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Fiscal track record shows Branstad demand for two-year budget will create chaos


This news story was published on April 21, 2011.
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Statement by Senate Leader Mike Gronstal: “Governor Branstad is insisting that making budget appropriations two years in advance is more important than any other issue before the Legislature. He’s placing it ahead of education, ahead of job creation, and ahead of tax fairness, and ahead of every other priority of middle-class Iowans. “|Statement by Senate Leader Mike Gronstal

“Governor Branstad is insisting that making budget appropriations two years in advance is more important than any other issue before the Legislature. He’s placing it ahead of education, ahead of job creation, and ahead of tax fairness, and ahead of every other priority of middle-class Iowans.

“The governor claims a two-year budget is essential to improving Iowa’s budget process. The facts, however, indicate otherwise. The track record of the last decade conclusively demonstrates that two-year budgets would actually increase uncertainty and miscalculation when it comes to Iowa’s budget.

“Economic projections are by no means an exact science, and that’s what we have to rely on when we write the budget. Historically, the non-partisan economic projections by the Revenue Estimating Commission have been off by 2.9% when we are looking 6 months into the future. When they are looking 18 months into the future, they’ve been 5.6% off.

“If we follow Governor Branstad’s plan, we’d be using a projection for 30 months out. That means we’d likely be using numbers that are off by even more than 6% — perhaps double or more. We’re talking about hundreds of millions, even billions, of dollars. Having to correct for that error mid-course could be disastrous.”

“In short, Governor Branstad is bringing the legislative process to a halt based on a faulty assumption. If he has any evidence that a two-year budget would improve rather than weaken the integrity of Iowa’s budget process, it is now up to him to produce it. We’ve offered a compromise proposal that would allow us to start planning ahead while still giving ourselves room to adjust based on non-partisan, fact-based economic analysis.”

BACKGROUND:

Each December, the Iowa Legislature’s non-partisan Revenue Estimating Conference issues two estimates of state revenues.

The first estimate projects state revenue for the current fiscal year, which ends six months in the future. Thus the December estimate of the current fiscal year combines six months of actual receipts and estimates receipts for the next six months. Since 1999, that estimate has been off an average of just under 3 percent.

The second December estimate projects state revenue in the coming fiscal year, i.e., from 6 months to 18 months in the future. Since 1999, the estimate for the next fiscal year has been off by an average of more than 5.5 percent.

Governor Branstad’s insistence on a two-year budget would introduce much more uncertainty. One can safely assume that projecting state revenues from 18 months in the future to 30 months in the future would be LESS reliable than the one-year estimates currently used.


At a statehouse news conference, State Senator Herman Quirmbach of Ames explained how the difficult of making accurate long-term economic projections means Governor Branstad’s demand for two-years budgets will create chaos in state government. Working with the non-partisan Legislative Service Bureau, Quirmbach analyzed the past decade of projected and actual state budgets. He found that the economic projections underlying the budget have been off by 2.9% when projecting 6 months into the future and 5.6% off when projecting 18 months in the future. Writing a two year budget would require the state to project revenues 30 months in the future. Quirmbach said the increased uncertainty will create chaos and likely lead to drastic across-the-board cuts. From left to right, Senator Quirmbach and House Democratic Leader Kevin McCarthy of Des Moines.

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