Last night the Iowa Senate passed Senate File 2088, which would reorganize state government, after four hours of debate. All 32 Democrats in the chamber voted for the bill, along with three Republicans: Shawn Hamerlinck, Larry Noble and Pat Ward.

Click here for the full text of the bill. According to analysis by the Legislative Services Agency, Senate File 2088 would reduce state spending from the general fund by $74 million in fiscal year 2011 and $36 million the following year (here’s the link to the fiscal note on the bill). In addition, “Other funds, including local government pots of money, would save $44 million next budget year and just under $14 million the following year.” Jennifer Jacobs posted some of the key provisions and amendments at the Des Moines Register’s blog.

Unlike the 1985 state government reorganization, the current bill does not merge any state agencies. It doesn’t close any of Iowa’s four mental health institutes, but downsizes the one at Clarinda. That switch outraged legislators from southwest Iowa, because the Iowa Department of Human Services had recommended closing the Mount Pleasant Mental Health Institute in southeast Iowa instead.

Senate File 2088 requires bulk purchasing and centralized payroll and technology systems for most state agencies but exempts the three state universities from those provisions.

Rod Boshart recapped one of the more contentious episodes during last night’s debate:

The debate stalled when 11 majority Democrats joined the 18-member GOP minority in supporting an amendment to block a proposal to move the community empowerment program for early childhood education from the neutral state Department of Management to the Department of Education.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, switched his vote to be on the prevailing side then called a closed-door caucus after which senators voted 31-19 to reconsider the issue and approve the move of empowerment to the education agency by a 27-23 margin.

I wasn’t familiar with the Iowa Community Empowerment program, which is geared toward families with children under age six. Since early education programs are part of the Iowa Empowerment Board’s mission, it seems logical to bring the program to the Department of Education.

The original bill had eliminated the Property Assessment Appeal Board, but an amendment to keep that body intact passed by 46 to 4. Politically, that was a smart vote for the senators. Many Iowans are likely to see property tax increases this year, so it’s not a good time to make it more difficult for citizens to challenge their assessments.

Several Republicans have expressed doubt that the bill would guarantee the promised savings. Democrats rejected a number of Republican amendments, including one that would have increased health insurance costs for state employees and one that would have required a two-thirds vote in the legislature to approve any state bonding. (Such a threshold would have prevented last year’s passage of the I-JOBS infrastructure bonding initiative.) A complete bill history, including all amendments considered, is here.

Earlier in this session, the Iowa Senate approved Senate File 2062, a separate bill on early retirement incentives. That measure is expected to save about $57.4 million in fiscal year 2011, “including a $26.4 million savings to the state’s general fund.” That bill passed on a bipartisan 41-7 vote. The full text is here, and the bill history is here.

UPDATE: Over at Iowa Independent, Lynda Waddington reports,

Mental health advocates haven’t gotten everything they wanted in relation to new state policies governing psychiatric medications for individuals receiving state assistance. But they scored a big win Monday night when the Iowa Senate approved new language that ensures existing patients’ medications won’t be automatically switched in order to save the state money.

Read her whole story for more details and background.

Anyone following the Iowa governor’s race must read Todd Dorman’s recent interview with Republican front-runner Terry Branstad. The Branstad so many Iowans remember from his four terms as governor shines through.

Branstad is at his most incoherent when speaking about gay marriage, but his answer to an open-ended question about the state budget was also revealing. The whole interview is worth your time. I discuss a few of my favorite excerpts after the jump.

Governor Chet Culver submitted his draft budget to the Iowa legislature last Wednesday, but with the State of the Union and other news of the day, I didn’t have time to write up the story.

The complete budget document can be downloaded at the governor’s official website, and you can view Culver’s press conference on the budget here.

For more links, reactions and commentaries, follow me after the jump.

Terry Branstad officially launched his gubernatorial campaign this week at the State Historical Building. I enjoyed the imagery of a politician from a past era standing in front of a mammoth skeleton.

Branstad’s promises on spending cuts and jobs created look unrealistic in light of his record as governor, though.  

Iowa Supreme Court Chief Justice Marsha Ternus had bad news about the condition of the judiciary when she addressed the Iowa legislature yesterday.

Since the 2002 fiscal year, she noted, staffing levels have been reduce[d] by 17 percent. In just the last year, staff was cut by 11 percent. In fact, the state’s courts now operate with a smaller workforce than it had in 1987, the year the state assumed full funding for the court system. The number of serious and time-consuming cases before the court, however, have increased by 66 percent.

Ternus also argued that budget shortfalls have adversely impacted the Judicial Branch more than any other aspect or agency in government.

“Unlike many state agencies and the regents, the judicial branch has no pass-through funds, no programs to cut and no reserves to tap. Nearly all our operating costs are for people – employees and judges who are the life blood of the court system – so when we cut our budget, we must cut our workforce.”

Ternus warned of “assembly line justice” and “de facto consolidation” of courts if state legislators do not at least maintain current levels of funding. (Click here for a pdf file containing the full text of Ternus’ speech.)

While the judiciary has faced several rounds of budget cuts, demand for court services has increased because of the recession. For example, during the past two years mortgage foreclosures have increased by 34 percent in Iowa, cases relating to domestic violence protection have increased 15 percent, and “juvenile commitments for drug or mental-health issues” have risen by 76 percent.

Current state law requires courts to operate in all of Iowa’s 99 counties. That made sense when it could take the better part of a day for people to travel to their county courthouse, but it’s not an efficient use of resources now. I am with the Des Moines Register’s editorial board: state legislators need to either allocate enough funding for the judicial system we have, or amend the law to allow some consolidation of courthouses. The latter would run up against stiff resistance in the Iowa House and Senate because of the likely impact on some small county-seat towns. But it’s wrong to let civil and criminal court services degrade across the state. If budget constraints demand efficiency measures in other branches of government, let the judiciary make the best use of available funds by consolidating where necessary.

UPDATE: Governor Chet Culver told the Iowa Independent that he shares the concerns Ternus raised and does not support any further funding cuts for the judiciary.

Governor Chet Culver addresses the Iowa House and Senate this morning. Kathie Obradovich’s latest column emphasizes that Culver has broken with tradition this year by not submitting his draft 2011 budget to lawmakers before the big speech. (The governor submitted a draft budget for fiscal year 2010 in late December 2008.) Obradovich concludes that Culver needs to be in the “spotlight” without focusing on the budget.

She doesn’t mention other factors that seem likely to have delayed the budget draft. The Tax Credit Review Panel, which Culver appointed after the film tax credit fiasco, only just submitted its recommendations on January 8. I can’t imagine how the governor’s staff would put together a draft budget without knowing which tax credits deserve to be continued, scaled back or eliminated. Another possible source of delay is the State Government Reorganization Commission made up of Iowa House and Senate members, which voted on a list of cost-saving measures last month. Those measures would affect assumptions on state spending in the coming fiscal year.

