Following the December meeting of Iowa's Revenue Estimating Conference (REC), news outlets began to report that the Fiscal Year 2017 (FY17) state budget - which runs from July 1, 2016 to June 30, 2017 - would have to be cut. In a story in The Des Moines Register, David Roederer, Director of the Iowa Department of Management, stated, "A decline in projected state tax revenue will force $100 million in spending cuts for the current state fiscal year."
However, if you read that statement carefully, you will realize tax receipts themselves haven't declined, just the "projected" amount of revenue increase. In other words, revenue is going up, just not by as much as estimators thought it would. Governor Branstad acknowledged this in his Condition of the State address this January when he said, "While the December Revenue Estimate is lower than previous projections, the estimate still shows a modest increase in state revenues."
This scenario is a little like buying a new big-screen television with surround-sound for Christmas because you believe your boss is going to give you a big raise effective the following January 1 or that grandma is going to send you a big check as your gift this year. When the raise or the check turn out to be smaller than you thought, you find you have overspent your budget. Your "revenue" did go up, just not as much as you "projected" it would, and now you find yourself in budget trouble.
Unfortunately, the Legislature and Governor went ahead and decided to spend right up to the maximum allowed under the law. When the state's revenue did not rise as much as anticipated after the budget was adopted, they had to make cuts to that budget.
In 1992, the Iowa Legislature enacted a General Fund expenditure limit, limiting state spending to 99 percent of the Revenue Estimating Conference's December forecast of state tax revenue for the next fiscal year. But just because you can spend up to 99 percent of the REC estimate, that doesn't mean you should spend the entire 99 percent of the REC estimate.
The Governor and Legislature were faced with budget trouble, necessitating cuts of $118 million from the current fiscal year budget. But it is trouble of their own making. They chose to spend right up to the edge of the REC estimates without leaving a cushion. For the current fiscal year, FY17, tax receipts are still growing, just not enough to cover the additional spending based on the previous, larger estimate of tax receipts. The state isn't taking in less money this fiscal year; the Governor and Legislature are spending too much while assuming the REC's estimates won't change.
The goal for the Governor and Legislature should not be to spend the entire additional revenue estimated by the REC, but rather to leave a cushion. That way, if the REC estimates change, our elected officials will not have to scramble around in the middle of a fiscal year, looking for areas to cut. Instead, they can utilize that cushion to keep the commitments they made when they adopted the budget.
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.
Amy K. Frantz is the Vice President of the Public Interest Institute in Muscatine.