DES MOINES — Two of Iowa's top elected officials are at odds over whether state government should use short-term borrowing to head off potential cash-flow problems that could delay school aid payments or meeting other obligations on time in 2018.
State Treasurer Michael Fitzgerald, a Democrat, wrote Republican Gov. Kim Reynolds this week seeking authorization to issue tax and revenue anticipation notes to borrow funds in case state tax collections don't meet expectations again in fiscal 2018.
However, Reynolds dismissed the request, with her spokeswoman saying the state's bills are being paid on time and it was "unwise' and partisan on the treasurer's part to suggest otherwise.
"Michael Fitzgerald is again engaging in his tiresome, headline-grabbing scare tactics. Iowans should not be fooled by this dangerous, reckless rhetoric," said Reynolds spokeswoman Brenna Smith. "We are effectively and responsibly managing taxpayer dollars at a time the nation's federal deficit is approaching $20 trillion. Now is not the time to be borrowing money."
In making his recommendation, Fitzgerald noted the state was in better financial shape last fiscal year to weather an economic period that saw state tax collections dip $274 million below projections.
He said the state's cash reserves are down from $729 million last year to $610 million now with no surplus, and with expectations of needing another $50 million to balance the fiscal 2017 shortfall.
"As we enter September, we do not know how much more we will need to take from our reserve accounts to balance the FY17 books," he wrote in his Aug. 30 letter to Reynolds. "Facing greater uncertainties in FY18 and reduced balances, as a AAA state, we need to be prudent in how we manage our finances. I am recommending that we issue a cash-flow borrowing to ensure we have the money available to pay our bills, including school aid payments, on time this fiscal year."
Fitzgerald noted that Iowa has used such borrowing 16 times since 1985 to manage its cash flow, and often reaps a financial benefit given the reinvestment rates allowed under government rules. He said the "timing mismatch" between tax collections and state expenditures could create a situation where the state's cash-flow could "dwindle" to a $27 million balance next April and the short-term borrowing "is a sensible way to manage the uncertainties that we face."
According to Fitzgerald, the issuance does not increase the long-term liabilities of the state because it is a cash-flow tool rather than debt.
"Not paying our obligations on time can have serious impact on Iowans, for example, delaying payments to school districts could force them to borrow money and incur unnecessary costs they cannot afford," he wrote in his letter to Reynolds.
House Speaker Linda Upmeyer, R-Clear Lake, issued a statement Thursday accusing the state treasure of "creating a fake issue to score political points, plain and simple." Upmeyer said officials in the state Department of Management have assured legislative leaders that there are adequate funds in the reserve accounts "to cash flow the state this fiscal year" and she preferred he speak with the governor or lawmakers rather than continue "his attention-seeking ways of running to the press to sound false alarms and scare the public."
Earlier this week, the governor told reporters she expects to decide in September whether it will be necessary to call lawmakers into special session to address a projected state budget shortfall or whether she can address any financial problems using executive transfers.
The fiscal 2017 budget year ended June 30, but there is a period in the months following where state officials rectify various accruals, transfers, collections and other accounting before finalizing the balance sheets.
Lawmakers and former Gov. Terry Branstad, who left state government in May to become U.S. ambassador to China, already had to make nearly $118 million in cuts and adjustments as well as borrow $131 million from the state's reserves before state tax collections finished on a lackluster note in June.
Reynolds, who succeeded Branstad as governor, said she has the authority without legislative approval to transfer up to $50 million more from reserves to cover another shortfall.
