Branstad proposes record $7 billion budget for state of Iowa

Property tax replacement, K-12 school funding, Medicaid obligation to get biggest boosts

Rod Boshart
Published: January 14 2014 | 3:50 pm - Updated: 29 March 2014 | 2:06 am in

DES MOINES – Whether to adopt Gov. Terry Branstad’s fiscal 2015 budget approach was the $7 billion question that state lawmakers faced on Tuesday.

The governor proposed to hike general fund spending by more than $508 million in the fiscal year that begins next July 1, but aides noted the slightly more than $7 billion in appropriations requested for next fiscal year are inflated by commitments to tax relief and education reforms that were approved last session.

Branstad, in documents distributed with his Condition of the State address, proposed to increase overall general-fund spending by 7.8 percent over current funding levels. That total shrinks to 5.7 percent when the money to “backfill” local governments for potentially lost revenue is taken into account, said David Roederer, director of the state Department of Management.

If the governor’s plan is approved, it would be the first year that state general fund budget topped $7 billion.

Overall, the governor included $471 million in adjustments for fiscal 2015 that include $120 million for property tax replacement, $170 million to provide a 4 percent boost in state aid to K-12 public schools, $54 million in implement education reforms approved last session, and $86 million to pick up a greater share of the state’s Medicaid obligation not covered by the federal government, Roederer said.

Another $31 million would be needed to fund an increase in the earned income tax credit for working families and $10 million to finance Branstad’s proposal to exempt military pensions from state income taxes.

“It’s still vague as to what’s in the budget. Obviously, the devil is always in the detail,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee.

Sen. Jack Whitver, R-Ankeny, former ranking Senate Appropriations Committee member who moved to the minority whip post this session, said the governor’s budget number would serve as a starting point for legislative discussions. “I would like to see it a lot lower than that,” he said.

The governor’s proposed spending plan would leave the state with a $723 million surplus by the end of June 2015. Roederer said that projected ending balance is expected to decline incrementally in coming fiscal years until settling at about $87 million in fiscal 2019 once the property tax and education reforms are fully implemented.

The governor’s recommendations maintained current law regarding the state’s taxpayer trust fund, which estimated $88.1 million for income tax credits in tax year 2013 and $67.5 million in tax year 2014.

“I haven’t actually seen the budget yet,” said House Speaker Kraig Paulsen, R-Hiawatha. “Obviously, we’ve been able to figure that out, we’ve got the state in great financial health. He’s been a great partner in that. We’ll figure it out.”

Education got the largest share of Branstad’s proposed spending increase at 41 percent – including a $19 million increase for the three regent universities that will enable them to freeze instate resident tuition at the University of Iowa, Iowa State University and the University of Northern Iowa for a second straight year.

The commercial property tax replacement represents about a fourth of the recommended spending increases while human services will get a 21 percent boost with the remaining 14 percent spread across state government. Most departments will have status quo funding while the Iowa Civil Rights Commission will see a slight decline that was requested by the agency, Roederer said.

The major budget drivers in fiscal 2015 would be $2.7 billion to cover state foundation aid to K-12 schools, $2.1 billion for wages and benefits and $1.5 billion for Medicaid, according to budget documents issued by the governor’s office.

Roederer said overall wages and benefits for state employees are down slightly due to reductions in the workforce. He said the court system has requested a second straight year of 4.5 percent salary increases for state judges and by law the governor is required to forward that request to lawmakers for their consideration.

The governor’s budget proposed to spend about 91 percent of the general fund spending capacity of nearly $7.72 billion.

“There’s probably room to spend more than 91 percent of the available revenue,” said Senate President Pam Jochum, D-Dubuque.

The program areas that Branstad highlighted for funding increases during the 2014 legislative session include efforts to expand the “digital highway” to bring high-speed Internet access to all Iowans, expand skilled workforce services, incentives to keep doctors practicing medicine in Iowa, agriculture initiatives to improve the environment, and nearly $5 million to encourage veterans leaving military service to locate in Iowa.

Sen. Rob Hogg, D-Cedar Rapids, said he was elated the governor included more than $29 million in equalization funding for the transition of mental health services from a county-based to a regional service delivery system.

“That appears to be a major early victory for mental-health advocates,” Hogg said.

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