Republican former governor Terry Branstad bragged to Obradovich that he always submitted his budgets early, adding that state legislators now face a shorter session without having the budget in hand.

However, Senate Majority Leader Mike Gronstal told Radio Iowa this week that lawmakers will move a major bill on reorganizing state government before they start work on next year’s budget. It makes sense, because you can’t make accurate spending projections without knowing how state agencies will be restructured.

I’ll update this post later with more details of Culver’s speech.

UPDATE: The Burlington Hawk Eye posted the transcript. He asked legislators “to pass a supplemental appropriations bill early this session to restore some of the cuts to the Department of Public Defense” (Culver cut the current-year budget across the board in October.) For the fiscal 2011 budget, Culver asked lawmakers “to fully fund community college job training, and to adequately fund the Department of Workforce Development. And, to create more ‘green collar jobs,’ of the future, to fully fund the Iowa Power Fund.” Longer excerpts from the speech are after the jump.

The Iowa Legislature’s 2010 session opened today. I posted links to previews of hot topics for lawmakers in this thread, but after the jump I’ve posted some fresh items and excerpts for you to read.

The legislative session begins this week, and budget issues are likely to dominate the proceedings.

Some state tax credits will be scrapped and others curtailed if lawmakers enact recommendations released on Friday by a commission Governor Chet Culver appointed. State Senator Joe Bolkcom, who chairs the Ways and Means Committee in the upper chamber, has vowed to pass as many of the recommendations as possible. I expect major pushback from corporate lobbyists against many of the proposals, however.

House Speaker Pat Murphy is not ruling out significant layoffs of state workers. It really is unfair to balance the budget mostly on the backs of state workers, especially since demand for state services increases during a recession.

I was surprised to see Culver’s chief of staff, John Frew, suggest a scaled-back version of “fair share” legislation could pass this session. If Democrats don’t have the votes for a prevailing wage bill, I can’t imagine they’ll get 51 votes for fair share, but I hope I’m wrong.

Kathie Obradovich previews other issues that are likely to come up during the legislative session.

Democratic leaders insist a constitutional amendment to ban same-sex marriage is off the table, but Republicans will use every trick in the book to try to bring the issue to the floor.

Roxanne Conlin plans to visit all 99 counties in her Senate campaign, just like Senator Chuck Grassley has been doing every year for the past three decades.

In other news, Iowa may be on the verge of coming out of the deep freeze. I read today that the highest temperature recorded anywhere in Iowa since January 1 was 20 degrees Fahrenheit one day in Keokuk (southeast corner of the state). How are you surviving the cold? I’ve been wearing slippers, wool sweaters and extra layers. My kids still insist they are comfortable running around the house in pajamas and bare feet. Our dog could walk for miles, even on the days when it’s been below zero F when I’m out with him.

This thread is for anything on your mind this weekend.

Following up on my review of news from the first half of last year, I’ve posted links to Bleeding Heartland’s coverage of Iowa politics from July through December 2009 after the jump.

Hot topics on this blog during the second half of the year included the governor’s race, the special election in Iowa House district 90, candidates announcing plans to run for the state legislature next year, the growing number of Republicans ready to challenge Representative Leonard Boswell, state budget constraints, and a scandal involving the tax credit for film-making.

I expected 2009 to be a relatively quiet year in Iowa politics, but was I ever wrong.

The governor’s race heated up, state revenues melted down, key bills lived and died during the legislative session, and the Iowa Supreme Court’s unanimous ruling in Varnum v Brien became one of this state’s major events of the decade.

After the jump I’ve posted links to Bleeding Heartland’s coverage of Iowa politics from January through June 2009. Any comments about the year that passed are welcome in this thread.

Although I wrote a lot of posts last year, there were many important stories I didn’t manage to cover. I recommend reading Iowa Independent’s compilation of “Iowa’s most overlooked and under reported stories of 2009,” as well as that blog’s review of “stories that will continue to impact Iowa in 2010.”

Following up on the diary I posted this morning, this post compiles links to Bleeding Heartland’s coverage of national politics from July through December 2009. Health care reform was again the number one topic. I wish there had been a happy ending.

State officials say Iowa’s road death toll in 2009 is the lowest since 1945, the Des Moines Register reported on January 2. There were 371 recorded traffic fatalities last year, although the number could rise slightly if additional deaths are reported from the end of December. Register reporter Mike Kilen noted several factors that helped reduce the number of fatal accidents: Iowans cut back on miles driven because of the recession, cars and roads are safer, and more people are wearing seat belts. Smart policing was also at work:

“The emphasis has really been placed on the drunken driver, with 20 to 25 percent of fatalities involving drinking,” [Iowa State Patrol Chief Col. Patrick] Hoye said.

The state patrol initiated Safe Saturdays this summer, putting more troopers on the roads on Saturday nights during June, typically the deadliest month.

“The (drunken driving) arrests went way up and there was a dip in the deaths,” he said.

We’ll never know who is walking around alive today because state troopers wisely focused on the most dangerous drivers at the most dangerous times. All who devised and carried out those policies deserve credit.

In November Iowa Republicans announced a “Liberty Agenda” that included this proposal:

Restore the number of State Troopers to the pre-1998 level within the next five years.

Since 1998, the last year in which Republicans controlled state government, the number of State Troopers has dropped from 355 to 288.

During the upcoming legislative session, I will be curious to hear how Republicans make the case for hiring as many state troopers as we had in 1998. I don’t pretend to know what the ideal number of state troopers is for Iowa, but it seems like they decided the 1998 level was needed because Republicans controlled state government at that time. Aren’t Republicans supposed to be for using state resources efficiently and not expanding the size of government for its own sake?

Kilen asked Scott Falb, the driver safety specialist for the Iowa Department of Transportation, about ways to reduce road deaths further. Falb suggested several changes but did not mention increasing the number of state troopers:

Improvements to roadways, such as rumble strips on center lines and shoulders and engineering tweaks, would help lower fatalities even more in the future, Falb said.

Proposed laws to restrict cell phone use and texting while driving, added restrictions on younger drivers and seat belt requirements for anyone in a vehicle under the age of 18 would also help lower the number of deaths, he said.

If the legislature decides to restrict cell phone use while driving, lawmakers should note that hands-free cell phones are no safer for drivers than ordinary cell phones. This New York Times piece on distracted driving explains why.  

On Monday Governor Chet Culver appointed Bret Mills as the new director of the Iowa Department of Economic Development. Mills will replace Fred Hubbell, who agreed to serve as interim IDED director this fall after Mike Tramontina resigned due to problems with Iowa’s film tax credit.

Up to now, Mills has been director of the Iowa Finance Authority. Also on Monday, Culver appointed Joe O’Hern to replace Mills as IFA director. For the last three months, O’Hern has been interim deputy director of IDED.

In addition, Culver announced plans to move the HOME Investment Partnership program from IDED to the Iowa Finance Authority: “This not only will help streamline our housing efforts, but it will ensure that IDED is staying true to its mission: attracting new businesses, growing current companies, and retaining and creating jobs statewide.”

