Auditor: FY 2010 Budget Spends More Despite Revenue Decline, Creates a $1 Billion Gap in FY 2011

On Monday, May 18, State Auditor Dave Vaudt gave his review of the FY 2010 budget approved by the Legislature. The Auditor was harshly critical of the Democrats and their continued use of one-time money to spend far more than the state is receiving in ongoing revenue.

Ironically, the adopted budget responds to the decline in revenue with an increase in spending.

In his review the Auditor states “Iowans heard many times during the session about the difficult choices being made to ‘cut the budget’. Ironically, the adopted budget responds to the decline in revenue with an increase in spending. Once again, the adopted FY 2010 budget continues poor budgeting practices while pushing the tough decisions to the next fiscal year.”

According to the Auditor, there are four main problems with the newly approved budget:

  1. Stimulus money used to solve a “revenue problem” – “There is no question that many departments have taken deep cuts in their appropriations…with all those spending cuts it is disappointing to see an increase in total spending for general fund services. Elected officials used the financial challenge facing Iowa to justify spending cuts while they used federal stimulus monies to protect, or even increase, spending in other programs.”
  2. Foundation of the budget is seriously flawed – While ongoing revenues available are declining, ongoing spending is increasing. This spending increase in the time of declining revenues is possible because the legislature appropriated $529 million of one-time federal stimulus money to cover the shortfall. Auditor Vaudt said “Instead of using stimulus money to simply offset revenue losses, our elected officials are using these one-time monies to go on a spending spree. This decision continues the technique of delaying tough decisions until tomorrow…”
  3. Short-term focus creates a huge problem for FY 2011 – Compared to FY 2007 (the last budget approved by House Republicans), in which there was a revenue shortfall of only 1 percent compared to ongoing spending, the FY 2010 revenue shortfall is 13 percent. Even using the remaining stimulus monies to deal with a spending gap of over $1 billion FY 2011, that leaves a shortfall of $858 million to address. Auditor Vaudt said “This shortfall for FY 2011 means state revenues would have to grow by nearly 15% to cover the shortfall – an unlikely scenario at best.”
  4. Bonding – the high cost of short-term thinking – The FY 2010 budget authorized $890 million of bonds, resulting in just $765 million in net proceeds. The proceeds will be used over the next two years for infrastructure projects. “Over a 25-year period, every $1 of new construction will cost the taxpayers $2.18,” said Vaudt. “People should know there’s an opportunity cost to taking on this kind of debt.” Vaudt noted that $248 million was diverted from the Rebuild Iowa Infrastructure Fund for ongoing spending over the past two fiscal years. Had the money been used as intended – for infrastructure projects – the bond offering could have been reduced, saving the taxpayers over $250 million in interest and other costs.

The Auditor concluded by saying “I have told elected officials for years that they can’t change history but they can learn from history and by doing so they can begin to positively impact the future. Instead, year after year our elected officials choose the easy road, rather than the best road, for Iowa’s financial future. This nonsense has to stop – we are severely damaging our financial stability.”

The Auditor’s review and comments back up what House Republicans have been saying about Culver and the Democrats’ first three budgets. It also confirms that the Democrats’ budget legacy will be wild spending, unprecedented debt for the next 25 years and huge tax increase in FY 2011.