State Auditor: Democrats’ Budget Spends Too Much

On Friday, April 16, State Auditor David Vaudt released his review of the FY 2011 budget approved by the Legislature and signed by the Governor.

The Auditor states that the Democrats simply “kicked the can down the road” by using one-time funds and because of that, next year’s Legislature will again face a $1 billion spending gap.

Auditor Vaudt’s criticisms are divided into four areas:

  1. Government reorganization fails to yield necessary results. The Auditor calculates that the government reorganization bill and Executive Order combined to save $108 million in general fund dollars. He says while this is significant, it represents less than 2 percent of the true cost of providing general fund services. In addition, true total expenditures increase by $140 million, meaning that the Legislature approved $248 million of additional spending to offset the estimated savings. Vaudt said “It’s like a family with a $250 a week grocery bill finding $4 a week in savings and deciding to celebrate by having a $9 steak per week, increasing the grocery bill to $255. Would any Iowa family consider this ‘savings’ or is it just Iowa state government that does?” House Republicans argued that the state government reorganization bill did not go far enough and the Auditor clearly agrees.
  2. It’s like a family with a $250 a week grocery bill finding $4 a week in savings and deciding to celebrate by having a $9 steak per week

  3. Budget creates a funding cliff due to reliance on one-time resources. According to the Auditor, the Legislature uses over $700 million in one-time resources that will not be available for use in FY 2012. In addition, nearly $90 million of general fund costs are shifted to other funds. This creates a huge spending gap in FY 2012 when the one-time money goes away. This spending gap is referred to as a “funding cliff” because of the severity and suddenness of the drop in available resources. House Republicans shared similar concerns while the budget was being approved and it was one reason why all House Republicans voted against the entire budget approved by the Democrats.
  4. Spending down the “rainy day” funds – cash reserves. The Auditor states that he has continually cautioned that the state’s cash reserves would not last long in the face of a true fiscal crisis. Vaudt’s advice has been proven correct. The balance of the cash reserves is projected to be approximately $200 million at the end of FY 2011 – down nearly $400 million from FY 2009 when the reserve funds were full at 10 percent. Reduced cash reserves create cash flow challenges and severely limit Iowa’s ability to deal with the continuing fiscal challenges looming ahead. House Republicans warned that the Democrats were spending down the reserves at rate that was unsustainable and the Auditor agrees.
  5. Bumps in the road for Fiscal Year 2011. Vaudt noted two challenges for the FY 2011 budget. First, unfunded school aid totals $162 million. Schools can deal with the reduction by cutting costs or raising property taxes. “The Legislature chose to push the tough decisions down to the school districts,” the Auditor said. Second, nearly $50 million in collective bargaining costs are unaccounted for. This means additional furlough days or layoffs in order to fund the raises contained in the collective bargaining agreements. Vaudt noted there will be a temptation to hold off on the layoffs until after the November elections so the public is not alerted to the problem. Delaying the inevitable would simply double the negative impact to services over the second half of the fiscal year. The increase in property taxes was another reason why no House Republican voted in favor of the Democrats’ budget.

The Auditor concludes by saying that due to the use of one-time funds, the Legislature will face a $1 billion spending gap next year. “As was the case for FY 2011, we face a huge gap next year. Iowa is, however, essentially out of easy options for dealing with the spending gap. The taxpayers of Iowa deserve better than this continual ‘kick the can down the road’ budgeting approach.”

House Republicans concur with the Auditor that the Democrats’ budget spent too much, saved too little, raised property taxes and therefore did not receive any Republican support.