneider, R-West Des Moines.
Well into the 2020 fiscal year that started in July, the nonpartisan Legislative Services Agency projects the state is on track to post a surplus balance of $414 million by June 30 — with cash reserves and economic emergency funds approaching $784 million. That would be a return to the 10 percent of budget surplus target.
At the same time, the state is facing economic uncertainty. International trade turmoil has hit farm income and hurt manufacturing; a shortage of skilled workers continues to hamper business growth; and parts of Iowa are still reeling from devastating floods.
“We’ve got a lot of surplus problems,” said Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee.
And Rep. David Jacoby, D-Coralville, cautioned surplus projections are a bit of a misnomer. A large slice of the excess money will be needed to supplement Iowa’s privately managed Medicaid program, he said. And the fiscal 2021 ledger has $322 million in anticipated expenditures even before legislators and Gov. Kim Reynolds set the K-12 state aid level or set priorities for the projected $8.3 billion-plus in state spending authority.
That authority is, by law, 99 percent of what the revenue panel estimates will be available.
“Our caucus doesn’t view the 99 percent spending limitation as an amount that must be spent,” Schneider noted. “It’s just the maximum amount that can be spent, and we want to make sure that we’re using taxpayer funds judiciously.”
Reynolds said she is just beginning the process of assembling a two-year state budget plan to submit to the Legislature in January.
But she doesn’t expect the estimated things will change much when the Revenue Estimating Conference finalizes the revenue picture in December.
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“We’ve been very good stewards of the taxpayer dollars,” said Reynolds, who noted the state managed to fund its priorities without “starving” discretionary spending. However, she said some areas may need catch-up funding after years of belt-tightening.
Fiscal 2021 requests from executive-branch agencies seek nearly $200 million in increased spending — a 2.6 percent increase that includes a spike in human service needs, more money to state universities facing another round of tuition increases and other requests that total $7.61 billion.
Education groups say they are in the process of evaluating their budget needs. But a representative of the teachers’ union said the request would not be less than a 3 percent increase.
Mohr said there will be more flexibility next session, but also believes his GOP colleagues will be looking at ways to reduce taxes beyond the major income tax cuts enacted in 2018 that took effect in January.
Budget-makers also must keep a close eye on how that multiyear plan plays out.
“We worked hard at trying to limit our spending so we would start having surpluses and we wouldn’t have to keep cutting programs,” Mohr said. “We’re going to certainly keep our eye on it ... so we don’t overspend and we don’t misspend.”
Rep. Chris Hall, D-Sioux City, ranking member of the House Appropriations Committee, said the state has “an artificial surplus.” Unmet needs haven’t been addressed, he said, while tax cuts that benefited wealthy Iowans and federal government actions have taken away revenue that could have funded public safety, education and health care.
Hall said he expects a “kind of lean” budgeting process. “I don’t get the sense that there are going to be major investments and new programs that are made this year,” he said.
Jacoby said he expects a fiscal 2021 budget that is “even tighter than usual” given projections for continued slow growth for the Iowa economy and his expectations a mild recession could be in the offing.
“I think we’re in a world of hurt as far as the state budget because we have so many unpaid bills. Medicaid is at the top of the list, and we don’t know the total cost of the flooding in Iowa,” he said. “I’m a little worried about the budget right now, and I don’t think the people at home are feeling the benefits of any tax cuts. I think a lot of people are struggling to make ends meet.”