Iowa House Report

Governor's FY06 Budget:
$535 Million Spending Increase
Monday, January 31, the Governor released his budget recommendations for FY 2006. Despite promising to reduce expenditures in the base budget via the new Purchasing Results system, the Governor proposed a whopping $535 million spending increase (12 percent over enacted FY 05 appropriations) and used the new system to justify increasing the cigarette tax by 80 cents per pack. Since the "built-in spending" increases were estimated at $555 million, the Governor's proposal will force the Legislature to make many tough choices in order to save the state from a huge tax increase in FY 2007.
The Governor has already submitted his $213 million supplemental appropriations bill. Since the bulk of this money is carried forward into FY 06, it must be counted in the FY 06 spending increase figure. To recap, the bulk of the supplemental goes to fund Medicaid ($160 million) and the Governor's new early childhood program ($39.1 million). Most of this funding would be carried forward into FY 06 and create a "hole" in the FY 07 budget because it won't be built into the FY 06 base budget.
The Governor has proposed $200 million in tax and revenue increases. They are as follows:
* Cigarette tax increase - $130 million (not including an additional $34.3 million in FY 05)
* Transfer from the Tobacco Endowment - $35 million
* Combined corporate reporting tax increase - $25 million
* Transfer of reserve fund interest - $9 million
* Increase in speeding ticket fines - $1.7 million.
In December, the Revenue Estimating Conference (REC) projected $157 million in new revenue for FY 06. When this is combined with the supplemental and $200 million in new revenue, it gives the Governor $535 million to spend and he spends it all when the cost of the salary package is included.
The Governor claims that 40 programs costing $114 million are left "below the line" or are unfunded priorities using the new Purchasing Results system. However, most of these programs were not previously funded; rather they are new programs that even the Governor could not afford to put in his budget.
Considering revenue growth in Iowa is currently 3.3 percent, the Governor's proposed 12 percent increase in spending is reckless. This proposal will set the state up for a massive tax increase in FY 07. The 12 percent spending growth is not sustainable in future years.
The 800-pound gorilla in the room continues to be state employee salaries. The cost to the taxpayers of the first three Collective Bargaining Agreements negotiated by Vilsack was over $1 billion. The new package will likely cost $200 million in FY 06 and FY 07. Unless changes are made to Chapter 20 (the rules governing the collective bargaining process), salaries will continue to consume more and more of our available general fund revenue.

Next Week in the House
The following Committee Bills will be eligible for debate as of Monday, Feb. 7: HR 6, HR 7, HF 173, HF 174, HF 175, HF 186, and HF 187.
As always, please feel free to contact me with any questions or concerns that you have. I can be reached at chuck.gipp@legis.state.ia.us or by phone at 515-281-3054.