The press release from the governor’s office contains more background on the HOME program and short official bios of Mills and O’Hern. Given their qualifications, they should have no trouble being confirmed by the Iowa Senate.

The film tax credit fiasco sparked the turmoil at IDED, and the department won’t issue new credits under that program for the remainder of this fiscal year. However, film credits already awarded will cost taxpayers tens of millions of dollars.

The upside is that all state tax credits are being subjected to much more scrutiny. Debates about scrapping or scaling back some of the business tax credits will be among the most contentious issues of the 2010 legislative session. Ordinarily, I would not expect legislators to defy any well-funded corporate interests, but this year the budget is so tight that I see no way they can continue with the status quo. Lee Rood reported for the Des Moines Register earlier this month:

Iowa’s incentives for filmmaking may have been the most generous in the country, but they were not the first of the state’s tax credits to skyrocket in cost.

Over the years, other carrots offered by the state to stimulate job creation, development and research have grown dramatically – while sometimes being subject to limited oversight.

A Des Moines Register review of some of the state’s biggest tax credit incentives found state leaders had reason to worry about runaway costs, lack of transparency and waste long before Iowa’s botched attempt at using tax breaks to jump-start a film industry made international news.

That review found the state auditor had identified almost identical oversight problems in another tax credit program; state law required almost no outside oversight of some of the biggest credit programs; and authorities already knew that a portion of projects that tapped the most widely used programs had problems […]

In yesterday’s Register, Rood reviewed five tax credits that “could cost the state more money over the next five years than the film-making tax incentives […] for research, job training, historic preservation, development in distressed areas and high-quality jobs.”  

An alert Bleeding Heartland reader got a recorded phone call around dinnertime today (Monday), featuring former Governor Terry Branstad.

Apparently there were a couple of questions about how Governor Chet Culver is doing and his handling of spending and the budget. Branstad’s recorded voice touted his own record on economic policy.

The call also asked if the listener would support a constitutional ammendment limiting marriage to between one man and one woman, and if the listener would vote for Branstad in the upcoming Republican primary.

According to my e-mail tipster, the call said it was paid for by the Branstad for Governor comittee, and gave a phone number as well as the address for Branstad’s campaign website.

This particular household has two registered Democrats and no registered Republicans, and the homeowner has had the same phone number for more than 15 years. Either the calling firm was using a bad list, or Branstad’s campaign is reaching out to find Democrats who aren’t happy with Culver.

Have any other Bleeding Heartland readers received this call? If so, please post a comment with details, or send me an e-mail at desmoinesdem AT yahoo.com.

Remember, it’s helpful not to hang up on political robocalls or surveys. Stay on the line and take notes, if possible, about the content of the call, who paid for the message, and so on.

UPDATE: Another reader tells me he got the call but hung up on it, and there are two registered Democrats in his household as well.

SECOND UPDATE: If Branstad’s campaign is trying to identify Democrats willing to cross over to vote for him in the Republican primary, it makes me wonder what their internal polling says about Branstad’s prospects against Bob Vander Plaats.

THIRD UPDATE: State Representative Tyler Olson of Cedar Rapids got the call too.

For a guy who claims to be proud of his record, former governor Terry Branstad sure has a funny way of showing it.

On one issue after another, Branstad takes credit for things he didn’t do and evades responsibility for things he did. So, the governor who kept two sets of books boasts about enacting budget reforms that that other people pushed in response to his fiscal mismanagement.

The governor who used state bonding more than once says that politicians who create debt should be voted out of office.

Pressed on his record of expanding gambling in Iowa, Branstad has suggested he had little choice in the matter: “What was I supposed to do? Over 70% of the people wanted it even though I was personally opposed to it.”

Now Branstad is playing the same game on the Road Use Tax Fund and the idea of eliminating federal deductibility from Iowa’s tax system.

President Barack Obama announced more details today about provisions he wants in the jobs bill Congress will take up soon:

Obama proposed new spending for highway and bridge construction, for small business tax cuts and for retrofitting millions of homes to make them more energy-efficient. He said he wanted to extend economic stimulus programs to keep unemployment insurance from expiring for millions of out-of-work Americans and to help laid-off workers keep their health insurance. He proposed an additional $250 apiece in stimulus spending for seniors and veterans and aid to state and local governments to discourage them from laying off teachers, police officers and firefighters.

Making homes more energy efficient would not only create jobs, but would produce huge collateral benefits, as A Siegel explains at the Get Energy Smart Now blog. Money that homeowners and business owners save on utility bills is money they can spend on other goods and services.

Populist Caucus Chairman Bruce Braley (IA-01) and House Trade Working Group Chairman Mike Michaud (ME-02) wrote to House Speaker Nancy Pelosi and House Majority Leader Steny Hoyer today, urging them to make sure the jobs bill contains a strong “Buy American” provision. From a press release Braley’s office issued:

“Recently, as America has suffered the worst economic recession since the Great Depression, unemployment has risen and is now around 10 percent,” the letter reads. “We believe that the shipment of American jobs overseas is a factor in this rising unemployment.  If we are going to pass a strong job creation bill then it only makes sense to include strong Buy American provisions, to further ensure that the jobs created as a result of this legislation are created within the United States.

“We have an obligation to create jobs in America. While some would argue that Buy American is nothing more than a trade protectionist label, it is clear that these provisions would equate to greater investment, and greater job-creation, within the U.S.  In addition, Buy American provisions are perfectly legal under current trade agreements and many other nations use similar mechanisms to protect their domestic manufacturers.  Therefore, we feel that it is entirely appropriate that this language be included in any upcoming job-creation measure, and we believe that this provision is essential to creating and retaining American jobs.

The stimulus bill Congress approved in February contained “Buy American” language despite a massive corporate lobbying effort.

If the upcoming jobs bill contains aid to state and local governments, as the stimulus bill did, that could help Iowa legislators close the gap in the fiscal year 2011 budget. Republicans keep complaining about Iowa Democrats using federal transfers to balance the state budget, but they ignore the reality that deep cuts in state budgets are themselves a drag on the economy. State employee layoffs have a ripple effect in the private sector. The Center on Budget and Policy Priorities has estimated that without additional federal fiscal relief, “states will have to take steps to eliminate deficits for state fiscal year 2011 that will likely take nearly a full percentage point off the Gross Domestic Product. That, in turn, could cost the economy 900,000 jobs next year.”

UPDATE: Meteor Blades has a good post up at Daily Kos on the jobs bill.

Many Iowans will be leaving work or school early today, or perhaps not going in at all, as the season’s first big winter blast rolls in. Here’s plenty of reading to keep you busy if you are stuck at home.

