By Deborah Thornton
Every card player is familiar with the phrase, “Read ‘em and weep!” proclaimed as the winning player shows his cards and takes the pot. It refers to the risks and hopes of gambling. You have no control over the cards, only the risks you take. Iowa Governor Chet Culver probably wept following recent tax reports. The cards are bad and the risk quite large.
Tax collections have been trending downward for over 12 months and the State budget is badly out of balance. The Revenue Estimating Conference (REC) officially projects the revenue number used to determine the budget in December for the fiscal year starting the next July. For FY2010, July 1, 2009-June 30, 2010 the REC estimate was done December 2008.
The REC reviews a variety of data to make its projections. For example, the Department of Revenue produces the Iowa Leading Indicators Index (ILII) every month. This is intended to help determine the economic direction, and presumably the resulting budget bet. In September 2009 the leading indicators continued falling from a March 2008 high of 107.3 to a record low of 94.5. The ILII has been on a straight-line downward path since March 2008.
The December 2007 REC estimate for FY2009 was $6.14 billion. In April 2008, following the March 2008 ILII projection of 107.3, the REC actually increased its FY2009 estimate to $6.18 billion. In October 2008, the ILII fell to 104.43. By December it had fallen even further, to 101.85. Yet the REC dropped its estimate by only $38 million, and by another $100 million at the October and December meetings. Still not low enough as final FY2009 revenues were even lower, falling below $6 billion to $5,934 million.
The real trouble begins with FY2010 projections-the current budget. Though the ILII has been in a straight downward line, last October the REC again projected a revenue increase, this time for FY2010. Finally the REC budget projections were dropped in December, and further in March.
However, Governor Culver and the Democrat-controlled Legislature read last October’s report and stopped. They rejected all budget reduction attempts, including over $400 million Republican proposed cuts. Bolstered by enthusiasm for the federal stimulus Culver signed the largest budget in state history, including $800 million in I-Jobs borrowing. Governor Culver signed the largest budget in state history while his own REC and ILII numbers were dropping significantly. What hand was he playing?
Last month the REC reduced the FY2010 estimate even further, to $5,438 million. Culver called for a 10 percent across-the-board spending cut. But at an October 8 press conference, he said the budget already included, a “couple hundred million from the cash reserve, we’ve already drawn down a third of the cash reserves, and we’re still short.”
Based on the 94.5 September ILII, the FY2011 budget cards are bad. Not only are projections down, but home and car sales, land values, exports, and non-farm jobs are still dropping. We trust the REC will heed these numbers in its FY2011 official estimate in December.
Another gambler saying is, “Go big, or Go home.” In our family that meant you put all 50 pennies in and hoped for the best. But the Governor and Legislature are playing with millions, not pennies in a family poker game. They’re gambling with our schools, our jobs, and our future. They can not keep playing with Iowans’ money and making bad bets. They better read the cards accurately, or we’ll lose everything.
The views expressed in this column are those of the author and not necessarily those of Public Interest Institute. They are brought to you in the interest of a better-informed citizenry.
Deborah D. Thornton is a Research Analyst with the Public Interest Institute in Mt. Pleasant, IA.
Web site: www.limitedgovernment.org.