Thursday, December 18, 2008

Culver: Budget cuts to include employee layoffs, furloughs

Gov. Chet Culver announced an across-the-board budget cut today and said education and Medicaid won't escape unscathed.

Culver announced a 1.5 percent across-the board reduction in an attempt to deal with the state’s declining revenues.

The governor said staff reductions and employee furloughs are likely, which will be determined by each department. “It’s going to be painful,” he said.

The cuts announced today amount to $91.4 million and will have an effect on services, Culver acknowledged. In addition, Culver ordered a transfer of $10 million of unused money into the general budget. Most of that transfer money will come from an underground storage tank account, which is used to investigate and clean up any past petroleum contamination from underground storage tanks.

A week ago, Culver announced $40 million in cuts, largely through a hiring freeze and limiting out-of-state travel. In addition, Culver said he will ask the Legislature to withdraw plans for a $37 million new office building.

Combined with cuts announced Dec. 9, the total is $178.4 million in reduced expenses in the current budget year that ends June 30.

“We are in the midst of an economic challenge that is historic in its scope,” Culver said at a meeting with reporters at the Capitol.

The cuts mean $54.3 million less for education and $20.5 million less for health and human services in the current budget year that ends June 30. Those are the two biggest areas of the state’s budget and ones that both Democrats and Republicans have long tried to avoid cuts.

Iowa will have $99.5 million less in revenue for the current budget year, which ends in June, than was projected two months ago, the three-member Revenue Estimating Conference said last week.

“I don’t want to be an alarmist or suggest to Iowans that their state government is in financial trouble,” Culver said, noting the state has more than $620 million in reserves.

Culver said that he’s not interested in tax increases to help balance the budget. That includes an idea he proposed for the 2008 legislative session to end a tax loophole known as combined reporting.

Iowa currently uses separate entity filing, which allows large retailers and other corporations to legally avoid paying some taxes by setting up subsidiaries in other states. Closing the combined reporting loophole would save the state an estimated $100 million but has long been considered an additional tax on businesses. Increased taxes is not the answer, Culver said.

“We’re not just trying to balance the budget. We’re trying to do it in a responsible way that will not deepen the recession we’re in,” Culver said.

Rep. Scott Raecker of Urbandale, the top Republican on the House Appropriations Committee, praised the action Culver announced today as well as his words against increased taxes and changes to combined reporting.

“I think the governor has taken a good but unfortunate first step,” Raecker said. “In order to meet the requirement of the state law for a balanced budget, this is the type of action that was going to need to be taken.”

Iowa’s $6.1 billion budget faces a $616.4 million shortfall for the budget year that begins July 1, according to estimates released this week by State Auditor David Vaudt. The nonpartisan Legislative Services Agency estimates are even larger, releasing estimates this week that show a $779 million gap between revenue and spending.

Those estimates, combined with national economic troubles and declining state revenue estimates, means upcoming budget troubles will extend much further than the current fiscal year, Culver said.

And, for that reason, Culver said he will resist using any of the state’s $150 million economic emergency funds in the current 2009 fiscal year, which ends June 30.

“Every economic indicator suggests that ’10 is going to be a lot tougher than ‘09 and that ’11 could be worse,” Culver said. “So we have to be very prudent about the steps that we take and, as painful as this is for everybody who is going to be impacted, it’s the right thing to do.”