Can’t Fix Iowa’s Budget Problems With Cuts Alone

Iowa must address revenues as part of a balanced approach to balanced budgeting. Cutting spending misses half of the equation.

Iowans have been kidding themselves for years.

We have seen proposal after proposal come and go, but hardly ever reaching as far as the floor of either the Iowa House or Iowa Senate.

Sooner or later, it will have to happen. Iowa will address the revenue drain that lobbyists and politics have punched into the floor of the state Treasury.

The 10 percent across-the-board cut announced today by Governor Culver is significantly deeper than anyone was predicting even a day earlier, when the Revenue Estimating Conference forecast a $415 million drop in expected revenues for this fiscal year.

Iowa’s economy has suffered in this recession, and like 47 other states, has been staring down revenue shortfalls as a result. But as Iowa Fiscal Partnership analysts have suggested for years now, it did not have to be this bad.

Iowa Fiscal Partnership
Iowa Fiscal Partnership
From IFP’s statement today:

An across-the-board cut still allows the Legislature to come back and make more targeted decisions in January, and restore funding to essential services that cannot sustain the kinds of cuts we’re talking about today.

In short, we simply must be willing to address revenues. It is disingenuous to view our budget imbalance as happening on one side of the ledger. All parts of the budget — spending, reserves built up for possible downturns, and taxes forgiven — must be part of the solution.

Our response will affect not only the state budget, but the state’s economy as well. If we deal with this only by cutting spending, we will make it all the more difficult for the economy to recover, and for Iowans to return to work. … (W)e must look not only at spending and how taxes are collected — but also at the taxes we don’t collect at all. It’s all part of Iowa’s bottom line.

  • Tax credits to business have grown from $180 million to $421 million in just three years. That includes millions of dollars in secret checks written to corporations to do research they might have done anyway.
  • We continue to leave more — as much as $80 million — uncollected from multistate corporations because we won’t adopt better accounting rules to plug tax loopholes and assure Iowa profits are reported. Not only is that lost revenue, but it’s unfair to Iowa businesses competing with those corporations.

Those are the kinds of spending we do that don’t show up in the budget — and are going to be unaffected by the Governor’s cuts announced today, cuts that could result in layoffs in education, corrections and other important services.

Iowa’s revenue troubles are magnified by the serious recession. But make no mistake, they did not have to be as bad as they are today. Forward-thinking choices now can help us avoid more days like today down the road.

Governor Culver has demonstrated willingness in the past to look at proposals to stop the leaks through Iowa’s tax loopholes. And in recent days, he has responded to the problems with the film tax credit program by calling for a review of all Iowa tax credits, a position shared by both The Des Moines Register and The Gazette in Cedar Rapids.

Both moves are a good starting place for a balanced approach to balanced budgeting.

Posted by Mike Owen, Assistant Director

Author: iowapolicypoints

The Iowa Policy Project is a nonprofit, nonpartisan organization that provides research and analysis to engage Iowans in state policy decisions. We focus on tax and busget issues, the Iowa economy, and energy and environmental policy. By providing a foundation of fact-based, objective research and engaging the public in an informed discussion of policy alternatives, IPP advances effective, accountable and fair government.

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