DES MOINES — Gov. Kim Reynolds said Monday she expects a “tough” fiscal 2019 budgeting cycle but believes there will be room for state income tax reductions if federal changes are enacted that create a revenue windfall via Iowa’s federal deductibility law.
Reynolds began the process of assembling her first state budget blueprint since succeeding former Gov. Terry Branstad last May by conducting hearings with state executive-branch agency leaders that will run into early December.
Executive-branch agencies have requested about $7.306 billion for the next fiscal year, which would be about a 3.4 percent increase over the current-year level of $7.067 billion. The state Revenue Estimating Conference set a preliminary growth estimate in October of fiscal 2019 tax collections at $7.425 billion but the panel meets again Dec. 11 to finalize the official revenue level available for budgeting by the governor and Legislature next session under Iowa’s 99 percent expenditure limitation law.
Most of the agency directors who met with the governor Monday made status-quo requests for the next fiscal year, which begins July 1, 2018, but big-ticket askings are expected for human services/Medicaid spending and Reynolds plans to repay $111 million in fiscal 2019 that was borrowed from the cash reserve to balance last year’s ledger. Also, K-12 education is among Reynolds’ priorities and each percentage increase costing slightly more than $40 million, according to projections by the nonpartisan Legislative Services Agency.
“We’re anticipating another tough budget year so we want them going into the next budgeting cycle being conscientious of what the environment looks like today,” said Reynolds. She said changes to Iowa’s collective bargaining law should give agencies more flexibility in managing their spending going forward.
Reynolds said her administration is closely monitoring state tax collections and progress by Republicans who control Congress and President Trump in pulling together a federal tax reform package which would impact the state’s fiscal position given that Iowans can deduct their federal tax liabilities from their state income taxes. Lower federal taxes would reduce the amount that Iowans could deduct on their Iowa returns.
Reynolds said easing Iowans’ tax burden is a key element of her priorities to create a competitive business environment, boost workplace skills for the jobs of tomorrow, educate students for the knowledge economy, pursue energy innovations that keep down business costs and expand broadband connectivity to all parts of Iowa.
“We’re monitoring the revenue, we’re seeing what that looks like but I think (tax reform) is really the next step that we need to take to make Iowa competitive and so it’s my intent to continue to take a look at that,” she told reporters Monday.
“There are still a lot of variables out there that we are watching,” she noted.
During her budget presentation, Chris Kramer, acting director of the state Department of Cultural Affairs, said building and sustaining culturally viable communities have become an important element in creating a competitive business climate.
“Employers tell us that this is critical as they attract workers to jobs located in our small towns and our larger cities, and now more than ever employees weigh arts, culture and quality of life in their career decisions,” Kramer said. “We must continue to invest in order to keep our talent.”
Katherine Averill, superintendent of the Iowa Division of Credit Unions, said her agency needs an extra $255,000 to upgrade technology to protect a database of highly sensitive information from cyberattack on a system that is outdated and obsolete. “The likelihood of breach is present in this current state,” she said in promoting a three-year upgrading project.