Iowa State Budget to End Fiscal Year with $483.2 Million Surplus

By Lynn Campbell
IowaPolitics.com

Iowa is expected to close the books on fiscal 2011 at the end of this month with a healthy $483.2 million surplus, but a key Republican legislator said Wednesday that he will advocate against spending that money.

“When there’s money in the ending balance, as far as I’m concerned, that’s still the taxpayers of Iowa’s money and not government’s,” Iowa House Ways and Means Chairman Tom Sands, R-Wapello, told IowaPolitics.com. “So that doesn’t necessarily mean it should be spent. It should be held on to, to make sure this next fiscal year isn’t handing us a crippling blow again.” 

Fiscal 2011 ended June 30, but it takes until the end of September to close the books. Once some of the state’s ending balance goes toward filling the cash reserves and economic emergency funds as required by law, an estimated $287.5 million will return to the general fund, according to the nonpartisan Legislative Services Agency.

In the past, that money has been used for government spending in areas ranging from education to public safety and health care. But Republicans, who hold a 60-40 majority in the Iowa House, want to handle this situation differently.

“Certainly, it puts it up for grabs, which is dangerous,” Sands said of the surplus money returning to the general fund. “That’s why you need fiscally responsible people being stewards of your money here in Des Moines.”

In future years, it will be less of a question whether state surpluses will go to government spending or tax relief.

Iowa lawmakers earlier this year approved, and Gov. Terry Branstad signed into law, a Taxpayers Trust Fund that will receive up to $60 million a year for tax relief. The money will come from unexpected revenue growth after the cash reserves and economic emergency funds are full.

That fund kicks in about a year from now. The amount of money that will go into the fund each year depends on revenue growth. Current estimates by the Legislative Services Agency shows that an estimated $38.3 million will go into the tax-relief fund about this time next year.

“The money in there largely is a reflection of taxpayers paying too much, so it would be a way to get their money back to them,” Sands said.

Iowa Senate Ways and Means Chairman Joe Bolkcom, D-Iowa City, said the fund could be used for commercial property tax relief.

A plan offered by Iowa Senate Democrats earlier this year would give a property-tax credit to businesses. It would cost the state $50 million in fiscal 2013 and would grow incrementally to $200 million over four years, but only if state revenue increases by at least 4 percent in each of those years.

“I think Senate Democrats’ proposal is one that provides significant commercial property-tax reduction to Main Street businesses,” Bolkcom said in an interview with IowaPolitics.com. “It won’t result in a large shift and increase in residential taxes, and it’s targeted to people that need it most. So I hope we can get people together around it. We all agree something should happen.”

But lawmakers failed to agree on property-tax relief earlier this year.

Republicans said they wanted a bigger, bolder plan than the one advocated by Democrats. Branstad’s plan called for a 40 percent rollback on commercial property taxes over the next five years, which would cost the state $500 million. Meanwhile, a $347 million plan by Iowa House Republicans would cut commercial and industrial property taxes by 25 percent and give all property taxpayers some relief by picking up more of the cost for schools.

Bolkcom stood firm Wednesday in opposing the more sweeping approach to tax relief.

“I don’t think we need any big corporate tax reduction,” Bolkcom said. “I think Iowa corporations need to pay their fair share. So that would be an area I would be opposed to.”

Sands said tax cuts won’t necessarily be limited to the amount of money in the Taxpayers Trust Fund next year. He also said he doesn’t have a predetermined notion of what kind of tax relief the money will be used for. The fund could receive no money at all next year, if the state doesn’t see strong revenue growth.

“Even though we are ‘cautiously optimistic’ … a lot of the economists around the nation are very hesitant to even be optimistic at this time,” Sands said. “I think we need to take a conservative approach on the future, make sure we are good stewards with people’s money. The best way to get a return on the taxpayers’ money will have a large bearing on where those tax breaks might come in the future.”

Despite Branstad’s new focus on education reform, Sands said tax relief will continue to be a priority.

“I believe the governor is very committed for property-tax reform. We are capable up here of thinking of two different subjects at the same time,” Sands said. “Even though I do agree that education reform will take a major spotlight next year … that doesn’t mean property taxes or any other type of tax reform will be put on the back burner. I believe it will be on the side front burner.”