Across the Board Cut: What it Means

From Republican Leader Kraig Paulsen:

The Revenue Estimating Conference (REC) met last Wednesday to revise the revenue estimate for FY 2010 and set the revenue estimate for FY 2011. The REC is a panel of three people — Richard Oshlo (Governor’s appointee), Holly Lyons (Legislature’s appointee) and David Underwood (private sector representative, appointed by the other two members).

Recall a fiscal year runs from July 1st through June 30th and we are currently in FY2010.

The previous REC estimate for FY 2010 was $5.843 billion, or negative 1.4 percent compared to actual adjusted FY 2009. The new estimate is $5.438 billion, or negative 8.4 percent compared to FY 09. This is $415 million lower than the estimate used to create the FY 2010 budget.

As a result the Governor ordered a 10% across the board cut. This cut applies to all General Fund expenditures regardless of need or priority. The cut the Governor made is somewhat larger than was necessary in order to hedge against a further reduction in December and possibly provide some backfill next January.

Most Iowans will see the impact of this cut in their property tax bill. Among other things, an across the board cut reduces the state funding for the K-12 education foundation formula. This is the amount the state provides school districts on a per pupil basis. As across the board cut does not reduce the amount of money a school district can spend.

If the state does not provide its statutory share, school districts have three options: cut spending, use reserves or raise property taxes. My expectation is cash reserves will be the first response. However, realize these cash reserves will almost certainly be refilled using the cash reserve tax levy against property.

As a result of the Governor’s actions, Iowans could see their property taxes increase as much as $250 million dollars.

I think this is regrettable. Last spring when this budget was passed we could see all this coming and nothing the REC said or did was a surprise. Even with this information the current year’s spending was the largest in the history of Iowa. We did not have to be in this position.

Additionally, the REC initial estimate for FY 2011 is $5.412 billion, or negative 0.4 percent compared to the new estimate for FY 2010. Because of the promises that have been made, next year is again going to be a very difficult year.

The state has a severe spending problem and it needs to stop. Programs and expenditures need to be reviewed for need and benefit to Iowa. Those that fail the test or are at the bottom of the list need to be eliminated – not reduced by10%.

House Republicans will continue our efforts to offer sensible solutions and reduce spending rather than asking the taxpayers to pick up the tab. Iowans deserve a state government that is effective, efficient and thrifty.

You may recall that during the 2009 legislative session, House Republicans offered over $330 million in cost-saving measures. Nearly all were rejected. Also rejected was a searchable budget database that would allow Iowans to see how the state is spending taxpayer dollars. Targeted and meaningful budget efficiencies are more responsible than resorting to haphazard across the board cuts.

Cuts that potentially could be backfilled through increases in Property tax levies:

K-12 School District State Aid $227,177,440
Property Tax Credit 10,140,000
Mental Health Services 13,588,200
Total Potential Property Tax Impact $250,905,640