DES MOINES, IA. -- Continuing in his role as the “Taxpayers’ Watchdog” and in his duty to report directly to the people of Iowa on the condition of the state’s finances, State Auditor David A. Vaudt completed his review of the final-action Fiscal Year 2012 budget. Vaudt said, “While there are still concerns to be addressed, this budget makes huge progress in the area of fiscal sustainability. I commend the Governor and Legislators of both parties for moving Iowa closer to a fiscally sustainable path. While the budget process took a significant amount of time, the result is clearly a win for the taxpayers of Iowa.”
Sustainability – Budget Dramatically Reduces Reliance on One-Time Resources
Auditor Vaudt noted there is only $53 million of one-time resource expenditure shifts occurring in Fiscal Year 2012. Vaudt pointed out, “The practice of shifting General Fund costs to one-time or imited-time resources has been significantly reduced in this budget. This represents a huge move toward fiscal sustainability – an encouraging sign.” In contrast, the prior year budget shifted over $600 million of General Fund costs – 12 times more cost-shifting than this year’s final-action budget.
Concerns and Challenges Remain for Elected Officials to Address in Future Years
While the final-action Fiscal Year 2012 budget makes dramatic strides toward long-term sustainability, Auditor Vaudt noted some items for elected officials to address in future years. First, unlike the Governor’s proposed two-year budgets for Fiscal Years 2012 and 2013, the final action budget does not accomplish the goal of longer-range planning. Auditor Vaudt said, “Yes, it is a two-year budget, but it is incomplete. With many departments funded at 50% in the second year, and with $1.2 billion available to appropriate, there are too many unanswered questions to draw any meaningful conclusions from the second budget year.”
Second, Auditor Vaudt identified an issue with existing law, in which carry-forward balances are included in the spending limitation calculation used to determine how much the State can spend in a given year. Vaudt said, “The danger is in how you use carry-forward balances, which are one-time moneys. Using one-time moneys for one-time expenses is fine. However, if you build ongoing spending on these monies, the spending carries forward to the next year, but the resources do not.” For example, recent current-year property tax credits were funded with the previous year’s surplus. This worked well until the most recent recession erased the predicted surplus, which in turn pushed the funding of property tax credits back into the General Fund at a time when ongoing revenues were declining. “We don’t want to repeat history,” Vaudt said. Vaudt suggested the Governor and the Legislature consider alternatives to prevent the consequences of using carry-forward balances for ongoing expenditures.
Third, shifting expenditures and revenues out of the General Fund reduces transparency. For example, the Health Care Trust Fund (HCTF) was previously funded by a revenue stream that flowed into the General Fund. The final action budget moves both the revenue stream and the spending for the HCTF outside of the General Fund – $106 million in total. Vaudt said, “The issue here is not sustainability because the ongoing programs are covered by ongoing resources. Instead, the issue is transparency and comparability. It is hard to make an apples-to-apples comparison of the State’s ongoing operating costs when we keep moving costs off the books.”
Fourth, while the practice of shifting ongoing spending to one-time resources has dramatically decreased from $638 million just one year ago, the budget still shifts $53 million of ongoing spending to one-time resources. “It is very encouraging to see the huge stride made in this area, but we have a little more work to do,” said Auditor Vaudt.
A Looming Issue – Decreased Federal Funding
Vaudt warned the State’s dependence on Federal funds to provide services to Iowans presents a huge, looming challenge. The state spent a total of $8.3 billion of Federal funds in Fiscal Year 2010. This represents a 69% increase versus Fiscal Year 2006, thanks in large part to the Federal stimulus package of 2009 and assistance related to the 2008 floods. Vaudt said, “The Federal government has its own fiscal challenges, so it is both prudent and necessary for us to start planning for the inevitable Federal funding decrease we will see in the coming years.”
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