State revenues coming in strong
The unseasonably warm weather has inserted a sense of urgency into the legislative process. Be they gardeners or farmers, legislators are ready to get into the dirt.
Old hands were encouraged to see the first sign on the “Legislative Wind-down” this week, when both the House and the Senate didn’t debate on Thursday, because there were no bills eligible for debate. A few eyebrows were raised, as many of us recognized this as the first indication that we are, indeed, headed toward adjournment.
The policy committees and the budget subcommittees have done their work. They have heard the last bit of testimony for the year, and all the bills that will be debated this year have passed through at least one committee. A few of those bills have been referred to the Ways and Means Committee if the bill creates a new fee or tax, or if an existing fee or tax is increased. So it can be said that the preparation is completed, and it’s game time. There will be major differences between the House and the Senate on many of the bills, and it will be left to the Conference Committees to iron out the differences between the two bodies before we come home at the end of session.
Passing a budget is required work. It is also difficult work, as both parties have competing ideas. The House majority’s proposed budget increased spending approximately 1 percent over last year. The governor’s budget proposal increases spending by 4 percent and the Senate majority’s by 5.5 percent. There is a $300 million spread between the House and the Senate. So the negotiators have their work cut out for them.
The good news is that state revenues are coming in stronger than anticipated and unemployment numbers appear to be declining. Historically, revenue growth is in the 3%-4% range annually. The growth in Medicaid, school aid and state government salaries can easily consume any new revenue growth. Any increased spending, other than the increases previously noted, push the budget into unsustainable territory.
Changed eligibility requirements for Medicaid under the Federal Healthcare Bill will add 150,000 new enrollees to the program. This only creates greater unsustainability.
Iowa’s budget relies heavily on federal revenue dollars. Around $6 billion comes in annually from the feds. Most of this money is not re-appropriated out, but instead goes directly to subsidize state-run programs. Future reductions in federal spending will have a major impact on Iowa’s ability to fund some of these programs.
Also at the federal level, we hear about income tax cuts that are set to expire. You will recall that Iowa’s state income tax rules include federal deductibility. That means the more income tax you pay to the feds, the less you will pay to the state. The result: Iowa state revenues will lose $376 million over the next four years.
Fiscal restraint is absolutely necessary in order to keep our state on an even keel. I remain dedicated to responsible spending.