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Eroding tax receipts likely signal budget cuts in Iowa

DES MOINES -- Gov. Terry Branstad and state lawmakers likely will have to cut about $100 million in spending from the current state general fund budget after a state panel Monday lowered the rate it expects state tax collections will grow between now and June 30, officials said Monday.

Members of the state Revenue Estimating Conference lowered its October tax collection target for the current fiscal year by $96.2 million to nearly $7.212 billion -- which still represents 4.2 percent growth for the year but less than previously expected as farm income and other Iowa economic sectors lag.

The three-member panel also shaved about $51 million from its fiscal 2018 projection, meaning the governor and GOP-led Legislature can expect about $7.556 billion, or 4.8 percent growth, in revenue when they meet in January to chart a new state general-fund spending plan.

"We're still having positive growth," said David Roederer, director of the state Department of Management who also serves as Branstad's budget director and leader of the revenue panel, "it's just not at the rate that was anticipated."

With the state's ending balance depleted but its cash reserves full at about $730 million, state budget-makers already were looking at a fiscal 2017 shortfall before Monday's lower tax collection projections exacerbated the problem.

Branstad, meeting with representatives of the Older Iowans' Legislature earlier in the day in his Capitol office, said he anticipated he would have to recommend a "modest de-appropriation" for the current fiscal year when he presents his budget plan to state lawmakers on Jan. 10 with his Condition of the State address.

"We probably have to cut about $100 million out of the current budget," Roederer told reporters after the REC meeting in which he pushed for higher tax growth projections than conferees Holly Lyons and David Underwood supported. Lyons had recommended lowering the growth projections by nearly $200 million through June 30, 2018, but the panel agreed to trim $147.2 million from its October estimates.

"We have been looking at the possibility that we would have some reductions," Roederer said, but added it was premature to detail what selective spending cuts might be proposed. He ruled out the governor ordering an across-the-board reduction and he said the plan would not call for reducing the level of state supplemental aid that K-12 school districts are receiving this year.

"There's a difference between the economy growing, and then government needing more than what the economy is currently growing at in order to honor the commitments that have been made," said Roederer, who noted 4 percent yearly growth is still healthy but he called plans by GOP legislators to cut taxes next session "challenging" unless they find a "revenue-neutral" way to accomplish the changes.

Sen. Bill Dix, R-Shell Rock, who will take over as the Senate's majority leader in January, said Monday's REC numbers underscore the need for economic growth in Iowa and reform in state government.

"Senate Republicans are committed to implementing pro-growth policies which will provide confidence to job creators and reform government to protect the taxpayers," Dix said. "These policies will put Iowa on a strong path to address the current budget situation."

Across the Capitol rotunda, Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, said state revenue so far this fiscal year has been flat, noting that "a sluggish agricultural economy, driven by low commodity prices, continues to have a ripple effect in other industries throughout the state. This challenge will require us to closely examine the effectiveness of every program to find areas of efficiency and duplication."

During Monday's REC meeting, Underwood noted there is still uncertainty in Iowa's economy, with industrial sales and manufacturing sectors weak and sales taxes lagging even though wages and employment are up slightly.

Lyons said Iowa's growth continues but at a "decelerating or flattening" rate that is "perplexing." Roederer said Iowa's economic indicators have "been a mixed bag," but he was optimistic about fiscal 2018 when he expects to see more positive news out of Iowa's agricultural sector.

Rep. Chris Hall, D-Sioux City, ranking member of House Appropriations Committee, accused the Branstad/Reynolds administration and House Republicans of putting the state general fund budget "$135 million in the red and stalled the state's economy."

"It's clear their unsustainable tax giveaways to out-of-state corporations have not produced good jobs, skilled workers, rising incomes for hard-working Iowans, or a stronger economy like they promised," Hall said in a statement.

"I hope Republicans and Lt. Gov. (Kim) Reynolds will heed the warning from our non-partisan budget experts," he added. "We must recognize that short-changing schools again to make way for massive corporate tax giveaways will not help working families or grow Iowa's economy."

Branstad, Reynolds expect smooth transition of power

DES MOINES – Gov. Terry Branstad and Lt. Gov. Kim Reynolds said Monday they expect a smooth transition of power next year presuming he is confirmed by the U.S. Senate to serve as President-elect Donald Trump’s U.S. ambassador to China and resigns to turn the governorship over to Reynolds.

Branstad said he will continue in his role as governor by presenting the Condition of the State address and a two-year state budget proposal on Jan. 10 and will work as a team with Reynolds during the two-tracks of his confirmation process and the 2017 session until the “historic” change of leadership at the top state executive post takes place once he has secured his new federal assignment.

“The reality is that we’re really not going to do anything differently,” said Reynolds, who expected to be sworn in once Branstad resigns as governor and to appoint a new lieutenant governor to work with her in an administration that generally will carry on many of the same practices and people as the current Branstad-Reynolds team. Both Branstad and Reynolds said the transition of power they envision is spelled out in the Iowa Constitution and the state code.

“It’s unique. I never imagined this,” Branstad told reporters during his weekly news conference. Given the uncertainty of the timetable for his Senate confirmation, Branstad said he could well be governor during much, if not all, of the 87th Iowa General Assembly’s 2017 session, which is slated to run 110 days.

Branstad said there is “a huge amount of paperwork” associated with his new appointment, but he doesn’t know when he’ll begin that process given that Trump won’t be inaugurated until Jan. 20 and then there is a 42-day review process before confirmation proceedings would be scheduled with the Senate Foreign Relations Committee. He hoped to meet with every committee members in advance of his confirmation hearing but he didn’t believe he would need to be in Washington more than a few days during the session.

The governor said he and his wife talked with current U.S. Ambassador to China Max Baucus last weekend and expects to have more discussions as his appointment proceeds for an office with “a big staff” that oversees the embassy and five consulates in China. He declined to discuss recent developments as it relates to Trump’s approach to America’s “One China” policy involving China and Taiwan, saying it would be inappropriate for him to weigh in given his appointment is pending.

“It’s not for sure. I’ve got to be confirmed by the Senate before I become the ambassador."

He is taking that responsibility very seriously, Branstad told reporters.

“It’s not my role to be setting policy, but rather to be one that helps implement policy and act as a go-between,” he added. “There are a lot of challenges out there today. I understand that I have been appointed to a delicate and difficult position and I will do my very best.”

Branstad later told leaders of the Iowa Older Iowans Legislature his daughter may take a leave of absence from her teaching job and move her family to China to be with him and his wife, Chris, once they have settled in his new assignment.

Reynolds said ensuring a smooth transition when she becomes Iowa’s first female governor “is paramount” and she expects to maintain the same partnership with the lieutenant governor she appoints as she had enjoyed with Branstad for six years.

“She’s in on all the decision-making,” Branstad said. “She has from the beginning. We will continue to work as a team.”

Branstad said the upcoming state budgeting cycle will be challenging and he was “very hopeful” the new GOP-led Legislature will approve state supplemental aid to schools for the next two fiscal years within the first 30 days of the new session which opens Jan. 9.

Last week House Speaker Linda Upmeyer, R-Clear Lake, said she expects the Legislature would set fiscal 2018 state funding for K-12 schools early in the session but she was reluctant to commit to a second year of funding more than 18 months out given the uncertainty surrounding state tax collections.



DDreeszen / Jerry Mennenga