CHICAGO — Iowa Gov. Chet Culver yesterday ordered an across-the-board 10% cut in spending to wipe out a shortfall in the state’s $6.3 billion fiscal 2010 budget due to dwindling revenue collections.
The action erases $415 million of red ink announced Wednesday by the state’s formal revenue-estimating conference and provides some breathing room if the economic picture worsens over the remaining nine months of the fiscal year.
“This is a tough decision, but I believe it reflects our Iowa values of common sense and fiscal responsibility,” Culver said. “We have no certainty that this situation will not get worse before it gets better.”
The cuts are expected to significantly affect state services and school funding levels, and to result in layoffs, but additional details were not yet available. Culver said he intends to seek legislation that would prevent school districts from passing on the cuts to taxpayers by requiring them to tap reserves before raising property taxes.
The $415 million drop in revenue represents a decline of 8.4% in budgeted projections. Before the latest projections, the state had struggled and was forced to cut 1.5% in spending in fiscal 2009, but it had escaped the dramatic drop-off in individual income tax, corporate income tax, and sales tax collections seen by many of its neighbors. Iowa also entered fiscal 2010 with a $100 million ending balance and its $373 million of reserves intact.
The revenue-estimating conference also projected that the state will see a drop of 0.4% in revenues in the next fiscal year.
The budget included a mostly bond-financed $750 million jobs program to jump-start the state’s economy and rebuild infrastructure damaged by last year’s floods and storms.
Iowa does not issue stand-alone general obligation debt, but it carries an Aa1 issuer rating from Moody’s Investors Service, an implied GO rating of AA-plus from Fitch Ratings, and a AAA from Standard & Poor’s.