imageOk, admittedly this isn’t a sexy topic, but disagreement on this topic provides a showdown between the Iowa Legislature and Governor Terry Branstad.  The Legislature just passed a one-year budget today.  Last Saturday Governor Branstad promised to veto any budget sent to him that isn’t a two year one.

Why should Iowa switch to a biennial budget?  Tim Albrecht, communications director for Governor Branstad, makes the case:

Two year budgets will put Iowa on a path toward predictability and sustainability.

In the past, the Legislature has used one-time sources of revenue to plug budget gaps. This included the so-called federal “stimulus,” and robbing other funds such as the Snowmobile Fund and the Senior Living Trust Fund – 89 funds in all were used not for their intended purpose, but instead to fill holes in the General Fund. This allowed legislators and the governor to spend more than the state took in, circumventing our 99% law with “notwithstanding” language.

By looking at a budget over the next two years, it will be clear that those funds used to fill gaps truly are ONE-TIME monies, and helps legislators and the governor identify this early, rather than being surprised by it the next year.

Democrats say a two-year budget will make it difficult to adjust upcoming budgets to changes in revenue.  But that seems to be precisely the reason that the Branstad administration wants to switch to a biennial budget – to avoid writing a budget based on one-time monies that won’t be there the previous year.  This is something that the Culver administration and Legislative Democrats were infamous for.  Albrecht explained…

When Gov. Branstad took office, he discovered approximately $770 million in one-time funds were diverted to the state’s General Fund, and he put a stop to this by funding the state’s obligations out of the true General Fund budget, where it belongs. That is the budget gap the state is facing.

In fact, the state’s Medicaid program alone faced a $540 million budget gap next year. Why? Because that $540 million was paid for from federal bailout money that won’t be there this year. (As an aside, Obama’s health care plan would add 100,000 more people to our Medicaid roles – imagine the additional hole that would create.)

Two-year budgeting ends the gimmicks, it ends the surprises, and it restores honest, transparent, predictable and sustainable budgeting. Gov. Branstad talked about this at every stop during his campaign, and now nobody should be surprised that he is making good on his promise.

Which budget is the best?  It really depends on the state officials.  If they are committed to good implementation that seems to bee the key rather than the actual method of budgeting, (Public Affairs Research Council of Louisiana, "Results of PAR Survey on Annual vs. Biennial State Budgeting,” Baton Rouge, LA., 1982).

Some stated benefits of a biennial budget:

1.  It is more conducive to long-term planning.  But many states along with the Federal government do long-term planning independent of their budgeting… so there isn’t really any evidence that a biennial budget really aides with that.  Ronald Snell in an article at the National Council of State Legislatures website says that Connecticut has reported improvement in this area with a switch to biennial budgeting, “Analysts in Connecticut, however, emphasize that the governor and legislature have greatly increased their long-term budget forecasting and analysis since the state adopted a biennial budget in 1991.”

2. It helps with program review and evaluation – a turn to outcome based budgeting.  Albrecht noted this as an advantage, “it gives the Legislature more time in that second year to really dig into the various programs within state government, and offer further scrutiny of resources as to where we can find efficiencies or eliminate duplication.”  Snell reports that Connecticut hasn’t noticed greater improvement in this area, but want to maintain a biennial budgeting process because of the potential that does exist, but two other states have seen this benefit, “Analysts in two other biennial budget states–Ohio and Oregon–emphasize that their budget cycles facilitate policy consideration and reflection. Oregon’s biennial legislative schedule provides time for interim study committees to undertake major projects in the absence of a legislative session.”

3. Biennial budgeting reduces executive branch costs of preparing budgets.  Snell notes that state’s experiences do bear this out, “Annual budgets certainly create greater pressures on all budget staff and policy makers than biennial budgets, since in many states preliminary work on the next fiscal year’s budget is simultaneous with beginning the implementation of the current budget and wrapping up the previous fiscal year’s budget.”

Stated consequences of a biennial budget:

1. Accurate forecasting of revenue – which Iowa Legislative Democrats say is a problem with a switch.  Snell notes however, “Between 60 percent and 70 percent of most states’ general fund appropriations are for elementary, secondary and higher education, health care programs, other entitlement programs, and corrections. Such programs are not susceptible to sweeping changes in funding levels or program redesign. Predictability and stability characterize them regardless of the budget cycle.”

He also notes that no budget cycle can isolate a state government from economic cycles that can cause instability.  He also noted that states have adopted mechanisms to deal with unexpected fiscal and policy events.

Iowa can do the same.

Again ultimately sound fiscal policy in Iowa will have more to do with the Governor and the Legislature’s commitment to it than the budgeting cycle.  Looking at the pros and cons… I do believe the potential benefits really do outweigh any possible consequences.

  1. It may be unfair to accuse someone of flip-flopping when nearly 30 years separates the flip from the flop. But according to the article cited above, it was during Branstad’s first year in office, back in 1983 when Iowa switched from biennial budgeting to annual budgeting. It is unclear whether he signed that bill into law, or if it had already been signed and became effective under his watch.

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