Iowa Gov. Kim Reynolds has asked lawmakers to use about $700 million of state savings to cover the gap between her proposed budget and the amount of revenue the state is expecting in the coming fiscal year.
For the past several years, the Republican-led Legislature has spent far less than the amount of money the state took in each year. But income tax cuts have led state revenue estimators to project that Iowa will bring in about $8.7 billion in the next fiscal year — less than the $8.9 billion spent this year.
Reynolds proposed a $9.4 billion budget Tuesday. According to her office, 95% of her proposed budget increase is related to K-12 education — including a 2% increase to base per-pupil funding — and increased Medicaid costs.
To cover the gap between estimated revenue and her proposed budget, Reynolds wants to pull money from the Taxpayer Relief Fund, which was set up by GOP lawmakers to pay for tax cuts, and from other reserves.
While lawmakers do not have to follow the governor’s budget request, some Republican leaders said they are not worried about dipping into state savings. House Speaker Pat Grassley, R-New Hartford, said he has a “high level of confidence” that the Legislature has saved up enough money to cover what he said is a short-term decline in revenue.
“Some are going to say, ‘Well, that’s just one time money. You’re putting the budget upside down,’” he said during Iowa Press on Iowa PBS. “I think when you have roughly a $9 billion budget and you have $6 billion in reserve accounts, that’s not one time. That’s money that was an overpayment from the taxpayer that we built in there on purpose, and put mechanisms in place to start pulling money out of those.”
Rep. Gary Mohr, R-Bettendorf and chair of the House Appropriations Committee, said lawmakers will probably tap into reserves.
“Those funds are available for us to use, which is our intent,” he said. “We’ve run the numbers out five to 10 years and we’re very comfortable that this is doable in the state of Iowa with the reserves that we have. And again, we’ll present a conservative budget going forward.”
Mohr said the state’s financial picture could change if there is a recession or “catastrophe,” but as things stand, he said Iowa can balance its budget for many years to come.
Sen. Janet Petersen, D-Des Moines, is the top Democrat on the Senate Appropriations Committee. She said Republicans should share their five-year projections that they’re using to say Iowa is on solid financial footing.
“I think Iowans would be curious, as well, just to see what type of trajectory we’re on,” Petersen said. “We know that they have some growing expenses, and just wanting to make sure that we’re not using the savings account for ongoing expenses.”
She said the budget item Democrats are most concerned about is the state-funded Education Savings Accounts that families can use to pay for private school tuition. For the next school year, that money will become available to all private school students.
“And if that’s going to be an ongoing, growing expense — it’s been above the projected budgeted levels for the past two years — and this year, as they remove the income cap, we know that that’s not only going to be an expensive budget item, but it’s also impacting how much we can give to our public school kids,” Petersen said.
Republican leaders have said they can adequately fund public and private education. According to the governor’s office, Reynolds is proposing $3.9 billion for base K-12 per-student funding, of which $314 million is for ESAs. Her office said the 2% increase in per-student funding would amount to an additional $214 million compared to this year, with $96 million of that for ESAs.
