Is Iowa Well Prepared for a Financial Storm?
 David Vaudt, CPA, State of Iowa, Auditor of State
We balanced the budget—oh, how many times I have heard these words since I took office as your State Auditor! While these words are technically true, it is important, as Paul Harvey would say, that I tell you the “rest of the story.”
For the last seven consecutive years, Iowa has “balanced” its General Fund budget through a simple shift gimmick. Under the shift gimmick, significant General Fund costs (ranging from another 5.7 percent to 9.4 percent) have been shifted to and paid for by other special funds and accounts. Why? Because Iowa’s spending habits have outpaced our General Fund revenues. The key to balancing the General Fund budget under Iowa law has been the ability to exclude these shifted costs in the analysis of our General Fund budget.
To put it in terms of your personal finances, think of the General Fund as being your “checking account” and the other special funds and accounts as being your “charge cards.” To balance your personal budget, you simply need to compare your checking account spending with your checking account deposits—your charge account spending does not count. Wrong! We all know it doesn’t matter whether you pay for it with your checkbook or with your charge cards. It’s the true total spending that really matters.
By utilizing this shift gimmick to balance the General Fund budget, Iowa’s true total spending for General Fund services is understated. For example, the balanced General Fund budget for fiscal year 2008 provided for almost $5.9 billion in spending. However, an additional $422 million of the costs of General Fund services were shifted to and paid for by other special funds and accounts. That means Iowa’s true total spending to provide General Fund services totaled nearly $6.3 billion—or 7 percent more than the General Fund budget reflected.
Even more alarming is the dependency Iowa has built on these special funds and accounts over the last 7 years to cover the fact that Iowa’s spending for General Fund services has consistently exceeded the General Fund revenues generated. These special funds and accounts are one-time or limited-time monies. That means Iowa is funding the ongoing costs of General Fund services with monies that do not represent continuing resources. To use the personal finance analogy, we will soon max out our charge cards.
Iowa has almost reached the end of the road—most of our special funds and accounts are nearly depleted. While the State’s cash reserve and economic emergency funds have been replenished, they need to be maintained for their intended purposes—true economic emergencies, circumstances which cause a decline in revenues. Even our reserves of $592 million would only last slightly more than one year if we were to roll all shifted expenditures back into the General Fund. True economic emergencies do not include times like today—where revenues are growing, but our appetite to spend simply exceeds that revenue growth. Bringing our General Fund spending in balance with our ongoing General Fund revenues is absolutely imperative to Iowa’s long-term fiscal health. With most economists today talking about the likelihood of a U.S. recession, there is no better time than now to expect and demand greater fiscal accountability from our elected officials. Responsible fiscal actions today are critical to helping alleviate the impacts of the potential financial storm clearly brewing on the horizon.
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