DES MOINES — Gov. Kim Reynolds and majority Republicans in the legislature agree on broad goals for balancing the state’s budget this year and next, but differences emerged Tuesday that may have implications for programs and institutions that depend on government funding.
Reynolds proposes 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. Republicans had concerns about those choices.
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. But the current year budget needs to be pared back by another $34.7 million, through cuts or adjustments by June 30, to be balanced. Cuts 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 get to the $34.7 million figure, the governor plans to de-appropriate $19.4 million in selective cuts to various budget areas, make a $10 million adjustment in Medicaid spending, and use about $11.2 million in revenue the state will gain when lower federal wage withholding begins in February. She proposes taking away the state deduction for federal income taxes paid, and hopes to enact tax changes.
“I don’t know how you cut taxes when we can’t even balance our budget now,” said Rep. Mary Mascher, D-Iowa City.
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. 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 initiatives 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, but she pushed out the timetable for paying back $111 million borrowed from cash reserves to balance the fiscal 2017 budget, proposing two payments of $55 million in fiscal years 2019 and 2020.
“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 pay back the money borrowed from state reserves in fiscal 2019.
The first order of business, he said, will be to make the adjustments needed to balance the current budget. That will offer a better sense of what the state can afford in fiscal 2019, he said, such as the 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.
“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," Schneider said. "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.”
“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.”