A Message from State Treasurer Michael L. Fitzgerald
DES MOINES, IA (06/02/2017) (readMedia)-- In May I expressed concern about the state paying bills on time next spring. Today I reiterate that concern. With the news that May revenue has come in significantly less than expected, it is time to consider a cash-flow borrowing in 2018. This would ensure we make payments on time, including school aid and tax refunds. Iowans should not be concerned about the need to issue a cash-flow borrowing. It is the right thing to do when you have unpredictable cash-flows.
People should be concerned about the fact that the state has consistently been unable to project revenue in a time when Iowa unemployment is at a low of 3.1%, the stock market is at record highs and we are not facing a national economic crisis. Nobody can give a clear explanation of why we are short, but tax cuts with unpredictable results appear to be catching up with the budget.
As the Legislative Service Bureau reported, with the lagging May revenues, we are an additional $97 million short for fiscal year 2017 (which ends on June 30). The state already plans to use $132 million to balance the FY17 budget. If June doesn't make up the difference for the May shortfall (which is unlikely), the state will have to dip into the reserves once again. Every dollar we take from the reserves has to be repaid in time, which means less money will be available for important state programs. Receipts falling short of estimates is becoming a trend.
Given the recent shortfalls, it is realistic to think that the FY18 budget is built on overly optimistic revenues. We could easily see more budget cuts and additional draws on reserves in our future. This is no way to run a government and is certainly not how a AAA rated state (which Iowa is today) should approach its finances.
Until the state can demonstrate predictability in state revenues, we must put all options on the table to ensure that we can make school aid payments and meet all other obligations next spring if the budget is tight once again. A cash-flow borrowing is a responsible choice. But, this is a short-term fix to a bigger problem. Fixing the state budget is going to take financial leadership which comes from the governor and legislature.
Michael L. Fitzgerald
State Treasurer
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