Global news first: The United National Climate Change Conference in Copenhagen opened yesterday. To follow news from the proceedings, I’m reading the team of Mother Jones bloggers in Copenhagen. The Open Left blog will also post regular updates from Natasha Chart and Friends of the Earth staff who are on the ground. If you prefer a mainstream media perspective, check out The Climate Pool on Facebook, which is a collaboration among major news organizations.

Also on Monday, Environmental Protection Agency Administrator Lisa Jackson signed off on two findings that will pave the way to regulate carbon dioxide emissions under the Clean Air Act. This action follows from a 2007 U.S. Supreme Court ruling in Massachusetts v. EPA. More background and details can be found on the EPA’s site. Environment Iowa explains the significance of the EPA’s action here. An expert panel surveyed by Grist disagreed on whether the EPA’s “endangerment finding” would affect the Copenhagen talks.

The most important reason I oppose the current draft bills on climate change kicking around Congress is that they would revoke the EPA’s authority to regulate carbon dioxide. Chris Bowers explains why that would be disastrous here.

Uganda is considering a horrific law that would subject homosexuals to long prison terms or even the death penalty. One Iowa is collecting signatures on a petition to Senator Chuck Grassley, asking him to speak out against this law. Grassley’s never going to be a gay rights advocate, but he should agree that criminalizing homosexuality is wrong. Grassley is involved with “The Family,” which is connected to the proposed bill in Uganda.

On the economic front, President Obama is expected to announce plans to use about $200 billion allocated for the Wall Street bailout to fund a jobs bill Congress will consider soon.. The Hill previewed some of the measures that may end up in that bill.

Some economists who met with Governor Chet Culver yesterday think Iowa has already reached the bottom of this recession. I hope they are right, but either way, policy-makers should listen to their ideas for reforming Iowa’s budget process. I’ll write a separate post on this important development soon. Here is the short take:

The state could base its spending on a multi-year average, such as the previous three years, or five years or seven years, said Jon Muller, president of Muller Consulting Inc., a public policy and business development consulting firm based in Des Moines.

“The way it’s always worked, when times are really good, we increase spending and we cut taxes,” Muller said. “And when times are bad, there’s pressure to increase taxes and decrease spending. And that all happens when the demand for government is at its highest,” Muller said.

The multi-year idea would flip, he said.

“In good times you would be squirreling money at way a little at a time. And in bad times, you could continue to increase spending to service the growing demands of a recession.”

It would require state lawmakers to not touch the reserves, even in times of plenty. But it would also reduce the need to tap into reserves just to get by during rainy days, the advisers said.

Regarding budget cuts, the Newton Independent reports here on a “plan to reorganize the Iowa Department of Human Services operations under two deputy directors, six rather than nine divisions, five rather than eight service areas, more part-time offices and the elimination of 78 currently vacant positions” (hat tip to Iowa Independent). Click this link for more details about the proposed restructuring.

On the political front, John Deeth analyzes possible changes the Democratic National Committee is considering for the presidential nomination process. Jerome Armstrong had a good idea the DNC won’t implement: ban caucuses everywhere but Iowa. No other state derives the party-building benefits of caucuses, but just about every state that uses caucuses for presidential selection has lower voter participation than would occur in a primary.

I haven’t written much on health care reform lately, because recent developments are so depressing. Our best hope was using the budget reconciliation process to pass a strong bill in the Senate with 51 votes (or 50 plus Joe Biden). Now that Senate Majority Leader Harry Reid has taken reconciliation off the table, we’re left with a variety of bad compromises to get to 60 votes in the Senate. I am not convinced the final product will be any improvement over the status quo. It will certainly be worse for millions of Americans required to buy overpriced private health insurance. If there’s a quicker way to neutralize the Democrats’ advantage with young voters, I don’t know what it is.

Speaking of health care reform, Steve Benen wrote a good piece about Grassley’s latest grandstanding on the issue.

Speaking of things that are depressing, John Lennon was shot dead 29 years ago today.  Daily Kos user noweasels remembers him and that night. Although Paul’s always been my favorite Beatle, I love a lot of John’s work too. Here’s one of his all-time best:

Share any relevant thoughts or your own favorite Lennon songs in the comments.

Just teach them how to read in kindergarten and first grade. Then they won’t be “identified” by the state as having special needs.

No, really, that’s what Iowa Senate Republican leader Paul McKinley said in a meeting on Tuesday with journalists from the Des Moines Register.

Speaking to the annual meeting of the Iowa Farm Bureau Federation today, Governor Chet Culver said the way Iowa drafts its budgets should be changed:

Currently, the governor said he is required to submit a state budget by the end of January based on projections set by the state Revenue Estimating Conference in December, but then lawmakers craft their spending plan after the REC’s next quarterly estimates in March.

“That makes no sense at all. For three months, we sit around and wait for the March number in many cases before serious budget discussions take place,” he said. “We have a moving target. It is terribly frustrating and we need to make some changes.”

Several accounting experts have told me that it is impossible to estimate state revenues accurately. The current system leads to budget surpluses when the economy is doing well and shortfalls requiring rapid cuts when the economy heads downhill.

As usual, Iowa State University economist Dave Swenson has a better idea. Speaking to the Des Moines Register in October,

Swenson said he believes the budget-setting system is backward. Government should look at annual needs and adjust taxes and fees to accomplish goals. Instead, officials adjust needs by what’s available.

“It is a stupid system and makes no sense,” Swenson said.

The most recent Iowa poll for the Des Moines Register showed that broad majorities support increased state spending on various programs that Democrats have expanded in recent years. Even a majority of self-identified conservatives supported maintaining higher spending levels for teacher pay, state aid to schools, renewable energy research and development, health care coverage for children and repairing roads and bridges.

If politicians evaluate our state’s needs and then search for a way to fund them, we are likely to get some changes on the revenue side of the equation. Eliminating certain tax credits could increase revenue, and Culver has created a panel that will evaluate all of the state’s current tax credits before making recommendations for state legislators.

Our state income tax structure should also be on the table. A new poll by Selzer and Associates for the Iowa Fiscal Partnership found that a majority of Iowans would support eliminating federal deductibility, which mainly benefits high-income taxpayers. During the 2009 legislative session, Culver and legislative leaders agreed on a tax reform package that would have ended federal deductibility, but Iowa House leaders were unable to find 51 votes to pass that bill.

UPDATE: More details from the Des Moines Register are after the jump.

So many campaign stories the past few days, so little time.

After the jump you’ll find lots of links about various campaigns for U.S. Senate, House, governor and state treasurer.

Iowa Council 61 of the American Federation of State, County and Municipal Employees announced today that its members approved a deal union leaders negotiated earlier this month to avoid about 500 layoffs. The vote was 59 percent in favor and 41 percent against.

The deal requires about 20,000 state workers to take five furlough days between now and June 30, 2010, and give up some $75 a month in state contributions to a supplemental retirement plan.

I was surprised to see that only about 66 percent of approximately 9,000 AFSCME members cast a ballot in this election. (Because Iowa is a right-to-work state, many workers who are covered by AFSCME’s contract are not members of the union.) Maybe the polling places weren’t convenient for a lot of people.

