Iowa's Infrastructure Aims

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CHICAGO - Iowa Gov. Chet Culver yesterday unveiled plans to create a new authority with the power to issue $700 million of debt in the coming years to fund sweeping infrastructure investments and other projects aimed at reinvigorating the state's struggling economy.

"In an effort to stimulate economic growth during this recession, create good private-sector jobs, and address unmet infrastructure needs, I propose the creation of the Rebuild Iowa Infrastructure Authority," Culver, a Democrat, said in his state of the state address yesterday.

"But when I say infrastructure, I'm not just talking about bridges and roads. I mean all infrastructure - rail, trails, public buildings, water and sewer treatment facilities, and the utility grid, and telecommunications, too."

He said the borrowing is needed to spur the economy and supplement funds the state might receive under an impending national stimulus plan and federal recovery aid stemming from the devastating June floods and tornadoes that ravaged portions of Iowa last year.

"We're cutting back on the day-to-day expenditures of state government," Culver said. "But, at the same time, we will be investing in bricks and mortar - to create jobs and keep our economy going."

Iowa can afford to borrow using what the governor dubbed Rebuild Iowa investment bonds over the next several years to fund loans and grants without raising taxes because of the state's top credit marks and available gaming revenue, which will go to repay the debt.

Additional details on the proposal were not immediately available. The Rebuild Iowa Infrastructure Authority would be created to administer the spending.

Iowa doesn't issue stand-alone general obligation bonds, but it carries a Aa1 issuer rating from Moody's Investors Service and an implied GO rating of AA-plus from Fitch Ratings and AAA from Standard & Poor's.

Standard & Poor's raised the state's credit to AAA last fall, attributing its decision to "the state's good fiscal management ... strong financial operations, supported by quarterly financial forecasts and rainy-day reserves; good income levels; and a very low debt burden."

While the governor will seek swift approval for the plan, he also called on lawmakers to support his efforts to keep the fiscal 2009 budget balanced as he laid the groundwork for a tough 2010 budget that will rely on cuts over tax increases.

Despite the warnings of economic turmoil, he portrayed Iowa as well-positioned to manage through a difficult economy. "In fact, we're better situated than almost every other state in the nation," Culver said, citing the state's more than $600 million in reserves and a triple-A bond rating.

The governor has already cut about $130 million from the current $6.2 billion budget amid faltering revenue collections by a freeze on state hiring, travel cuts, and slashing 1.5% in across-the-board general fund spending.

To ensure that the current budget remains balanced, Culver asked lawmakers to transfer $10 million from various funds into the general fund, to withhold $37 million in appropriated funding for a new state office building, and to approve across-the-board cuts with the exception of public safety funding.

Culver has delayed the release of a fiscal 2010 spending plan until later this month in hopes that details will become clearer on the size and scope of the stimulus package being promoted by President-elect Barack Obama and Congress for local and state governments.

Yesterday, the governor raised the specter of leasing assets, saying: "Everything's on the table with respect to balancing the budget and finding cost savings in state government." The latest estimates from the Legislative Services Agency shows a $780 million gap that must be closed to achieve a balanced budget.

"I believe we should explore the sale or lease of some state assets," Culver said. "Let's consolidate state contracts and group purchasing agreements, and use other sensible ways to save taxpayer money."

The administration has previously floated the idea of leasing the lottery for an upfront cash payment. It would then receive additional cash annually through a 22% tax on lottery sales. The lottery has generated $1 billion in profits for Iowa since 1985. Some lawmakers have said it's a good idea given the budget crunch, but others are concerned about handing the lottery over to private operators and worry that it will provide just a temporary salve to the state's fiscal problems.

State officials believe the legal obstacles raised in a recent U.S. Justice Department opinion can be overcome by seeking changes in the law after Obama takes office.

Indiana Gov. Mitch Daniels, who had proposed a lottery lease for his state, sought the Justice Department opinion. He dropped his proposal last year after department lawyers said states must retain a majority interest in their lotteries in order for them to remain legal operations.

The spring flooding and tornados - which injured 67 and killed eight - also played prominently in the Culver's address as he recapped the devastation and the recovery that is well under way.

Iowa has federal funding commitments of $520 million to support 5,400 projects in 513 cities and school districts. State and federal funds of $260 million are helping 24,000 repair or rebuild their homes and 1,000 businesses are receiving $135 million in state and federal funds. All totaled, about $1.5 billion in state, federal, and private sector funds has been earmarked for recovery efforts.

To further assist the state, Culver asked lawmakers to approve his proposed $43 million Rebuild Iowa bill to help local governments, nonprofits, cultural organizations, and families. It would be paid for by dipping into the rainy-day fund.

"I believe it's necessary to now use some of the money from this fund to pay for the costs associated with our ongoing disaster recovery efforts," he said. The state enjoys reserves of $646 million, including $485 million in a cash balance and $161 million in its rainy-day fund.

Reaction to the speech was mixed. Democrats who control the Legislature mostly endorsed the borrowing plan as a sound way to spur the economy, although some said they needed more time to review it.

"I know in these tough economic times some people argue that we should never bond, but with our triple-A bond rating, what the governor said makes a lot of sense and quite frankly, we should try to do that," said House Speaker Pat Murphy, D-Dubuque.

Republican state auditor David Vaudt said he required more time and detail on both the borrowing and budgeting plans before he could assess them, warning that any debt requires scrutiny of the strength of the revenue stream that is pledged to repayment.

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