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The
Governor’s FY 2004 Budget Versus the Principles of Sound
Budgeting
Prior
to the Governor releasing his FY 2004 budget recommendations,
House and Senate Republicans endorsed the “Principles of Sound
Budgeting” created by the Iowa Taxpayers Association.
This article reviews the Governor’s FY 2004 budget to see
how it complies with the seven principles.
The
first principle is avoid the use of one-time or time-limited
sources for ongoing expenses.
The Governor recommends using $268 million of one-time
money in his FY 04 budget.
That includes $34 million from the Tobacco Endowment, $20
million from the RIIF, $10 million from the UST fund, $47.5
million from the Cash Reserve Fund (CRF) and $25 million in
unclaimed property.
Also, the Governor uses $131.3 million from the Senior
Living Trust Fund (SLTF) for Medicaid.
The problem with using these funds is that next year these
funds will not be able to fund the entire $268 million in FY 2005,
but the spending will still be there.
That means either the general fund will have to make up for
the reduced amount of one-time money or programs will have to be
cut or eliminated.
The
second principle is to avoid implementing new programs for a
partial fiscal year.
In tight budget years, it is difficult to find funding for
new programs.
Sometimes, if the full amount of funding cannot be
appropriated, a program will be started in the middle of the
fiscal year and funded at half of the annual amount.
This results in a built-in increase in spending for the
next fiscal year.
An example of this in the Governor’s budget is the
Virtual Academy program within the Department of Education.
Regardless of whether the program is a worthy one, it is
only funded at $400,000 for FY 04 and the department has admitted
that the FY 05 cost will be significantly higher.
The
third principle is to avoid multi-year accelerating commitments.
The Governor recommends a $5 million increase in FY 04 for
the teacher compensation program and a $20 million increase in FY
05.
Also, the ITA states that the next collective bargaining
agreement will create a built-in spending increase in FY 05 to
fund state employee pay raises.
The salary negotiations are going on right now with the
labor unions and the final package is expected to cost $80 million
in both FY 04 and FY 05.
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The
fourth principle is to avoid automatic or standing appropriations.
A standing appropriation is an appropriation set forth in the
Code of Iowa and authorizes spending to occur each year
without any legislative action.
An example of this in the Governor’s budget is the Iowa
Values Fund.
The plan calls for the state to issue $500 million in bonds
for the program.
For each of the next 20 years, payments of $30 million or
more would have to be appropriated in order to pay for the bonds
(principal and interest).
This appropriation would happen automatically without any
further legislative action.
The
fifth principle is to accurately determine revenue and expenses.
The ITA said that while the Revenue Estimating Conference (REC)
has done a fairly good job of setting conservative growth rates (0.3
percent for FY 03 and 1.6 percent for FY 04), there is no such
neutralizing force on the expenditure side.
An example of this in the Governor’s budget is his
recommendation for Medicaid.
He assumes that the cost of Medicaid will not increase in FY
04.
Since Medicaid spending increased by $54 million in FY 03,
the only way this will happen is if the Governor approves serious
cost containment measures.
The
sixth principle is to align expenses and revenue in the same fiscal
year.
Spending that occurs in a given fiscal year should be
financed with revenue generated in that fiscal year.
Since the Governor is using $268 million of one-time money,
his FY 04 budget recommendations do not align expenditures with
revenue.
The bulk of that money is being spent to replace one-time
funds from FY 03 so the Governor is just delaying the inevitable by
not making the tough choices this year.
The
seventh principle is to avoid shifting program funding to property
taxes or fees.
One way to find money for spending is to shift the source of
funding from the general fund to property taxes or fees.
The Governor has recommended not fully funding the property
tax credits, which will result in a property tax increase unless
current law is changed.
Ways
& Means Update
Bills passed out of Ways & Means this week:
No
bills passed out of committee this week.
Bill
Assignments:
HSB
115—An
act relating to a sales tax exemption for supplies for machinery,
equipment, and computers..
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