UPDATE: Charlie Wishman of AFSCME wrote me to say:

66% is an extremely high number, in fact the highest for a contract vote of any kind from our records.  We’re very proud of the membership turnout.  In fact, I believe it is higher than turnout for most general elections.  The membership absolutely cared a lot about this decision, and passions were high on both sides of the issue.  Council 61 had no position on the outcome of the vote other than we wanted everyone affected to have the opportunity to vote.

It is false to assume also that we didn’t make the polling sites as accessible as possible.  You can view them here http://www.afscmeiowa.org/mou.htm at the bottom of the page.  We were sure that no one would have had to travel over 48 miles to a voting site.  No one would have to travel over one hour, and all major sites were represented.

Governor Chet Culver sought negotiations with three unions last month when he rejected the preliminary spending reduction plans offered by the directors of the Department of Corrections and the Department of Public Safety.

The Iowa United Professionals union opted not to accept concessions in order to avoid 55 layoffs among its members.

The State Police Officers Council was to vote on a deal similar to what AFSCME negotiated, but I haven’t seen any results from that vote. If members vote for that agreement, 40 state trooper and gaming enforcement positions would be preserved. In exchange, about 640 union members would take five furlough days and give up some state contributions to a retirement plan.

UPDATE: Sounds like the State Police Officers Council also approved the deal. Culver will hold a press conference today at 2 pm to discuss the votes.

SECOND UPDATE: Senate Majority Leader Mike Gronstal’s statement is after the jump.

THIRD UPDATE: Kathie Obradovich observes, “Other governors have tried and failed to get concessions from the unions.”

The Iowa Democratic Party points out that Culver succeeded where Terry Branstad failed. The full statement is after the jump.

Shortly after the film tax credit scandal broke in September, Governor Chet Culver promised a “comprehensive review” of all tax credits. On Thursday we learned more about how this review will be conducted. Recommendations are likely before the state legislature convenes in January 2010.

Join me after the jump for additional details and analysis.

I’m looking forward to the Iowa Democratic Party’s Jefferson-Jackson dinner this weekend. It will be live-streamed for those who can’t be there in person. The Iowa branch of Organizing for America is having a grand opening on Saturday as well, right before the JJ dinner.

Details for those and other events are after the jump. Post a comment or send me an e-mail (desmoinesdem AT yahoo.com) if you know if something I’ve left out.

Linn County Dems: Don’t forget that November 24 is the special election in Iowa House district 33.

One more “save the date”: the Culver-Judge campaign’s holiday party will be on Saturday, December 5 at the Val-Air Ballroom in West Des Moines from 7:30 pm to 11:00 pm. Tickets are just $35 for an individual, $10 for students and $50 for a family. Call 515-244-5151 or go to www.chetculver.com for more information.

Iowa has relatively good money-management practices and is among the states “least like California” in terms of budget problems, according to a report released yesterday by the Pew Center on the States.

In the report, Pew’s researchers identified factors that have contributed significantly to California’s difficulties, then determined the degree to which other states are experiencing the same challenges. These factors are: (1) loss of state revenues; (2) the relative size of budget gaps; (3) increasing joblessness; (4) high foreclosure rates; (5) legal obstacles to balanced budgets-specifically, a supermajority requirement for tax increases or budget bills and (6) poor money-management practices.

Pew scored all 50 states using the best available data as of July 31, 2009. The snapshot captures an important juncture: the first and second quarters of 2009, the pressure point for governors and legislatures in the throes of crafting their budgets for fiscal year 2010 (which began on July 1 in all but four states).

Click here to view a map showing which states are most and least like California. On that page you’ll also find links to download the full report, its methodology, and a 50-state scorecard (pdf file).

Scanning the scorecard, I noticed that only one state has a better score overall than Iowa. The size of Iowa’s budget gap (as a percentage of total spending) ranks 15th. Only three states had a smaller change in the unemployment rate than Iowa. Only seven states had a lower foreclosure rate. We were among eight states that received a B+ grade for money-management practices (only five states received an A or A- in that category).

Republicans can complain about so-called fiscal mismanagement by Governor Chet Culver and the Democratic-controlled legislature, but compared to many other states, Iowa is weathering this challenging economy well.

Commenting on the Pew report yesterday, Mark Zandi of Moodys.com called for additional federal stimulus funding to support state budgets in fiscal year 2011: “In the past six decades, state and local governments have never seen the kind of tax-revenue collapse they are now experiencing, Mr. Zandi said.”

Members of the American Federation of State, County and Municipal Employees will vote between November 19 and November 25 on the deal reached by Governor Chet Culver and the union’s leadership:

The agreement includes five mandatory unpaid furlough days between now and June 30, which is expected to save about $22.7 million.

The state’s contribution to employees’ deferred compensation also will be temporarily suspended until June 30, for a savings of $3.7 million.

The total savings of $26.4 million is expected to save 479 AFSCME jobs. Culver sought concessions from the union in order to avoid the layoffs of state workers, especially state troopers and correctional officers working in state prisons.

Under the terms of the agreement, no member of the union who is an executive branch employee can be laid off until June 30, the end of the current fiscal year. Employees outside the bargaining units who are laid off will not be allowed to displace AFSCME employees.

The Des Moines Register has a few more details on the vote:

WHAT: A “memorandum of understanding” would require about 20,000 state workers to take five unpaid days off over the next seven months and sacrifice about $75 a month in state contributions to their deferred compensation, which is a supplemental retirement plan.

WHO CAN VOTE: Only active state workers who are currently paying dues to AFSCME will be eligible to cast a ballot.

WHEN: Voting will begin Nov. 19 and end Nov. 25.

WHERE: AFSCME will set up about 30 polling places across the state, such as at the Iowa Veterans Home and state prisons, for 12-hour periods.

Sounds like a pretty good deal to me. If I were in the union, I would vote yes. Losing some retirement contributions and a week’s salary will cause some hardship, but many private-sector workers have also seen their wages drop during this recession. Minimizing layoffs should be the top priority.

Does anyone think the AFSCME members might vote down this agreement?

While you’re waiting for tonight’s election returns, check out the television commercial Governor Chet Culver’s campaign launched today:

Like the commercial Culver ran last month, this ad emphasizes that the governor cut spending and his own salary in order to balance the state budget during this recession without raising taxes. I think the ad is well-crafted in terms of script and visuals, but like Bleeding Heartland users IowaVoter and dricey, I am concerned when Democrats rely heavily on Republican anti-tax messaging. Culver may be reinforcing conservative frames and limiting his future policy options if he does win re-election.

Kathie Obradovich highlighted another potential problem not long ago:

Gov. Chet Culver vowed to balance the state budget without raising taxes. And yet a third or more of Iowa school districts might end up raising property taxes as a direct result of the cut to state school aid ordered by Culver.

Is the governor breaking his promise? Well, no. And yes.

