Revenue Lags for Fiscal Year 2009

Fiscal Services: FY 09 Budget is $100 Million in the Hole

On Monday, June 1, Holly Lyons of Fiscal Services distributed a memo regarding the status of general fund revenue for FY 2009. The news was not good despite the small steps the Governor and the Democrats took to balance the budget as revenue for FY 09 will be at least $100 million less than the REC estimate.

After dropping by 15 percent in April, general fund revenue for the fiscal year dropped 12.4 percent in May (compared to May, 2008). This means, barring a big turnaround in June, revenue will not meet the -2.6 percent REC estimate for FY 2009.

The Democrats left themselves with a $94.6 million cushion ($44.6 million ending balance plus the $50 million the Governor can transfer from the Economic Emergency Fund). Lyons states that if revenue comes in below -4.9 percent, the $94.6 million will not be enough to cover the shortfall.

A quick look at the past few months shows that the situation is not likely to improve in June:


Month Percent Change in Revenue
November 3.80%
December -14.80%
January 1.40% *
February -8.50%
March -7.60%
April -15.10%
May -12.40%
* January showed positive growth due to some revenue from December being pushed into January. If the revenue was shifted back to December, both months would have been negative.

Over the past two months (April and May), net General Fund receipts fell $161.4 million compared to the same two months last year, and net General Fund revenue on a July 1 to June 30 cash basis is now down $248.3 million year-to-date. The REC projection calls for a decrease of $157.9 million for the full fiscal year (excludes transfers), so cash year-to-date growth is $90.4 million below the estimate.

The LSA has calculated that net revenue for the remainder of the fiscal year (June through the close of the books September 30) must be greater than negative 4.9% for actual revenue for the year to be within the $94.6 million available.

The Governor continues to say that all is well and that Iowa is better off than other states. He also says that a special session will not be necessary to fix FY 2009 because he can transfer unused Medicaid money to cover the difference. Medicaid is projected to run a $16 million surplus, all due to the use of one-time federal stimulus money.

…since the FY 2010 ending balance is $99 million, the entire ending balance will be wiped out once the books close on August 31.

However, since the FY 2010 ending balance is $99 million, the entire ending balance will be wiped out once the books close on August 31. And that is before the REC meets in September to lower the estimate. If FY 09 comes in at -4.5 percent or lower, there is virtually no way the REC will not lower the -2.8 percent estimate for FY 2010.

If the revenue is more than $110 million short, the Governor would likely have to call a special session to put the FY 09 budget back into balance. It really can’t wait until January and be fixed retroactively because the Governor cannot risk the Comprehensive Annual Financial Report (CAFR) showing the budget out of balance – that report is used by bond rating agencies and it could lower the state’s Triple A bond rating that he is always bragging about.

Since all of the money has been spent, the only choice the Governor has is to ask the Legislature to transfer more money from the cash reserves or use the remaining federal stimulus money. Either of these two options will solve the FY 09 budget but make things even worse in FY 2010 and FY 2011.

The facts haven’t changed. The Democrats spent too much, cut too little and once again are likely to be left with two budgets that are likely out of balance (FY 09 and FY 10) and a third (FY 11) that has a $1 billion spending gap.

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Dansette