Chet Culver’s Budget Crisis

If you thought that Governor Chet Culver’s polling numbers were bad, they are nothing compared to the devastating revenue projections that the Revenue Estimating Conference (REC) released yesterday. Before yesterday’s adjustment, the REC predicted state revenues of $5.843 billion. That number was adjusted downward at the meeting by a whopping $415 million, or a negative 8.4 percent.

Holly Lyons, one of the three members of the REC said, “It’s dire. It’s severe. It’s probably the worst I’ve seen. What looked like a mild Iowa recession has turned into a significant and severe recession for all states.”

The sobering news has also forced Governor Culver to change his tune. For most of his time in office, Governor Culver has ignored warnings from State Auditor Dave Vaudt that state spending is way out of line with revenues. Instead, Culver has remained optimistic that the state’s economy would roar back to life due to an infusion of cash provided by the Obama administration’s state stimulus plan and his own version of a stimulus package, I-Jobs.

The problem is that none of those one-time funds have done anything to help Iowa’s economy or to hold down the state’s historic unemployment numbers. For some strange reason, Lyon’s thinks it’s a good thing that the federal stimulus and Culver’s I-Jobs haven’t helped Iowa’s economy. Lyons said, “The good news is that Iowa may not yet have seen the boost from the federal stimulus money being poured into infrastructure projects across the state.”

The federal stimulus and Culver’s I-Jobs program have provided the state upwards of $1.4 billion in one-time money to infuse into the state’s economy. The problem is that none of this money went to create long-term jobs. Instead, the stimulus money was used keep the state from having to make massive budget cuts last year, and Culver’s I-Jobs initiative spent $830 million on construction projects. While investing in infrastructure is important, a storm sewer or a stretch of paved highway doesn’t keep anyone employed after the project is completed.

Governor Culver and the Democratic controlled legislature are $315 million short of balancing the current year budget which ends on June 30th of 2010. Culver has ignored the Republicans’ pleas to hold a special session to make budget cuts in the past, but with the current budget severely out of balance so early in the fiscal year, he may have no other choice. Culver is scheduled to announce his plan of action later this afternoon at a press conference.

Republicans have warned that making another round of across-the-board cuts isn’t the smart thing to do. Republican gubernatorial candidate Chris Rants said, “I believe an across the board cut is a dumb and lazy way to handle the problem. A smarter solution that reflects the priorities of Iowans is to make a series of targeted reductions and program eliminations.”

Rants and others believe that a six to seven percent across-the-board cut could also lead to higher property taxes. “Across-the-board cuts reduce state spending, but unfortunately they increase property taxes on all Iowans,” said Iowa Farm Bureau Federation President Craig Lang. “The funding of K-12 education is a partnership between state government and local property taxpayers, so when an across-the-board cut is ordered, the state’s share is reduced, which means property taxpayers have to pick up the shortfall. An across-the-board cut of 7 percent to meet the decline in revenue could raise property taxes for Iowans by $195 million. This is in addition to the increase taxpayers have already realized to pay for school, city, and county government operations. Because of recent property evaluations, we are already approaching an 8.5 percent property tax increase that will impact not only farmers, but homeowners and business owners,” said Lang.

Making matters worse for Governor Culver is the FY 2011 budget that he will have to propose during the next legislative session. With the latest estimate, the FY 2011 budget gap currently stands at $1.4 billion. With only $200 million in federal stimulus dollars remaining and only $450 million in reserves, Governor Culver and his team will have their work cut out for them next spring. Even if Culver could use every dime of those funds, he would have to find more than $800 million in revenue or cuts to make his budget balance.

In previous years, Governor Culver could raid the Senior Living Trust Fund to help balance the budget. Those funds no longer exist because the Governor spent that money and eliminated the funds. Outside of another round of federal stimulus, Governor Culver has very few places to find the necessary funds to balance his budget.

Photo by Dave Davidson