When Culver talks about avoiding a tax increase, he really means income and sales taxes – the two major revenue streams for the state. He’s referring to tax increases that he would have to sign into law. In that sense, he hasn’t raised taxes.

But he acknowledges that property taxes are a concern. Culver says he’ll ask the Legislature next year to require school districts to use their cash reserves before raising taxes.

Republicans are already blaming Democrats for the property tax increases many Iowans will experience next year. Their outrage is hypocritical, because the state cuts affecting education and local governments would have been far more severe if not for the federal stimulus bill, which included aid to state governments. Of course, Republicans denounced the stimulus package and bashed Culver for using these federal funds for their intended purpose: to help backfill the 2009 budget.

In any event, Democrats should be wary about staking next year’s campaign on “we didn’t raise your taxes during this recession.” That won’t be a comforting message to Iowans who have to pay a larger property tax bill in September 2010.

This thread is for any topic that’s on your mind this weekend.

After the jump I’ve posted a bunch of links on the big story of the week in Iowa: the preliminary plans for implementing the 10 percent across-the-board cut in current-year spending that Governor Chet Culver recently ordered.

Former Governor Terry Branstad is coming to a venue near you. In the course of announcing his retirement as president of Des Moines University today, Branstad said he will “fully explore” whether to run for governor again. Somehow I doubt he would ditch a job that pays half a million dollars a year without being absolutely committed to running for governor.

Branstad plans to visit all 99 counties, but he didn’t say when he will make a final decision or whether he will attend events featuring other Republican candidates. Branstad avoided answering a question about same-sex marriage today. He’ll need an answer ready soon if he’s going to tour the state.

Branstad didn’t criticize other Republican candidates today, but noted that he has more experience and name recognition than they do. He had harsh words for Governor Chet Culver’s handling of the budget, which he called a “fiscal debacle” (he would know). During his four terms as governor, Iowa’s sales tax and gas taxes went up, but Branstad said today that he cut taxes as well and will be happy to debate his record on taxes. My memory is that when times were tough, Branstad raised regressive taxes, but when times were good, he preferred to cut income taxes, especially for the wealthiest Iowans.

Bret Hayworth of the Sioux City Journal interviewed Doug Gross this week about Branstad as a potential candidate. Gross was one of Branstad’s top aides and has remained close to the former governor. He told Hayworth that as a friend, he hasn’t encouraged Branstad to get back into politics, but that seems disingenuous. The Branstad recruitment efforts might never have happened if not for polls on the governor’s race that Gross’s Iowa First Foundation commissioned in March and July.

Meanwhile, Culver launched the first television commercial of his re-election campaign today:

It’s risky to make a virtue out of budget cuts that may turn out to be unpopular. On the other hand, this ad pre-empts Republican charges that Culver didn’t act quickly and decisively to balance the budget.

The line about choosing to rebuild after the floods refers to the I-JOBS state bonding initiative, which includes $165 million for disaster recovery and prevention, along with $100 million to reconstruct flood-damaged buildings at the University of Iowa. Republicans have unanimously denounced the bonding program.

The line about investing in new industries alludes to the Iowa Power Fund, which has also drawn Republican criticism. Allocated $25 million in state funding a year for four years, the Power Fund has supported a wide range of projects.

Iowa Senate Majority Leader Mike Gronstal discussed the film tax credit fiasco on this weekend’s Iowa Press program, and it sounds like defenders of the tax credit will be fighting an uphill battle during next year’s legislative session:

“I think we’re going to get this investigation from the Attorney General and from the State Auditor. I think we’re going to do a good evaluation of the program and if we can’t show a real benefit to the state of Iowa – and not just a few part-time jobs, but a real long-term benefit to the state of Iowa – I think it’s 50-50 as to whether this program continues.”

According to Gronstal, he and other legislators right now “see very little in terms of potential benefits” to the state from the film tax credits which have been awarded already.  […]

Gronstal says he may regret having voted to create the program and he expects some political fall-out from this episode.

“People will be disappointed in that, but I think it’s the responsibility of the legislature – we try things in economic development. Everything we try doesn’t work and it’s perfectly o.k. to occasionally decide, ‘You know, we’ve (gone) down a road and that road doesn’t make as much as sense as we thought it made,’” Gronstal says. “And so we’re going to go back and change that.”

Gronstal also defended Governor Chet Culver, saying “once he found out about [problems with the film tax credit] he acted quickly and put the program on hold and got people to investigate.”

Gronstal expressed surprise that a flood of applications for film tax credits this spring allowed producers to get around the $50 million annual cap the legislature approved for the program. (Note to legislators: next time you cap a tax credit, make the law go into effect immediately on being signed by the governor.)

Culver has ordered a comprehensive review of all Iowa tax credits, and Gronstal made clear that legislators will subject these programs to additional scrutiny in the coming year:

“If you can show that a tax credit creates a climate, for instance, the research activities tax credit – if you can show that that keeps an industry here in the state of Iowa and builds long-term jobs and high-wage, high-skills jobs in this state where there’s a net benefit to the state by having that set of jobs come along with it, yeah, that makes sense,” Gronstal says.  But Gronstal says if you can’t show that, then the tax credit should be repealed.

A critical analysis of Iowa’s tax credits is overdue, but better late than never. State revenues continue to lag behind projections because of the recession. Repealing wasteful tax credits could reduce the size of state spending cuts during the 2010 fiscal year. Iowa Republicans would like to plug the budget gap entirely through spending cuts, but they forget that deep spending reductions by state and local governments can also be a drag on the economy.  

Like Spinal Tap’s amp that goes up to 11, Bob Vander Plaats can ratchet up the demagoguery that little bit more than the competition. While other conservatives warn against compromising the Republican Party’s core principles, Vander Plaats says Republican moderates make voters want to throw up, like Jesus when confronted with “lukewarm” followers.

While other conservatives back a constitutional amendment to ban same-sex marriage (which would take years to adopt), Vander Plaats promises to stop gays and lesbians from getting married on his first day as governor of Iowa.

While other conservatives warn against a “government takeover” of health care, Vander Plaats isn’t just against a new public health insurance plan, he wants to protect Iowans from the tyranny of federal-run Medicare and Medicaid.  

With the economic recession continuing to drag down tax revenues, the 2010 budget that the Iowa Legislature approved in April is likely to require significant adjustments.

In June the Legislative Council agreed to cut more than 10 percent from the Legislature’s budget in 2010. The cost-saving measures “include a pay freeze for all legislative employees, reducing travel budgets, and cutting back next year’s legislative session by 10 days.”

A State Government Reorganization Commission will look for other ways to cut spending next year. It will be interesting to compare that commission’s proposals with the kind of cuts Iowa Republicans have been advocating. During the last legislative session, Republicans called for $300 million in spending cuts, but I have been unable to find a link to a document with details about that proposal. (Note: I’ll have more to say in a future post about the state budget reforms Iowa Republicans proposed yesterday.)

