Governor Chet Culver said Thursday that hundreds of Iowa state workers will be laid off, some government programs may be eliminated, and services to even the most vulnerable of Iowans will be affected as a result of the 10-percent across-the-board cut he ordered a day after state revenue estimates were lowered $414.9 million for the current budget year.
"We are preparing for some of the toughest times this union has ever seen," said Danny Homan, president of AFSCME Iowa Council 61, which represents approximately 20,000 state workers. "A 10-percent across-the-board cut will be devastating to state workers and the people they serve, no matter how necessary that cut is."
Homan said the union had been bracing for a 3- to 5-percent cut and was shocked by Thursday's announcement: "I think you're going to see state offices that may or may not be open. You may see state offices closing. You may have to drive a few more miles to get to a state office. Services are going to have to be reduced. ... I don't think we will have the employees to provide services at the level we're providing it."
House Speaker Pat Murphy (D-Dubuque) said he's been at the Capitol for 20 years and this is by far the worst he's seen. "I think you're looking at hundreds, maybe even thousands of layoffs," he said. "You're hurting people that are working every day to serve the citizens of this state, and now some of them are going to probably be laid off."
Culver announced the sweeping $564.5-million cut at a packed news conference recorded by 10 video cameras and carried live on the Web and by some TV stations. He said that "everything is on the table" and emphasized that cuts would be painful and difficult. He said the situation was brought about by the national recession.
"We're not going to run and hide. We're going to deal with it head-on," Culver said. "We are dealing with uncharted waters. This is the Great Recession. ... We had a financial collapse that we haven't seen since the Great Depression."
Culver said he hoped to ask the legislature to restore about $30 million to priority areas such as health care, public safety, and workforce development. But Murphy downplayed expectations, saying that can only occur if state revenues level out.
"If things continue to deepen, I don't think we can guarantee anything can be backfilled," Murphy said.
Education, Human Services Take Biggest Hits
Education will absorb 47 percent of the governor's cut, mostly in school foundation aid that goes to local school districts.
Culver said he'll ask school districts to use their reserves before raising property taxes. But Republicans said the move will increase property taxes by $284 million.
"When you issue an across-the-board cut, it reduces property-tax credits and the state's share of K-through-12 education funding, and, thus, local property taxes will rise to fill the gap," said Republican Party of Iowa Chair Matt Strawn.
House Minority Leader Kraig Paulsen (R-Hiawatha) said: "The result of this across-the-board cut is higher property taxes for Iowans. A tax increase that could have been avoided by better management of the state budget. The governor is pushing his out-of-control spending problem on to the backs of Iowans."
Paulsen pointed to $330 million in cost-saving measures proposed by Republicans this year as more responsible than resorting to an across-the-board cuts.
Iowa Association of School Boards President Jack Hill tried to remain optimistic Thursday, despite the effect the cut will have on schools. "The governor made a difficult decision today by announcing a 10-percent cut. While that is a significant cut, we thank him for acting quickly so that school boards can start planning ahead as we work on budgets," said Hill, who's also a North Scott school-board member.
Other areas of the budget will see big cuts as well: Human services took a $132-million cut (23 percent of the total cut), while the Iowa Board of Regents took a $59.8-million hit (11 percent) and corrections saw a $35.7-million cut (6 percent). The state treasurer was cut $11.9 million, mostly in the Health Care Trust Fund, and the Department of Management received a $10.8-million hit, mostly in the property tax credit fund. About $8.9 million was sliced from public safety.
Iowa Board of Regents President David Miles ordered an immediate hiring freeze and a construction moratorium for the state's regents institutions in reaction to news.
Cost of Tax Credits on the Rise
The potential liability of Iowa's tax credits will increase more than 150 percent from $219 million claimed against Iowa taxes in fiscal year 2007 to more than $566 million by fiscal year 2011, according to a report from the Iowa Department of Revenue.
Programs that appear to have the greatest impact are the Film, Television, & Video Project Promotion Program; High Quality Jobs Program; Enterprise Zone Program; Research Activities Tax Credit; and the Iowa Industrial New Jobs Training Program.
A recent cap placed on certain economic-development programs should limit the impact of these tax credits, but the cap did not go into effect until July.
"There has been tremendous growth in the amount of credits awarded since FY2001, although awards have dropped in the last two years," the report said. "In FY2001, the amount of awarded credits was just over $100 million; in FY2007, nearly $400 million in tax credits were awarded. In FY2008, there was a decrease in awards from FY2007 with nearly $240 million in tax credits awarded. The amount of awards decreased again from the previous year in FY 2009 to just over $160 million."
The new information comes as groups such as AFSCME Iowa Council 61 and the Iowa Fiscal Partnership are calling for a complete review of the state's tax credits in light of state budget cuts and the recent film-tax-credit scandal.
"We simply must be willing to address revenues," the Iowa Fiscal Partnership said. "It is disingenuous to view our budget imbalance as happening on one side of the ledger. All parts of the budget - spending, reserves built up for possible downturns, and taxes forgiven - must be part of the solution."
One Candidate Plans to Exit if Branstad Runs for Governor
At least one gubernatorial candidate said this week he will drop out of the race if former Republican Governor Terry Branstad officially decides to run.
"In the event that he does declare his candidacy ... I will be dropping out at that point," said Senate Minority Leader Paul McKinley (R-Chariton). "I've frankly been doing Senate leadership work. I cannot both run for governor and be the Senate Republican leader."
Branstad, who's currently president of Des Moines University, on Wednesday filed paperwork to form an exploratory committee to run for governor in 2010. The move came after months of speculation about him running and formation of a Draft Branstad PAC.
