News from the Hill…
The bill to increase the fuel tax seems to be gaining momentum this week. The big question is will the bill pass or will it ignite and explode? This next week is an important week for this debate. There are two bills, one moving through the process in the Iowa House and the other moving through the process in the Iowa Senate. Both bills have been passed out of the subcommittee and will be debated in the full Transportation Committee early next week. If the bill passes out of the Transportation Committee it will be referred to the Ways and Means Committee. Members of the Transportation Committee tend to be more “friendly” to transportation issues, such as funding. Members on the Ways and Means Committee tend to be more divided on tax issues. Republicans tend to be hesitant or against raising taxes and Democrats tend to be more willing or open to raising taxes. There are twenty-five members on the Ways and Means Committee, fourteen Republicans and eleven Democrats. The bill will need thirteen votes to pass out of committee. This could be an interesting committee meeting and the bill has to pass out of the Ways and Means Committee before it can be debated on the House or Senate Floor. I chair this committee and I am considered the gatekeeper for all tax and fee issues. I am a no vote because I don’t think the bill even comes close to solving the problem and just taking more money from the people of Iowa should not be the answer. However, I am willing to open the gate if it is the will of the body, because I am not an obstructionist, either.
State Revenues…
State revenues fell in January, raising concerns that the state may not meet last December’s projection for growth during the current fiscal year. January’s General Fund revenue was $29.5 million (-5.0%) below what the state took in during January 2014. This put revenue growth for the first seven months at a positive $152.4 million, or growth of 4.1 percent. While still positive, state revenue had grown by 5.8 percent through December 2014. Compared to the Revenue Estimating Conference’s FY 2015 projection in December, actual revenue growth is behind the 6.8 percent increase projected. In terms of actual dollars, actual returns are $100.6 million behind the REC projection.
Spending and Reserves…
As Iowans continue to discuss the proposed state budget for fiscal year 2016 and the level of funding for Iowa schools, some in the education community are urging legislators to spend beyond on-going revenue to meet local school needs. This point of view seems to forget the past 30 years of Iowa history and ignore the state’s economic condition.
In the 1980’s, Iowa’s economy was suffering the full effect of the farm crisis. State finances suffered due to the loss of revenue and questionable accounting practices. Schools and local governments were forced to borrow money while they waited for state aid payments, while the Legislature made financial promises it could not keep. The crisis reached a head when the Legislature enacted major budgeting reforms during two special legislative sessions in 1992.
A central tenet of these reforms was the creation of two reserve funds to avoid the mistakes of the 1980’s. The first of the reserve funds is the Cash Reserve Fund, which allows the state to make on-time payments to schools, local governments, health care providers, and others, is required to have an amount deposited in it equal to 7.5 percent of the General Fund budget that year. The Economic Emergency Fund is required to have an amount equal to 2.5 percent of the General Fund budget. It is to be used when the state is experiencing an economic disaster. Each year this amount rises to equal a total of ten percent of the General Fund budget. For Fiscal Year 2015, the amount in the two reserves rose by nearly $50 million to just under $700 million.
When House Republicans took control of the Iowa House in 2011, Iowa’s two reserve funds were not filled to the statutorily-required levels. Governor Culver and Legislative Democrats had spent from the two funds to maintain their spending practices which spent more than the state collected. This fundamentally flawed approach left the two reserve funds $105.8 million short of their statutorily-required levels in fiscal year 2011.
Thanks to fiscal discipline and a strengthening economy, House Republicans were able to restore both the Cash Reserve Fund and the Economic Emergency Fund to their required levels. I will not vote to place the State’s fiscal house in jeopardy, if cuts need to be made so be it. Improving Iowa’s fiscal house has also allowed the state to utilize ending balances in several significant ways.
“You cannot escape the responsibility of tomorrow by evading it today.”
– Abraham Lincoln
For more information on these and other bills: www.legis.iowa.gov
Until next time,
Tom Sands
