Iowa Legislature is Set to Increase the Budget

The largest, most time-consuming job your Iowa Legislature has each year is to build a state budget for the next fiscal year. Iowa’s fiscal year runs from July 1 until the following June 30. The budget year is numbered by the year in which it ends. Therefore, Fiscal Year 2016 (FY16) began last year on July 1, 2015, and runs until June 30, 2016. It is important to keep the correct Fiscal Year in mind as we review our starting budget numbers as we build FY17.

Another thing to remember is Iowa has a legal cap on expenditures. The law takes predicted “ongoing revenue” and money left over from the previous year’s budget (surplus carryforward) and allows the Legislature to budget 99 percent of ongoing revenues plus 100 percent of the surplus carryforward. This number is referred to as the 99 percent expenditure limitation. Let’s recap:

• Ongoing Revenue = net tax receipts plus transfers collected over one Fiscal Year
• Surplus Carryforward = money left over from the previous year’s budget
• 99 percent Expenditure Limitation = 99 percent of Ongoing Revenue + 100 percent of Surplus Carryforward

Here’s how this looks in January 2016.

The Revenue Estimating Conference has forecast ongoing revenue for FY16 to be $7.045 billion. This number has decreased since the budget was set last year and each time the Revenue Estimating Conference has met. For FY16, the expenses were fixed at an amount equal to the ongoing revenues, but income slid from a higher estimate to a lower reality as taxes were collected. As a result, we are now spending considerably more than we are taking in. The deficit is made up from the ending balance. It looks like we will spend between $175 to $200 million of our ending balance to finish out FY16, leaving us with around $150 million to carryforward into FY 17.

FY17 estimates call for us to bring in 4 percent more tax revenue, but expenditures are bigger also. To begin our budget, we are looking at $7.327 billion in ongoing revenue. This is $153 million higher than our ongoing expenses from FY16. But we are looking at built in increases in Medicaid and the Obamacare state exchange ($75 million), Teacher Leadership Compensation ($53 million), and the Business Property Tax Credit Program ($25 million). Added up, we are expecting these expenses to equal new revenue. But we have not added in any additional money for State Supplemental Aid for schools or water quality initiatives, together estimated to be more than $200 million in current plans.

You can see how large and tight our state budget will be this year. Over the years I have voted against budget bills, knowing that growth in spending in the good years can lead to problems in the tighter years. Our farmers know this, our businesses know this, and yet again, our state legislature will have to learn this.