After the jump I’ve posted some links and analysis related to the budget constraints facing Iowa and just about every other state right now.

For a guy who wrote a short book’s worth of blog posts as “The Armchair Economist,” Republican gubernatorial candidate Christian Fong has been saying some boneheaded things about the state budget lately.

Given Barack Obama’s Iowa caucus breakthrough and convincing general-election victory here, it was only a matter of time before someone else built an Iowa campaign around his strategy. I didn’t count on a Republican being the first person to try, though.

Enter Christian Fong, who made the Republican race for governor a lot more interesting last week.

Some early impressions of Fong’s personal narrative, political rhetoric and electoral prospects are after the jump.  

Sorry to bring you down on a Friday afternoon, but the Iowa Revenue Estimating Conference released new estimates today, and it ain’t pretty:

The conference estimated that the current year’s revenues will sink by $129.7 million compared to its December estimate. Revenue for the budget year that begins July 1 will drop by $269.9 million.

The drop is in addition to December’s estimates, which cut $99.5 million in the current year and $132.6 million in the fiscal year that begins July 1.

Charlie Krogmeier, Gov. Chet Culver’s chief of staff and a member of the conference, said federal stimulus money may help offset the blow but that the dramatically lower estimates will leave lawmakers with tough options.

It would be difficult to find enough job cuts and furloughs in the current fiscal year to fill the gap. The fiscal year ends June 30, in roughly 10 weeks. […]

House Majority Leader Kevin McCarthy […] and other Democratic leaders noted on Thursday that they were already planning a budget that was $130 million less than Culver’s in the upcoming fiscal year. It’s unclear how they will make up the additional $270 million loss for the current and upcoming year.

Clearly difficult choices lie ahead. I urge Iowa leaders not to implement spending cuts alone, because cutting government spending too much during a recession can make things worse.

I was encouraged to read recently that legislators are looking carefully at all of the tax incentives Iowa provides. The combined effect of all these tax incentives is larger than all state spending:

There are at least 191 tax breaks for income and sales taxes that cost or prevent Iowa from collecting almost $7.2 billion, according to a 2005 review by the Iowa Department of Revenue and Finance.

That’s more than total state spending, which is projected to be $7.1 billion next year.

Not all of these tax breaks provide good value for the lost revenue, and not all of them can be preserved with the budget shortfall we’re facing.

In other unpleasant news this Friday, the Principal Financial Group, one of Iowa’s largest employers, announced pay cuts between 2 and 10 percent, which will affect all employees, management and the board of directors. Some benefits will also be reduced.

Principal already imposed a large layoff in December, and I think they are doing the right thing by reducing pay rather than cutting more jobs now. Labor market specialists differ on whether it’s better for companies to cut pay or lay off more workers in lean times. Click here to read some arguments for reducing pay, or click here for the pro-layoff argument.

State Treasurer Michael Fitzgerald doesn’t make the news often, but I am grateful for his recent frank comments to the Des Moines Register:

Fitzgerald, a Democrat who is chief custodian and investor of state government’s money, said last week that a lottery leasing proposal made recently by Kehl Management to Gov. Chet Culver “was a terribly bad deal.”

The governor should have been embarrassed when the details became public, Fitzgerald added.

“I am against leasing the lottery until somebody proves to me that it is a really good deal for the state. I think the lottery is worth $1 billion – minimum – and that is why I am highly suspicious of selling it,” Fitzgerald told The Des Moines Register. […]

Kehl Management, headed by Riverside casino executive Dan Kehl, has proposed a one-time cash payment of about $200 million for a 49-year lease of the Iowa Lottery, plus a 22 percent annual tax on the lottery’s adjusted gross receipts.

I have no idea how Kehl arrived at the $200 million number. Maybe that was a lowball starting point for negotiation, or maybe he thought state officials might jump at the chance to cover a fourth to a third of the expected hole in next year’s budget.

Either way, Fitzgerald’s comments are on the mark. No one should be talking about leasing the lottery for a price that is well below its value. That’s not only bad policy, but also bad politics, since it would create the appearance of Democratic leaders providing a sweetheart deal for large donors. Kehl gave $25,000 to Culver’s campaign committee in 2008.

Fortunately, Senate Majority leader Mike Gronstal has said, “I’ve not seen much interest inside our caucus in proceeding with the sale of the lottery.”

It’s time for statehouse leaders to definitively take selling the Iowa Lottery off the table.

Details about Governor Chet Culver’s proposed 2010 budget will come on Wednesday morning, but today the governor’s office announced plans to impose 6.5 percent spending reductions on 205 state programs in next year’s budget. According to the Des Moines Register,

“We’re not going to tax our way out of a tight budget,” [Culver] said. […]

Culver will continue to ask lawmakers not to raise taxes. His budget will propose no tax increases, according to a copy of the governor’s remarks provided before a speech at the Iowa Business Council’s annual meeting.

Culver would like to protect certain areas from the full effect of the 6.5 percent cut: public safety, workforce development, human services, disaster relief, the teacher quality program, and early childhood education.

He will recommend that $200 million from the state’s cash reserves be used during the next budget year.

Via e-mail I received this joint statement from Senate Majority Leader Mike Gronstal, Senate President Jack Kibbie, House Speaker Pat Murphy, and House Majority Leader Kevin McCarthy:

“In these tough economic times, we appreciate Governor Culver and Lt. Governor Judge taking another step to ensure a balanced state budget by releasing this proposal.

“Because of the deepening national recession, this year will be very tough for many Iowans.  While Iowans had little to do with the mismanagement, greed, and financial carelessness that is causing the worst national economic situation since the Great Depression, we will be sharing in the pain.

“In the coming weeks and months, we are committed to:

·        Listening to our constituents

·        Working with the Governor, Lt. Governor and Republican legislators, and

·        Passing a fiscally responsible state budget that attempts to protect the progress we’re making on creating good-paying jobs, improving student achievement and teacher quality, and ensuring affordable health care.”

As you can see, the Democratic statehouse leaders did not unconditionally endorse the governor’s proposal or the principle of relying solely on spending cuts and tapping reserve funds to balance the budget. Some statehouse leaders have advocated raising the gas tax to help pay for road works.

As I have written before, I think it would be a big mistake to rule out any tax increases for next year.

As a political sound bite, it’s appealing for a governor to say, “I balanced the budget without raising a single tax.” But seriously, does Culver believe that Iowa has no obsolete tax loopholes that cost the state far more than they benefit the economy? The Iowa Policy Project has identified “wasteful, secret subsidies to big companies through the tax code.” (pdf file) How about asking those companies to share in the sacrifices that need to be made in the coming year?

Borrowing money to pay for certain infrastructure projects is reasonable, but a modest gas tax increase could reduce Iowa’s debt burden in future years without much pain. There may be other tax increases that make sense, if the funds raised could be linked to specific spending priorities that create jobs.

