Surplus uses should be smart, focused and restrained

Todd Dorman
Published: October 21 2012 | 4:05 am - Updated: 1 April 2014 | 2:16 am in

There are some places you donít want to stand.

Donít stand between kids and their Santa haul on Christmas morning, Black Friday shoppers and a door-buster bargain, or hungry cattle and a freshly filled trough.

And donít stand between Statehouse types and a huge pile of budget surplus.

Iowaís projected state budget surpluses this fiscal year and next are eye-catching. Itís $688 million now and could top $800 million by the end of the current budget year. Those numbers are on top of reserve funds that have already been filled to the brim. ďThatís the largest surplus that Iíve seen,Ē Legislative Services Agency fiscal analyst David Reynolds said Wednesday in a Gazette story.

So congrats to Gov. Terry Branstad, lawmakers, Iowaís economy, taxpayers, all the public sector workers no longer working in the public sector, parents of children whose neighborhood schools are now closed, etc. So many to thank.

And as you might expect, our leaders and candidates have ideas. Republicans argue the surplus should be returned to taxpayers. Democrats point to the need for investments in education. Branstad says the surplus could be used to ďdramaticallyĒ reduce corporate income, personal income and property taxes. Ideas and optimism abound in these black ink times.

Budget realities

Unfortunately, I canít unsee what Iíve seen in the past. So I tend to be more pessimistic. To me, when politicians start carving up a surplus, they are, basically, deciding the severity of the next downturn. How bad will it be next time state revenues tank? Just watch how lawmakers in 2013 use todayís surplus.

Surpluses are a finite resource. Because, in the real world of budgeting, easy street always leads, eventually, to a cliff. All our leaders really can do is decide the speed and size of the drop.

So when a Republican says we should use the surplus to cut personal income taxes by 20 percent, or by $700 million annually, remember that although the surplus will fade, tax cuts are forever. Add that large tax cut to a future downturn in revenues, and youíve created a very fine, deep chasm.

Same as when a Democrat insists that we should use the surplus to jack up funding for an array of ongoing government programs. When the surplus departs, and the programs remain, the only unknown is how big and sharp the cutting ax will have to be when tax collections inevitably go south.

In 1997, Branstad and Republicans used our last big surplus to cut personal income taxes 10 percent, without spending cuts to offset the revenue losses. Four years later, when a recession hit, the state had to slash spending across the board, twice. Thatís binge-purge budgeting in a nutshell.

Iím not saying you canít use the surplus, although with the federal budget about to implode, I might use some of it as a flotation device when all that red ink flows down the federalism river to the states.

Surplus suggestions

Iím simply saying our leaders need to be smart, focused and restrained.

We could do tax reform focused on job creation. For instance, you could set aside a heap of surplus dollars to, temporarily, offset a cut in commercial property tax rates over the next several years. Couple that with creating new ways for local governments to ask local voters for revenue, and you might have a real deal.

We could use surplus dollars to temporarily cover a cut in corporate income taxes while we phase out Iowaís costly tangle of special interest loopholes, credits, exemptions and tax giveaways. A lower, flat and simple corporate tax structure would be an economic asset.

We could raise the gasoline tax to fix our crumbling streets and bridges, and use surplus dollars to create a rebate fund that would kick in to lower the tax if gas prices spike.

I agree with those who see the surplus as a chance to invest in education. But instead of just pumping dollars into the funding formula, we could create an education transformation fund that would provide grants big and small to school districts that want to try new approaches but canít afford innovation. Call it a Vision Iowa program for education. Grant recipients would also get a break from mandates and regulatory barriers.

Yeah, I know, itís not some big, centralized, top-down reform effort that makes politicians feel good and gives governors a grand legacy, but it might actually make our schools better. Real transformation wonít come from the Statehouse. But the money to help pay for it might.

Clearly, we canít do all this stuff. But my point is we need to think of the surplus as a tool to be used skillfully while it lasts, not an endless spring of black ink that will never run dry.

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