Governor Announces Surplus for FY 2010, Problems with the Budget Far From Over

On Thursday, September 30, the Governor held a press conference to announce the closing of the books for Fiscal Year 2010, which ended on June 30. According to the Governor, revenue exceeded the REC estimate by $235 million and the total surplus (ending balance plus cash reserves) is $754.6 million.

The REC estimate for FY 2010 was -$500.5 million, or a decrease of 8.7 percent compared to FY 2009. Actual revenue decreased by $256 million, or -4.5 percent compared to FY 2009.

This is evidence that House Republicans were correct to call on the Governor to hold a special session to make selective cuts rather than the 10 percent across the board cut he enacted. Selective cuts equal to a 6 percent across the board cut would have been enough to balance the budget without raising taxes.

Because of the Governor’s cut, K-12 schools were forced to use reserves and levy property taxes to refill them. According to LSA, schools increased the cash reserve levy by $104.2 million, or an increase of 53 percent and overall school property tax levies increased $136 million, or 7.3 percent statewide.

During the 2010 session, the Governor and the Democrats appropriated $270 million out of the Cash Reserve Fund for ongoing expenditures in FY 2011. The surplus ($335 million, $100 million in the ending balance plus the $235 million in additional revenue) will go to refill the CRF. However, the expenditures are still on the books for FY 2012, which helps contribute to over $1 billion in built-in expenditures. The $600 million hole in the Medicaid budget is also part of this figure.

Here is the initial list of $1.07 billion built-in expenditures for FY 2012:

  • Medical Assistance (Medicaid) – $600 million
  • K-12 school aid (assumes 0 percent allowable growth) — $236 million *
  • Property Tax Credits — $109.8 million
  • Grow Iowa Values Fund – $50 million
  • Technology Reinvestment Fund and CAT Fund – $24.5 million
  • Child Care Assistance – $15.8 million
  • Other DHS Programs and College Work Study – $31.5 million

* Includes school aid, instructional support, non-public school transportation, at-risk funding and replacing $47.9 million of one-time federal stimulus funds

…Democrats used $735 million of one-time money to fund ongoing general fund expenditures.

In addition, the Democrats used $735 million of one-time money to fund ongoing general fund expenditures. In order to cover this amount of spending again in FY 2012, it would take the entire ending balance and a virtual draining of the cash reserves. Not only would it be reckless to completely drain the cash reserves, all that would accomplish is to push the problem off to FY 2013.

The REC will meet again on Monday, October 11 to revise the estimate for FY 2011 and set the initial estimate for FY 2012. Revenue during the first three months of the fiscal year has exceeded the original REC estimate so it is expected that the REC will increase the estimate for FY 2011.

House Republicans are committed to a line-by-line review of the budget and will continue to suggest budget savings ideas in order to balance the budget without raising taxes.