Cresco Times - Spending vs. Revenue: Branstad, Vaudt Discuss Iowa Budget Issues in Cresco

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Last week, former Gov. Terry Branstad (R) visited Sue-Z-Q's in Cresco with State Auditor David Vaudt (R), who announced his endorsement for Branstad's bid for re-election last May. The pair brought with them a prepared presentation highlighting budget woes currently faced by the state. Now with the November election looming just around the corner, the campaign comes to town as part of Branstad and Vaudt's "Truth and Budgeting Tour."

"Today I'm really proud to be in Cresco…to share with you the truth about the financial issues facing the State of Iowa and what we need to do to get the state back on the right fiscal footing for the future," said Branstad during the presentation.

According to the pair, Iowa is facing dire financial struggles to which they have worked up proposed solutions.

Branstad said, "Time Magazine recently had a story about the financial problems facing the states. Iowa's not the worst…Illinois, Nevada and states like New Jersey are worse than we are, but we are a state facing a significant problem. We estimate 18.6 percent shortfall next year -- that is worse than California at 9.1 percent and it's worse than New York at 15.5 percent."

He adds, "The thing that is concerning is the last [legislative] session, and the last few sessions, have led to all kinds of one-time monies for ongoing expenses. As a result, that money is not there next year."

In addition, says Branstad, the $500 million in federal stimulus funds has been exhausted.

So what's the real problem according to Branstad and Vaudt? Spending in the state of Iowa is far exceeding the state's revenue stream.

In recent years, Branstad says only 20 percent of the cost of education, K-12, had been paid out of state aid while 80 percent was paid for through property taxes. "When I left office, we had it to the point where it was only 40 percent property taxes and 60 percent state aid. Unfortunately, this last year with Gov. Culver doing a massive 10 percent across-the-board cut, local school districts have had to lay off teachers, dip into their cash reserve and raise property taxes to replenish that money," he said. "I would also point out that after the spending reforms in '92, we clearly spent considerably less -- we not only [had] surplus but we also cut taxes."

During the 1992 spending reforms, Branstad says the Iowa legislative body eliminated inheritance tax for children and grandchildren in Iowa, indexed Iowa income tax for inflation and cut the income tax 10 percent across-the-board. "Even after those tax reductions, I left the state with a $900 million surplus and today we're facing a billion dollar deficit, so we have a really big problem to resolve," he said. "Most importantly we have to get our fiscal house in order."

There have been very dramatic spending increases, according to Vaudt. "Back in fiscal year 2007 for every dollar in ongoing revenue the State of Iowa was spending $1.01 -- so not far out of balance, a little bit, but manageable," he said. "But just three short years later…in fiscal year 2010, for every dollar of ongoing revenue, Iowa's spending $1.14. We're heading the wrong direction at a very, very fast pace."

Vaudt says one of the areas Iowa spends a lot of money on is the mandatory healthcare program, Medicaid. "It's a program that's required by each state to participate with the federal government and with that each state has to provide certain services and pay for those costs," he said. "Just to give you a flavor of the Medicaid costs in fiscal year 2011, our budget is a little over $1 billion. Of that $1 billion, almost 50 percent of those costs are being paid for with one-time monies that will not be there in fiscal year 2012-13 and on, creating a huge challenge."

Putting the budget issues into perspective, according to Vaudt, a CNBC article recently came out ranking all the states with Iowa listed as 10th worst as far as the spending gap for 2012 -- "a place we don't want to be," he said.

Branstad adds, "Essentially that means that money that we would have set for improvements such as infrastructure and things like that -- that money has been spent."

Not long ago, Branstad says the state auditor along with the Legislative Service Agency provided a warning about overspending and the fiscal challenge the state was facing. Last October, he says, the current governor observed the warning, thus implementing the 10 percent across-the-board cut. "Now that hit hard because over 60 percent of the state budget goes into education," said Branstad. "When you do an across-the-board cut as opposed to bringing the legislature back and doing selective reduction and spending priorities, that hits hard on education. That's why you have massive teacher layoffs all across the state and increases in local property taxes."

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