From this week’s Republican Caucus Newsletter:

In his Condition of the State speech, the Governor punted on the issue of how to solve the $779 million budget gap. He did however say the solution to Iowa’s problems is to borrow $700 million and spend it on infrastructure, roads and flood reconstruction.

Everyone agrees that the two most important issues facing the state this session are flood reconstruction and dealing with the self-inflicted $779 million budget gap for Fiscal Year 2010.

The Governor’s speech only dealt with one of those two issues. The Governor proposes to borrow $700 million in the form of 20-year tax-exempt state revenue bonds. The bonds would be repaid using $56 million in annual gaming revenue from the Rebuild Iowa Infrastructure Fund (RIIF). While not all of the details are known, it is apparent that most of this money would not be spent on flood rebuilding.

The Governor also recommends appropriating $43 million from the Economic Emergency Fund (EEF, commonly referred to as the “Rainy Day Fund”) for flood relief. That leaves $112 million in the EEF. Interestingly, this is roughly the figure that David Underwood of the Revenue Estimating Conference predicted the revenue would be reduced by at the April REC meeting.

The first part of the budget debate is ensuring that the FY 2009 budget is in balance. Currently that is not the case because the Governor needs the Legislature to act on a deappropriations bill and provide a Medicaid supplemental for it to remain in balance. It is unlikely the Legislature will take up a deappropriations bill until late February at the earliest.

The second part is dealing with the $779 million budget gap in the FY 2010. Remember, the budget gap was $563 million when the Legislature left town in April, 2008. This was because of the overspending by the Governor and Legislature. Due to a downturn in the economy, the number grew to $779 million. This will be reduced by roughly $85 million due to the Governor’s across the board cut.

Since the Democrats drained the Senior Living Trust Fund (SLTF), eliminated the Healthy Iowans Tobacco Trust (HITT) fund and virtually drained the RIIF, there is no one-time money to transfer in order to cover the deficit. That leaves the Democrats three options – use gimmicks like leasing the lottery and bonding, raising taxes or cutting the budget. Republicans are ready to help the Democrats cut the budget but are not interested in gimmicks or tax increases.

The bottom line is that this is the typical government-is-the-solution program that will not solve Iowa’s budget mess or grow Iowa’s economy. Republicans support a free market solution that involves making state government leaner and more efficient while not adding to the burdens of the taxpayers.

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