ITA Principles for Sound Budgeting - FY2006 Legislature Budget Review
Prelude
This is a budgeting process review of the Iowa Legislature's Fiscal Year 2006 budget & Fiscal Year 2005 Supplemental Appropriations. The goal of this review is to encourage the key fiscal policy developers and lawmakers of Iowa to consider these criteria as the budgeting process moves forward in 2006. To be clear, it is not the purpose or intent of this effort to render subjective judgment or declaratory comment on the merits of individual programs sanctioned by the various legislative or executive department actions.
Each of the Iowa Taxpayers Association's eight "Principles for Sound Budgeting" is listed below. Each principle is accompanied with examples, if applicable, from the Legislature's FY 2006 budget. A plus sign (+) indicates the Legislature's budget abided by the principle and a negative sign (-) indicates the Legislature's budget deviated from the principle.
Avoid the use of one-time or time-limited sources for ongoing expenses.
+ The Legislature has begun to take steps in reducing the State's reliance on the Senior Living Trust Fund, a time-limited revenue source, by replacing those dollars with general fund revenues. For instance, approximately $35.5 million in general fund revenues have been appropriated to Medicaid to specifically replace one time fund dollars, which is a step forward. Any remaining FY 2006 Medicaid funds are required to be transferred to the Senior Living Trust Fund.
+ Funds the homestead, elderly & disabled, agricultural land, and military service property tax credits from the general fund rather than from the cash reserve fund as done last year. $159.7 million of the ending fund balance is deposited into the newly created Property Tax Credit Fund.
- The State has relied upon the use of one-time and time-limited sources of revenue for ongoing general fund expenditures in recent years. As those funds are depleted, a large gap in the budget, estimated to be $350-$400 million, will be present and a new revenue source will need to be identified to fund those expenditure commitments. Medicaid, for instance, continues to be partially funded with $100 million from the Senior Living Trust Fund which is expected to be depleted in the near future.
+ The State experienced revenue growth this year, and refrained from utilizing many time-limited sources. According to the Legislative Services Agency, zero funds were transferred from the following time-limited sources: the Cash Reserve Fund, Economic Emergency Fund, and Endowment for Iowa 's Health Account. Those expenditures previous funded from these sources are now funded with general fund dollars.
- Utilizes $600,000 of the $1.7 million Microsoft lawsuit funds to fund an ongoing FTE expense at the Department of Criminal Investigation.
Important to Note: The Legislature's budget repeals the reimbursement provision for the Endowment for Iowa 's Health Account ($171.5 million).
Avoid implementing new programs for a partial fiscal year.
+ Avoids implementation of new programs for a partial fiscal year.
Avoid multi-year accelerating commitments.
+ Avoids multi-year accelerating commitments.
Avoid new automatic, or "standing," appropriations.
+ Repeals the Secure an Advanced Vision for Education (SAVE) fund standing appropriation and all current standing appropriations appear to have been reviewed.
- Creates a new $40 million standing appropriation from the Rebuild Iowa Infrastructure Fund (RIIF) for major renovation and repair needs including health, life, and fire safety needs and for compliance with the federal American Disabilities Act for state buildings under the purview of the Department of Administrative Services.
- Creates a new $50,000 standing appropriation for the Endow Iowa Grants Program.
- Creates a new $50 million each year for ten years standing appropriation for the Grow Iowa Values Fund.
NOTE: Standing appropriations reside in the Iowa Code and authorize spending to occur each year without any annual legislative action . Once such an appropriation is created, the legislature never needs to revisit it again - the spending will occur automatically. Over time, standing appropriations have been created for certain high-priority items that officials wish to protect from the competition that occurs in the annual budgeting process. The problem with standing appropriations is that they are extremely difficult to cut or eliminate. Restricting legislative authority to reduce spending through the use of standing appropriations is a practice that should be avoided.
Accurately determine revenue and expenses.
+ Despite estimating revenues at various points throughout the year, the Legislature did budget within the revenue projected for Fiscal Year 2006.
Align expenses and revenue in the same fiscal year.
+ Establishes a new performance based budget process for FY 2007. State Departments will no longer be allowed to submit their proposed budgets building upon 75% of their current budget. This was done in an attempt to align available revenues to identified expenses in the same fiscal year.
- The continued reliance on one-time and time-limited sources for ongoing expenses only compounds the difficulties in aligning expenses with actual revenues collected in the same fiscal year.
Avoid shifting program funding to property taxes or fees.
- Funds property tax credits below projected levels of demand with the exception of the military tax credit which was fully funded this year. Contrary to state law, the following property tax credits were under-funded by these percentages:
- Homestead = under-funded by 21%
- Ag Land and Family Farm = under-funded by 11.5%
- Elderly & Disabled = under-funded by 10.5%
The effect is an approximate $33.2 million decrease in funding for property tax credits which could result in increased property taxes or not fully funding these tax credits to those who qualify.
Avoid diversion of funds statutorily authorized for a specific objective to other purposes.
- Diverts to the Property Tax Credit Fund a statutorily required appropriation to the Cash Reserve Fund using "notwithstanding" language.
- Diverts approximately $25.4 million from designated vertical infrastructure programs for non-infrastructure items.
