CHICAGO - Iowa Gov. Chet Culver this week will outline measures aimed at trimming $60 million in spending to help erase a roughly $100 million shortfall in the current $6.2 billion fiscal 2009 budget amid warnings that a deficit of up to $500 million looms for the fiscal 2010 budget.
The governor's action follows $40 million in savings the state can expect from spending cuts and by freezing hiring and state travel announced early last week. That came before the state's revenue estimating conference announced on Friday its latest revenue projections that showed a $100 million deficit.
"These savings will come from a combination of further administrative spending reductions, transfers of unused funds to the general fund, and recommendations to the legislature for additional de-appropriations when they convene in January," Culver said of the new plan he will lay out this week.
He attempted to portray the state's economic situation as difficult but manageable.
"While bordering states are facing deficits that are measured in billions of dollars, Iowa has a record level of cash reserves, the highest possible bond rating, and a diversified economy," the governor said.
The revenue estimating conference also warned that revenues in the fiscal year beginning July 1 are expected now to fall about $132.6 million short of previous estimates. State auditor David Vaudt and some lawmakers have issued more dire predictions, warning that the state faces at least a $500 million deficit in the next budget.
Iowa had been weathering the poor economy well, even after incurring massive flood damage and suffering devastating tornadoes last spring. The Rebuild Iowa Office, established by the governor to manage recovery efforts, reported earlier this month that it had allocated more than $1.3 billion in recovery payments.
State Treasurer Michael Fitzgerald said the state would spend about $30 million to $40 million this year and another $40 million to $50 million next year. While the state incurred an estimated $8 billion in damages to property and crops, about 90% of the costs are being covered by federal aid, Fitzgerald said.
Iowa has not escaped the current market turmoil. The legislature earlier this year authorized tobacco bonds that would securitize the remaining 22% of the state's share of the 1998 national tobacco settlement. The state leveraged 78% of its payments in its previous tobacco deals. It first issued $650 million in 2001, and sold $800 million of new-money and refunding bonds in 2005.
The legislation required that at least $183 million be raised from the new sale - a goal the state could not meet in current market conditions, according to Fitzgerald.
"The numbers keep sinking," he said of the latest estimate that shows the payment stream would likely allow for just a $130 million issue. The state is working with financial adviser Public Financial Management Inc.
Fitzgerald said he will recommend to the legislature when it convenes next year that they approve using a state appropriation pledge for the tobacco bond issue. Proceeds are earmarked to finance improvements to the Iowa Veterans Home and for prison renovations.
Officials also intend to sell in the spring about $130 million of revenue bonds to finance the construction of a new prison. The bonds would be secured and repaid with the various court fines and penalties the state collects.
As Iowa doesn't issue stand-alone general obligation bonds, it carries an Aa1 issuer rating from Moody's Investors Service. The implied GO rating from Fitch Ratings and Standard & Poor's is AA-plus. The state benefits from reserves of $646 million, including $485 million in cash reserves and $161 million in its rainy-day fund.
