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State Auditor Vaudt Reviews Governor Branstad’s Fiscal Year 2012 and 2013 Budget Proposals

(Des Moines, Iowa) ñ Continuing in his role as the “Taxpayers’ Watchdog” and his duty to report directly to the people of Iowa on the condition of the state’s finances, State Auditor David A. Vaudt has completed his review of the Governor’s proposed Fiscal Year 2012 and 2013 budgets. Vaudt said, “While there are still concerns to be addressed, these budget proposals make huge progress in the areas of fiscal sustainability, transparency, and long-term planning.”

Budget Proposals Dramatically Reduce Reliance on One-Time Resources
The Fiscal Year 2011 budget shifted over $800 million of General Fund costs to one-time resources, creating a huge spending gap for Fiscal Year 2012 when many of the one-time resources go away. This spending gap is often referred to as a “cliff” by experts because of the severity and suddenness of the drop in resources which are expected to be available. The Governor’s Fiscal Year 2012 and 2013 proposed budgets close this gap through a combination of spending cuts in selected areas and higher revenues than previously anticipated by the Revenue Estimating Conference.

Auditor Vaudt noted there are still almost $100 million of annual expenditure shifts occurring in Fiscal Years 2012 and 2013. However, Vaudt pointed out, “The practice of shifting General Fund costs to one-time or limited-time sources has been significantly reduced in these budget proposals.”

Budget Increases Transparency

While the Fiscal Year 2011 budget presented less than 85% of the true total cost of providing General Fund services, the Governor’s proposed budgets present over 98% of the true General Fund costs. Vaudt said, “There is room for improvement in the presentation of the budget to make it more transparent and user-friendly, but the content is largely there.” Vaudt also noted Medicaid savings included in the proposed budgets were supported by specific proposals which appear feasible under current laws and regulations, as opposed to the “wishful thinking” used in recent budgets.

Two-Year Budget Proposal Increases Focus on Long-Term Planning
The Governor’s budget proposal includes a two-year budget, plus a summary 5-year financial plan. Vaudt said, “I have long advocated for multi-year budgeting because we make different decisions when we look at the long-term impact instead of only thinking about next year’s budget.” Vaudt added that while projections farther into the future are subject to more variability, there is a significant benefit to testing the sustainability of government programs through long-term financial planning.

Concerns and Challenges

Auditor Vaudt noted three primary areas of concerns and challenges in Governor Branstad’s budget proposals and 5-year financial plan. First, $89 million in General Fund salary cost increases approved by former Governor Culver are not funded in the Fiscal Year 2012 and 2013 proposed budgets. Absent increased funding, the salary increases will have to be funded through unpaid leave days and/or layoffs.

Second, projected revenues appear optimistic ñ maybe too optimistic. Fiscal Year 2011 and Fiscal Year 2012 revenues are projected to grow 4.6% and 5.9%, respectively. Vaudt commented, “I sincerely hope revenues grow at the pace projected by the Revenue Estimating Conference. But a more than 10% revenue growth projection over the next two years may be optimistic ñ especially when other states are predicting continued revenue issues. Iowa’s annual revenue growth in the last 20 years through Fiscal Year 2010 has averaged 3.6%. If our revenue growth falls short of projections, it could require budget cuts.”

Third, the 5-year projections show the longer-term fiscal sustainability of the state budget will still be very challenging. Vaudt said, “Cost growth in the three biggest areas of spending ñ education, Medicaid and salaries ñ is projected to be nearly $300 million per year. Meanwhile, a 4% revenue growth translates to only approximately $250 million of additional revenue annually. Absent meaningful cost efficiencies and/or additional revenue growth, we simply can’t sustain this level of spending growth in the long run. As a state government, we must rethink both the services we deliver and the way we deliver them in order to remain viable on a long-term basis.”|

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