Iowa's Budget is Healthy, But Room for Improvement

Sep 8, 2015

Iowa’s auditor of state says revenues for Iowa are strong and growing, but that there is also room for improvement. After completing her assessment of the state budget for fiscal year 2016, Mary Mosiman says it’s not wise to use carryover surplus money to create a balanced budget, as lawmakers have done this year.

"Surplus carry-forward dollars are not always available year after year. They do not replenish themselves like other sources of revenue," says Mosiman. "That needs to be considered as we have these multiyear accelerating financial considerations." 

Mosiman says costs associated with 2013’s Property Tax Reform are responsible for the largest budget increase.  Two years ago, the legislature voted to pass property tax cuts to mostly commercial and industrial properties. The cuts are being phased in, reaching the maximum percentage in 2017. Since local governments are mostly dependent on property taxes, the state is making up the difference created by the new tax rates.

Iowa ended FY 2015 with a surplus of about $735. Mosiman projects that the surplus will drop to nearly $352 million. 

"The surplus carry forward is dollars that are available and we do need to have a plan to spend them because they are tax-payer dollars," says Mosiman. 

This surplus is in addition to the state's statutory limits on cash reserve and economic emergency funds. Once these accounts are filled, any excess money becomes surplus and is carried forward to the next fiscal year. Together these funds and the surplus come to little over $1 billion for FY 2016.

In addition costs associated with property taxes reform, education and Medicaid expenditures are also projected to increase annually. A Medicaid forecast group composed of staff from Iowa's Legislative Services Agency, the Department of Management and Department of Human Services says that FY 2016 under funds the program by $41 million. Last year Medicaid was underfunded by $53 million and required a supplemental appropriation of $43 to cover this shortfall. 

"The growth in Medicaid is limiting the General Assembly’s ability to choose where to make worthwhile investments in Iowa," says House Speaker-Select Linda Upmeyer (R-Clear Water) in an emailed statement. 

In total the state of Iowa's budget for FY 2016 is $8.4 billion. It receives another roughly $7 billion from the federal government.