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Representative Ro Foege
Report from the Iowa Legislature
January 25, 2004
The 98% Spending Limitation Law
The most significant event at the State Legislature last week was the passing of the 98% Spending Limitation Law.
The current spending law in Iowa limits Legislative appropriations to 99% of the money received by the state. That law was established in 1992, under a Democratic majority. At that time, there were three funds that had to be filled with the 1% unspent funds. They were the cash reserve fund, the economic emergency fund, and the GAAP account to pay off the state’s deficit.
At the same time, Iowa increased the sales tax by 1˘ and, with the increased revenues along with an improving economy, Iowa was able to eliminate the deficit. We could fill the “rainy day” funds to their capacity in just a few years, rather than the ten years it was believed to take. In fact, the surplus grew to nearly $1 billion. The response to the surplus was to cut most taxes except the sales tax, the one tax that carried us to a surplus.
We no longer have the GAAP account. We now have two “rainy day” funds. The cash reserve fund is set at 7.5% of the adjusted revenue estimate and the economic emergency fund is set at 2.5%. These two “rainy day” buckets provide a 10% reserve. These “buckets” are primarily filled from the 1% unspent revenues.
The argument for moving to a 98% spending limitation is that it would mean a larger ending balance each year to handle subsequent reductions in the revenue estimate. It was argued this could help avoid across the board cuts unless the drop in revenue is drastic.
I voted against moving to the 98% spending limitation. Passing a law to force legislators to spend only 98% of the revenue brought in sounds like a fiscally responsible approach to budgeting. However, the unintended consequences could be higher property taxes for homeowners, businesses, farmers and the elderly.
In the past few years, those in control of the legislature have balanced the state budget by cutting aid to schools and local governments, and by under-funding property tax credits that help property owners. Increasing the amount of money we put aside just increases the likelihood of more cuts in important services and property tax relief.
Moving to a 98% spending limitation law is a step that should be taken when times are good. I voted for amendments that would take us to a 98% spending limitation when the sales tax revenues increase by 2%. Those amendments were defeated. When we are already facing serious revenue shortages, it makes no sense to cut our resources even deeper.
This is the wrong time to take another $45 million off the table each year that could go toward our priorities—education, health care, economic growth and protection of property taxpayers. This 1% reduction forces more cuts to essential services and would bring cuts in education, higher college tuition, and more seniors and children without health care services. I could not vote for a measure that jeopardizes the priorities of Iowans.
You can write me at the State Capitol, Des
Moines, IA 50319; call 515/281-7328 or e-mail me at
ro.foege@legis.state.ia.us. |