Culver: Budget questions are ‘nothing we can’t deal with’

The 2009 budget will be balanced without a special session, and when previous budget cuts are coupled with a $440 million rainy day fund, the outlook for the state’s 2010 budget is positive as well, Gov. Chet Culver said Wednesday. Culver spoke to reporters as he traversed the western half of Iowa by train, promoting the possibility of improved passenger rail service across the state.

Gov. Chet Culver

While official numbers won’t be known until the Revenue Estimating Conference meets in September, Culver said Iowa is in a much better fiscal position than many other states and should be able to avoid future budget cuts.

“I think we’ve done enough so far,” Culver said. “I think people need to understand that our budget in 2010 is $135 million less — a 2 1/2 percent cut — than it was in 2008. We’ve done across-the-board cuts, we’ve cut salaries, we got rid of bonus pay and we’ve trimmed. That puts us in a good position for 2010. Having said that, we’ll have to wait and see what adjustments we’ll need to make when the REC meets in September.”

No one can predict if the 2010 budget, which begins July 1, will need to be adjusted. But it is “nothing that we can’t deal with.”

“We’ve got $440 million in cash reserves,” he said. “We can transfer if we have to or make adjustments if we have to.”

The nonpartisan Legislative Services Agency has raised concern of late that revenues may fall further than anticipated, which could create a more immediate budget gap in fiscal year 2009 that is larger than Culver has the authority to deal with on his own. That could mean a special session will be needed to balance the budget. The legislature left a $45 million ending balance, and Culver has the authority to transfer $50 million from the state’s reserves.

“I lend a tremendous amount of credence and have a tremendous amount of respect for the numbers that come out of the Legislative Services Agency,” said David Swenson, an economist at Iowa State University. “They forecast a greater than $100 million shortfall. I don’t know how you can ignore that. Those folks are good. If the governor believes that through a series of decisions or with a buffer to cover the shortfall he can declare a balanced budget at year’s end, I don’t know if that’s the case or not.”

The 2010 budget could also take a hit if revenues continue to fall, Swenson said. But the real trouble could be in 2011, when federal stimulus money will be gone. Without that money, Swenson said, the state would have been forced into far greater lay offs in state government, specifically at the state’s public universities.

“It bolstered the transportation department, and the natural resources and environment as well,” he said. “It has done a lot to stabilize general government activity. Without it, there will be some tough decisions.”

Swenson said even if the economy starts to turn around, which he expects to happen in early 2010, it will take “an extra year or so for the state’s revenues to pick up.”

Culver acknowledged that 2011’s budget, which the legislature will work on starting in January, would be tough.

“No one is saying balancing the budget in 2011 is going to be easy since we’re dealing with a worldwide recession,” Culver said. “But we’re going to do it, and that might involve more cuts. I hope not, but it’s likely we’re going to have to find more savings.”

Culver pointed to work underway this summer by a legislative committee charged with studying ways to restructure state government as one way out of a financial disaster.

“We’re confident we can find significant savings in reorganized state government to make it more efficient,” Culver said. “It’s likely we will have a plan to put on the table early next session.”

He also pointed to the I-JOBS program, an $830 million infrastructure improvement plan passed in April.

“We have nearly a billion dollars in infrastructure projects,” Culver said. “That’s going to create economic opportunities and jobs at a time when we need it.”

Swenson said for every $100 million spent on infrastructure development by the I-JOBS program, 1,500 to 1,700 jobs would be created for the duration of time the money is being spent.

“So if you’re spending $250 million a year for the next three years, you’re looking at 4,000 jobs in the state’s economy,” he said. “That’s about 4 percent of where our current unemployment rolls are. It’s meaningful, and it is not something to be ignored. That money will find its way into the Iowa economy, and it does chip away at unemployment. But it will not significantly change or alter the overall economy.”

Despite the doom and gloom, Culver said Iowa is still in a far better position than most other states.

“The good news is, recent studies suggest Iowa will be one of the first 10 or 12 states to come out of the recession, in part because of our situation, with a strong reserve of cash and a AAA bond rating,” he said. “That would suggest that if we’re not at the bottom we are getting close.”