Mary Andringa, chief executive officer of Vermeer Corporation in Pella, is chair of Branstad's committee.
Even though Branstad is still officially undecided, gubernatorial candidate and Representative Christopher Rants (R-Sioux City) is arguing that Branstad is the wrong choice for the Republican nomination for governor in 2010.
"One of the opportunities that Republicans have to beat Chet Culver is to talk about his mismanagement of finances," Rants said. "I don't think we should nominate a guy who ran up budget deficits, kept two sets of books ... and raised taxes more than any other governor in history. I don't think Terry Branstad is the guy we should nominate."
Andrew Roos, Culver's campaign manager, is already using a similar argument.
"When Terry Branstad hit tough times, he raised taxes," Roos said. "We need to be looking forward, not going back to the '80s."
Attorney General Plans Criminal Investigation Into Film-Tax-Credit Program
The Iowa attorney general's office announced a criminal investigation into the Iowa Film Office tax-credit program after the release of an audit of the program. The investigation will be done jointly with the Polk County attorney's office, the state Division of Criminal Investigation, and the state auditor.
"The attorney general's office will work to recover any tax credits or funds obtained illegally or not in compliance with the Film Office statute," the release stated. "Approximately $32 million in tax credits have been issued, and we will review them in detail and seek recovery wherever they were obtained in violation of the law."
A review of the program conducted by West Des Moines accounting firm Clifton Gunderson found that advertising or "sponsorships" for a dozen Iowa films cost $13.4 million, and that some items including luxury cars cost more than $50,000 each and might not have been related to film production.
The review, released by the Iowa Department of Economic Development, confirmed much of the information already made public. It repeatedly cited a lack of records and documentation. The film office received invoices and receipts for only two of the 22 film projects.
"It appears possible that some of the expenditures included as qualifying Iowa expenditures may not have directly been involved with the film production," the review states. "Examples include, but are not limited to, luxury vehicles, as well as items donated to non-profit organizations. These included large expenditures with some exceeding $50,000 each."
The review also found that directors, producers, and actors who shouldn't have qualified for tax credits were paid for their services. The non-qualifying expenditures exceeded $300,000 in one film production and $650,000 in another, the review said.
Culver said the abuses angered him as a taxpayer and that he was "very offended that we had a number of individuals that really exploited and took advantage of what was supposed to be a program to encourage more film-making in this state."
He called the Clifton Gunderson report "an important preliminary step in reviewing Iowa's film-tax-credit program, providing clear examples of how it has been both mismanaged and abused over the past several months."
Senate Republican Oversight Committee member Ron Wieck (R-Sioux City) called on Culver to release all communications between his office and the Iowa Department of Economic Development, so taxpayers know exactly how their money was spent.
"Only full sunshine will restore Iowans' trust in government after the CIETC scandal," said Wieck, who noted that the Clifton Gunderson review said that many areas still need clarification and that incomplete records were kept. "I look forward to seeing the attorney general's results from the criminal investigation and hope that a program like this is not abused in the future."
House Minority Leader Paulsen pointed to the film-office scandal as another reason why legislation is needed for a more open and transparent state government.
"It is outrageous that the executive branch has been administering this program for two years in violation of the laws passed by the legislature," Paulsen said. "Regular Iowans are not allowed to sidestep the law, and state government cannot be allowed to, either."
Audit Faults Secretary of State on Accounting, Expenditures
The Iowa secretary of state's office did not account for and expend Help America Vote Act (HAVA) money in accordance with the law's requirements or comply with the financial management requirements established by the U.S. Election Assistance Commission (EAC), according to a new audit.
The audit by West Des Moines accounting firm Clifton Gunderson was done for the U.S. Election Assistance Commission's Office of the Inspector General. It covers administration of HAVA payments by Iowa's secretary of state between April 10, 2003, and April 30, 2008. While current Iowa Secretary of State Michael Mauro responded in August to a May draft of the audit, HAVA was mainly implemented when Culver was secretary of state.
The audit found:
- A lack of competitive bidding for procurements and services - the use of sole-source procurements and costs of services totaling $1.2 million to three vendors, in violation of normal state bidding and purchasing;
- $2.5 million on questionable activities;
- $3 million in accounting errors and misreported funds. There were errors in computing interest on state matching funds, and errors in the financial reports filed with the EAC; and
- $369,740 for capital improvements to polling places without preapproval by the EAC.
The audit recommended that Iowa transfer the $12,182 of principal and interest owed to the election fund for June 2004 through April 2008, plus interest. The secretary of state said that the issue had been resolved and provided documentation indicating that $12,382 had been transferred to the election fund on September 5, 2008.
On personnel costs, the audit recommended that Iowa either return the questioned costs of $885,573 or resolve with the EAC the appropriate corrective action regarding the lack of periodic certification. But the Culver administration stated it was confident the employee allocations were accurate, and if anything the office undercharged salaries and benefits to HAVA.
Culver responded to the audit later in the week: "I am very proud of the fact that as secretary of state, we led the nation in voter participation. In terms of voter turnout, voter registration, we worked extremely hard for eight years to make polling sites more accessible, to make it easier for people to find their polling sites. As a former government teacher, that's something that I care passionately about - voter outreach, voter education. That's what the Help America Vote Act required states to do. ... I'm not going to apologize for spending $300,000 or $400,000 to build ramps, to widen doors and to make every polling site in our state accessible to people with disabilities."
This weekly summary comes from IowaPolitics.com, an online government and politics news service. IowaPolitics.com staff contributed to this report.
