Lawmakers debate how to use surplus budget

DES MOINES – What should Iowa do with more than $800 million in extra money expected to soon be sitting in the state’s bank accounts?

That’s a key question during ongoing state budget negotiations in which Gov. Terry Branstad, the Democratic-majority Senate and the Republican-controlled House all have different ideas for the money. Should it go toward tax cuts, new programs or something in-between?

If lawmakers can’t find resolution on issues like new education spending, health care and tax cuts- which has happened in previous years- those funds could just stay put.

“It’s always the age old argument, do you give it back to people or do you spend it on needs and wants. Or do you do a combination, which is what the governor’s recommendation is,” Department of Management Director Dave Roederer said.

The surplus as of June 30 is estimated at $822 million in Branstad’s budget proposal. That’s after the state has filled a number of reserve accounts to help manage cash flow and emergency situations.

Branstad has proposed a new education policy plan and a cut to commercial property taxes. The five-year cost estimate to the state for those initiatives is nearly $600 million. Those plans, as well as other expenditures, like health care and a recent contract for state workers, are why Roederer said the state needs those surplus dollars to stay whole in the future. But he said convincing politicians to take the long view can be tricky.

“To have money sitting and know you’re going to need it in two or three years is a real challenge,” said Roederer. “The world here is people have two or four year life cycles.”

House and Senate lawmakers have targeted additional priorities for this session, based on the state’s solid financial footing.

Republicans want to reduce income taxes, arguing that any additional dollars should go directly back to taxpayers.

“People view that as a way to increase spending and that’s one-time money. That’s money we shouldn’t be using for ongoing expenses,” said Senate Republican Leader Bill Dix, of Shell Rock. “At the end of the day, what we need to be conscious of is that represents an overpayment of taxes and we should recognize the opportunity to return that to the taxpayer.”

Democrats have proposed tax credits targeted at low-income working Iowans and have sought increased spending for education.

“We are trying to meet the goals we established very early on to strengthen the middle class,” said Senate President Pam Jochum, of Dubuque.

With just a few weeks to go before the scheduled end of the legislative session, there has been no resolution on any of the major issues.

May 3 is the scheduled final day of the session and the last day legislators will receive per diem payments. But lawmakers could continue working after that point, and most expect the session will continue past that deadline.

Iowa officials said if there is no resolution over how to spend this money, then the fund balance stays right where it is.

“It sits. Its stays in our accounts,” said Roederer. “You get some interest.”

Surplus general fund dollars are invested in a conservative fashion, along with the rest of the state’s money, said State Treasurer Michael Fitzgerald. The current interest rate on those dollars is less than half a percentage point.

As the economy improves, more states are having conversations like these. Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers, said that most states expect at least slight surpluses this year, due to rising revenues combined with conservative budgeting and past cost-cutting.

“The way it’s tracking, the majority of states are ending with a slight surplus. We’re not seeing the level of mid-year budget cuts we were,” said Sigritz, who wasn’t able to say whether Iowa has a larger surplus than other states.

Whatever happens in Iowa, some in the Capitol said having extra dollars isn’t a bad thing.

“As a banker’s son, I’m never concerned that we have appropriate reserves,” said Democratic Senate Majority Leader Mike Gronstal, of Council Bluffs.

Copyright 2013 The Associated Press.