ITA Principles for Sound Budgeting - FY2006 Review of Governor Vilsack's Budget Recommendations
Prelude
This is a budgeting process review of Governor Vilsack's Fiscal Year 2006 budget recommendations & 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 2005. 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 Governor's FY 2006 proposed budget recommendations. A plus sign (+) indicates the Governor's budget recommendation abided by the principle and a negative sign (-) indicates the Governor's recommendation deviated from the principle.
Avoid the use of one-time or time-limited sources for ongoing expenses.
+/- The State continuously relies upon the use of one-time and time-limited sources of revenue for ongoing general fund expenditures. When those funds no longer exist, a large gap in the budget will be present and a new revenue source will need to be identified to fund those expenditure commitments. Medicaid, for instance, currently is funded partially with $134 million from the Senior Living Trust Fund which is expected to be depleted in the near future.
The Governor has begun to take steps in reducing the State's reliance on this time-limited revenue source, by replacing those dollars with general fund revenues. Approximately $60 million in general fund revenues have been appropriated to Medicaid to specifically replace one time fund dollars, which is a step forward.
+ 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.
- $136 million transferred from the Senior Living Trust Fund to various expenditures that were previously funded with general fund revenues.
- $35 million transferred from the Endowment for Iowa's Health to the General Fund.
Avoid implementing new programs for a partial fiscal year.
- Implements a new program for a partial fiscal year in the supplemental budget recommendations. A new appropriation is created to establish voluntary statewide early learning standards for three and four-year olds. This was done last fall during the 2005 Fiscal Year.
Avoid multi-year accelerating commitments.
- Creates the "Iowa Values Bridge Financing Fund" which is financed through bond proceeds that will result in multi-year accelerating repayments.
Avoid new automatic, or "standing," appropriations.
+ There are no new standing appropriations recommended, and current ones appear to have been reviewed.
Accurately determine revenue and expenses.
- Relies on legislative action for various revenue adjustments, as is the entire budget. However, the projected increases resulting from the proposed budget are built largely upon assumptions. No assurances can be given that the projected revenues will be realized. Additionally, there is no indication as to what is not funded if the revenue adjustments are not enacted into law.
Align expenses and revenue in the same fiscal year.
+ Implements a new budgeting process, "Purchasing Results." The theory is to start with all revenues currently available and expend those resources only on the expenditures that achieve the most value and the ultimate goal identified by the State. Rather than building upon the current base budget, the Governor has attempted to align available revenues to those identified expenses in the same fiscal year. As a practice, this is a good first step.
+/- Attempts to align expenses and revenue in the same fiscal year, however the reliance on revenue collected in FY 2006 from passage of various tax law changes is premature and unstable which could result in expenses being under funded. No plan is present in the event the increased revenue is not realized.
+/- Appropriates nothing for anticipated salary increases; however, the collective bargaining process was underway at the time the Governor released his budget recommendations which did include an ending balance that was higher than required by the 99% spending limitation.
- Purports the difficulties in aligning expenses with actual revenues collected in the same fiscal year, when there is a continued reliance on one-time and time-limited sources for ongoing expenses.
- Utilizes a FY 2005 supplemental appropriation of $55.0 million to fund FY 2006 expenditures.
Avoid shifting program funding to property taxes or fees.
- Funds property tax credits below projected levels of demand. They are under funded by the following percentages:
- Homestead = 21%
- Ag Land and Family Farm = 49% (the Governor proposes to eliminate the ag land credit and double the allowed family farm tax credit from $10m to $20m)
- Military = 3%
- Elderly & Disabled = 11%
The effect is an approximate $45 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 General fund a statutorily required $45.5 million appropriation to the Cash Reserve Fund using "notwithstanding" language.
- Deposits Cash Reserve and Economic Emergency Fund interest into the General Fund rather than deposited into the Rebuild Iowa Infrastructure Fund as statutorily required. This transfer has occurred the past three years through "notwithstanding" the statutory requirement. The interest amount totals $6.0 million.
- Diverts approximately $44.8 million from designated vertical infrastructure programs for non-infrastructure items.
