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All the pieces have fallen into place, and legislators have finalized the state’s $7.78 billion budget set to take effect July 1. The budget surplus for Fiscal Year 2020 helped reduce the impact of COVID-19 on Fiscal Year 2021’s projected revenue. This has led to a budget that is $26.6 million more than last year.

Rep. Gary Mohr, Chairman of the House Appropriations Committee, said, ‘We expect to take in enough revenue to maintain the status quo and maintain our commitments to our schools and our health care system.”

While most state agencies and departments will work with the same level of funding, a few will see changes.

Budget items receiving more funding:

  • $100 million more for K-12 Education
  • $32 million more for Medicaid
  • $16.5 million more for HAWK-I children’s health insurance

Three areas will see a reduction in funding:

  • $8 million less for the Iowa Board of Regents
  • $500,000 less for the Judicial Branch
  • $250,000 less for the Iowa Secretary of State

Senate Appropriations Chairman Michael Breitbach said the state will have a $311 million cushion if revenue does not meet expectations before it would have to dip into cash reserves or the Taxpayer Trust Fund.

Breitbach added that some of budget areas not receiving an increase in funding could possibly get some supplemental money if the economy rebounds.

ITR’s Take

It is difficult to accurately estimate revenue in “normal” years. Just two years ago, mid-year budget cuts were needed because state revenue increased, but not as fast as anticipated.

For this reason, it was smart for legislators to not spend the maximum amount available to them.

State law allows spending up to 99 percent of estimated revenue, including any surplus carried over from the prior fiscal year. Iowa’s 2021 budget spends 96.7 percent of estimated revenue (based on update projections set forth last month) and does not use any money from Iowa’s reserve funds. Now the only question remains, will those update revenue projections hold-up, or will the economic impact of COVID-19 go deeper?

Regardless of what the future revenues of the state looks like, it is always wise to follow one of the budgeting principles of Thomas Jefferson. In a letter to his granddaughter, Jefferson shared his twelve canons of conduct including, “Never spend money before you have it.”

That is a good principle for individuals as well as any level of government to keep in mind when budgeting. Speaker Grassley offered these comments on the budget at the end of the session, stating that the legislature has:

…enacted a cautious and conservative state budget that invests in priorities while respecting the hard-working taxpayers. While the COVID pandemic has strained other state budgets, resulting in cuts to key programs like K-12 education, health care, and worker training … Iowa is in good shape because of the forward-looking action we have taken in the past and we will continue to be in a strong position moving forward.