Iowa will turn to reserves to close a small deficit, says governor

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CHICAGO – Iowa closed the books on fiscal 2017 in better shape than predicted and that will allow it to erase remaining red ink with reserves without requiring a special legislative session.

“We have been monitoring funds daily since the end of the fiscal year on June 30 and took a measured approach in dealing with the state’s finances. We continue to closely monitor the current fiscal year’s balance sheet and do not believe action is needed at this time,” Gov. Kim Reynolds said in a statement Wednesday.

The state closed the books on the $7 billion fiscal 2017 budget June 30 with a $14.6 million deficit. That’s down from $100 million that was forecast in July by the Legislative Services Agency. The state will primarily rely on reserves to cover the gap, leaving about $605 million in its budget reserve, and it will be repaid in fiscal 2018. The state’s reserve held more than $1 billion in 2015.

The state had already previously moved during fiscal 2017 to cut spending and dipped into reserves to address a $250 million shortfall. The state must repay this year about $20 million of the $131 million of reserves it used to cover the prior deficit. Legislative action was needed to use more than $50 million from reserves.

The state’s revenue estimating committee had forecast fiscal 2017 revenue growth at 2.7%. It came in at 2.5% for total revenue of $7.09 billion, according to a presentation from Dave Roederer, director of the Department of Management. The state had originally planned to spend $7.25 billion for the fiscal year. As the state neared the close of fiscal 2017, an estimated $100 million deficit was trimmed as personal and corporate income taxes and sales taxes improved.

Democrats questioned the latest figures. “The numbers don't add up. The state was $104 million short on June 30 and only $14.6 million today,” said Democratic Rep. Chris Hall, who sits on the House budget committee. “Taxpayers deserve to know whether Gov. Reynolds and Republicans cooked the state's books to close the fiscal year and avoid a special session.”

Reynolds, the state’s former lieutenant governor, is a Republican and faces a campaign to win office in her own right next year. She was elevated to the governor’s office after President Trump tapped Terry Branstad for an ambassadorship. Republicans hold legislative majorities.

The administration said it remains cautious on spending and revenues in the fiscal 2018 budget.

Reynolds and the GOP leaders have clashed with Democrats on state finances. State Treasurer Mike Fitzgerald, a Democrat, recently suggested the state might need to sell tax and revenue anticipation notes to avoid distribution delays in school aid and other payments should collections falter in the new fiscal year.

"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 wrote in an August letter to Reynolds. The Reynolds administration rejected the idea as unnecessary and called it politically motivated.

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