DES MOINES — Gov. Terry Branstad and top legislators said Wednesday they will have to be cautious and prudent in formulating a fiscal 2014 spending plan amid growing concerns over the reliability of federal money, prospects for a prolonged drought and a “fragile” economic outlook.

“The good news is we’re in a strong position,” Branstad said.

He held a public hearing Wednesday at the Capitol to solicit comments from Iowans before he spends the next month formulating a fiscal 2014 budget. He will detail the budget to legislators Jan. 15 when he delivers the Condition of the State address to a joint convention of the 85th General Assembly.

Earlier in the day, the state Revenue Estimating Conference revised its projections upward to $6.52 billion for the current fiscal year and $6.74 billion in fiscal 2014. The three-member panel expected the state’s general fund revenue to grow by 3.2 percent this year, which would equate to $206 million, and 3.4 percent in fiscal 2014 — creating a pool of $222.7 million in new money, most of which the governor and lawmakers can use to put together a new spending plan for the budget year that begins July 1.

However, REC chairman David Roederer, director of the Iowa Department of Management and Branstad’s main budget architect, warned that the nation “may be about to go through an extreme makeover” as President Obama and Congress negotiate potential spending cuts and tax increases. Those actions could significantly impact a state government that gets half of its $12 billion in funding from federal sources, he said.

“I think we need to be very cautious,” said Roederer, who noted that federal tax changes could negatively impact an Iowa tax code that permits individuals and corporations to deduct federal taxes from their state income tax liabilities. He added that a 5 percent cut in federal funding would have a $300 million effect on state programs.

“There are so many unknowns out there with potential downsides that we want to be more on the cautious side than the exuberant side.” he said.

While state tax revenues have been strong, Legislative Services Agency director Holly Lyons said the uncertainty is creating a “big wet blanket” effect on the economy. REC member David Underwood of Mason City said it would be prudent for Iowa budget makers to take a “slow-growth approach in the current fiscal environment.”

Rep. Chuck Soderberg, R-LeMars, chairman of the House Appropriations Committee, said majority House Republicans want to construct a fiscal 2014 spending plan that is sustainable.

Sen. Bob Dvorsky, D-Coralville, invited Branstad and GOP legislators to join in a bipartisan effort “to balance the state budget without raising taxes while investing in expanding educational opportunity, creating jobs and filling the skills gap for Iowa workers.”

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During an afternoon budget hearing that was live-streaming on the governor’s website, members of Citizens for Community Improvement who showed up en masse were detained outside the governor’s Capitol office, although a number of their members were allowed to address Branstad, Lt. Gov. Kim Reynolds and two aides while other CCI activists chanted “let us all in” from the hallway under the watchful eye of Capitol security officers.

CCI member Deb Bunka of Ames urged the governor to put people first before corporate creed, business profits and tax cuts.

“Iowa’s budget surplus should be spent on vital public services like education, the environment, health care, infrastructure upgrades to roads and bridges and a fair contract for public employees,” she said.

“We have a budget surplus because of years of spending cuts and now is the time to reinvest in programs and services that everyday people and hard-working families across Iowa depend on,” she said.

Bunka also berated the governor for not allowing all the CCI delegation to peacefully attend the hearing or offer comments “mainly if not entirely because they don’t endorse your agenda.”

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