CHICAGO — Iowa’s new governor, Terry Branstad, unveiled a nearly $6.2 billion budget for fiscal 2012 that trims more than $700 million in spending while maintaining healthy reserve levels and providing tax relief for businesses.
The budget does not include funding for previously negotiated union pay raises, which likely means hundreds of people will lose their jobs as departments are forced to cut budgets to accommodate the increases. Branstad did not address the likelihood of job cuts in his presentation but he did call for collective bargaining rules to be revised.
Though rating agency analysts have noted how well the state fared through the national recession, Branstad said cuts are needed to end the practice of relying on one-time revenues to pay for recurring expenses. The cuts offset the end of federal stimulus funding.
“We must restore predictability and stability to our state budget, ensure our decisions are sustainable for the long term, and set the stage for a period of unprecedented economic expansion,” the Republican governor said in his budget address. “This is an honest budget that matches ongoing spending with ongoing revenue.”
Branstad pledged to end other practices such as proposing new automatic or standing appropriations to curtail future spending growth. Branstad, who previously served as governor from 1983 to 1999, also presented budget figures for fiscal 2013, saying he wants to shift to a biennial budget cycle and wants to implement a five-year financial planning model. The state’s budget would grow slightly to $6.3 billion in fiscal 2013.
“Biennial budgeting will also provide additional funding stability to those entities dependent on state resources and may help smooth the highs and lows that can occur with annual budgeting,” budget documents read.
The budget drops the income tax rate for small business to 6% from 12%. Property taxes on existing commercial parcels will be reduced by 40% over the next five years. Casinos will see their tax rate increase to 36% from 22%. The budget freezes spending for public education.
The budget is down slightly from the $6.3 billion fiscal 2011 spending plan that runs through June 30. The state expects to close out the current fiscal year with $407 million in cash reserves and another $135 in an emergency reserve. Those figures are projected to rise to $461 million and $154 million, respectively, in fiscal 2012.
The budget does not propose any new borrowing, honoring a Branstad campaign pledge. Iowa last year sold $180 million of special obligation bonds to wrap up bonding needed to support a $750 million capital program promoted by Culver as a means to upgrade infrastructure and spur economic growth.
The budget received mixed, partisan reviews. Republicans, who control the state House, had generally positive comments and Democrats, who control the state Senate, were critical. House Democratic Leader Kevin McCarthy said in a statement: “While big corporations were the only winners today, Democrats will not give up on Iowa families, schools, or small businesses.”
The rating agencies affirmed the state’s top issuer ratings ahead of the sale. In its report, Moody’s Investors Service wrote: “The state of Iowa, while not entirely immune to the current economic downturn, has fared relatively well compared to similarly rated states. Iowa’s financial position has strengthened in recent years, allowing the state to be better prepared for the sudden economic shift.”
The state closed out fiscal 2009 with an unreserved fund balance of $802 million, or roughly 9.1% of revenues. Budgetary pressures from revenue declines in fiscal 2010 prompted an across-the-board 10% cut in expenditures. The state’s credit benefits from low debt levels and a well-funded pension system that was at an 81% funded ratio for fiscal 2009.