Politically, it’s risky for any governor to raise taxes, but Culver should balance those considerations against the risk that large spending cuts could prolong the recession:

Almost every single economist agrees, the last thing we want to do in a recession is slash government spending. We want, in fact, to increase that spending so that it is a counter-cyclical force to a deteriorating economy. So the question, then, is how to most safely generate the revenue to maintain or increase that spending. By  “most safely” I mean how to raise the revenue in a way that will minimize any negative economic impact. And the answer comes from Joseph Stiglitz:

 

“[T]ax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”

So, first and foremost, you don’t want dramatic spending cuts (beyond the usual rooting out of waste/fraud) and you don’t want to raise taxes on middle- and lower-income citizens who both need the money for necessities, and are the demographics that will most quickly spend money in a stimulative way. That leaves taxes on the super-rich, and Stiglitz – unlike anti-tax ideologues – has actual data to make his case.

For more information, see Budget Cuts or Tax Increases at the State Level:

Which is Preferable During an Economic Downturn?

I’m sure the Iowa Business Council will applaud Culver’s promise this evening to balance the budget with no tax hikes of any kind.

But economic considerations as well as basic fairness dictate that taxes should be on the table when the legislature drafts the 2010 budget. We should not let the fear of Republican-funded attack ads scare us away from sensible steps to increase revenues.

The state budget is complicated. There are all kinds of ways to make the numbers add up, and you’ll never find consensus on the right approach. Increased expenditures on infrastructure look like overspending to some and a wise long-term investment to others. Tax cuts for business look like economic stimulus to some and unjustified corporate giveaways to others. Inevitably, most strategies for balancing the budget have their pluses and minuses.

Once in a while, though, a plan for plugging a budget hole emerges that is just bad on every level. Selling the Iowa Lottery is that kind of plan.

It’s bad policy because Iowa would be drastically reducing future revenue streams from the lottery in exchange for one lump-sum payment on the order of $200 million.

It’s plus-bad politics in the short term because the public will have no trouble understanding that this is a raw deal for taxpayers.

It’s double-plus-bad politics in the long term because it would play right into Republican talking points about Democrats being unable to manage public money and beholden to special interests. In fact, State Auditor David Vaudt (a likely GOP candidate for governor in 2010) has already spoken out against the idea.

Yet if a recent Des Moines Register column by David Yepsen is accurate, selling the Iowa Lottery to private investors is a done deal. Here’s an excerpt from his column:

So we need to start calling this for what it is: It’s a sweetheart, giveaway deal. It goes to a bunch of wealthy Democratic campaign contributors. It’s done to make a quick repair to a budget screw-up.

Democratic legislative leaders, who’ve taken hundreds of thousands of dollars from these gambling interests over the years, are now being asked by those donors and supporters for a return on that investment.

Organizers of the move say they’ll pay the state at least $200 million, plus give the state 22 percent of the gross receipts, in return for running the lottery for 49 years.

However, big investors aren’t going to plunk down $200 million, plus give up a fourth of the gross receipts each year, without expecting a profit. The only way to find that profit is to find ways to get Iowans to gamble more.

That could mean a return to TouchPlay. It also could mean that Iowa pioneers cell-phone or BlackBerry gambling. The promoters say we won’t do those things. Fair enough, then expect a blizzard of gambling advertising to get us all to scratch more lottery tickets or buy more numbers games.

This idea is just flat-out poor public policy. Iowa netted $57 million a year last year from lottery profits. Assuming that figure stays the same for the next 49 years, Iowa will give up $2.8 billion during that time to pocket $200 million now. If the gamblers pay a 22 percent gross-receipts tax to the state on top of their $200 million payment, Iowa’s lost revenue would be $2 billion, give or take a few million.

Don’t two generations of Iowa schoolkids need that $2 billion more than a bunch of gambling businesses and the out-of-state hedge-fund operators who’ll bankroll this thing?

If the lottery sale goes forward, expect to see variants of those points in Republican-funded attack ads against Governor Chet Culver and our incumbent legislators in 2010.

Culver and statehouse leaders can say political contributions from gambling interests and their advocates had nothing to do with this decision, but don’t expect that story to stick. Not when people in the gambling business are among Culver’s largest individual donors and have given generously to the Democratic House and Senate campaign funds.

Speaking of GOP talking points, Iowa Republicans haven’t been known for their brilliant political strategy lately, but I give credit to them for the very clever proposal they floated at a press conference on Thursday: sell the Iowa Lottery to the state public employee pension system.

Responding to a column published this morning by The Des Moines Register’s David Yepsen, Senate Minority Leader Paul McKinley, R-Chariton, said it appears some backroom deals have been made and Gov. Chet Culver and Democratic leaders are intent on selling the lottery to private investors.  Instead, the state should consider selling it to the Iowa Public Employees’ Retirement System, known as IPERS, McKinley said.

“This is only a scheme to get some very short-term financial gain for some long-term budget pain,” McKinley said. “There are other options that we should pursue, and one of those options that we’re pursuing is that the IPERS board look into buying the lottery.” […]

House Minority Leader Kraig Paulsen, R-Hiawatha, said Republicans don’t think the lottery should be sold, but if it is, the deal should not be limited to big Democratic donors. Dan Kehl, an Iowa casino operator who is heading a consortium that hopes to lease the Lottery, donated $25,000 to Culver in 2007.

“If we are looking at that, we need to ensure everyone gets the opportunity to bid on it, and if the rate of return is 17 percent, that sounds like a good deal for IPERS and they need to look at that,” Paulsen said. […]

IPERS manages a multibillion-dollar investment portfolio that finances the retirement benefits more than 300,000 Iowans. Since July it has lost more than $4 billion in the stock market.

Republican legislators have set themselves up very well now. They are on record opposing the sale of the Iowa Lottery, but they are also reminding people that the state budget could reap short-term proceeds from selling the lottery without rewarding a handful of large Democratic donors. Think about how many Iowans have a family member in the IPERS system.

If Democratic leaders are smart, they will announce that selling the Iowa Lottery is off the table.

UPDATE: I’m pleased to report that on January 24 Culver’s chief of staff Charlie Krogmeier said, “There is no plan to sell or lease the lottery. Period.”

SECOND UPDATE: The Cedar Rapids Gazette has more from Krogmeier:

“The idea that the Iowa Lottery might be leased is getting more attention from pundits and partisans than it deserves. There is no plan to sell or lease the lottery – period,” he said. […]

Krogmeier said he was concerned the lottery issue was erroneously being cast as the governor’s plan when the extent of Culver’s involvement has been agreeing to one meeting with a private group that pitched a lottery lease proposal.

“This has become nothing more than a silly political game that some in the Republican Party want to play, and at a time when Iowans want a balanced budget and deserve bipartisan results,” he said. “This much is certain: when the governor releases his budget proposal in a few days, it will not include a line item reflecting a lease of the lottery.”

My apologies for not getting this in closer to the actual new year, but you could say that “a day late and a dollar short” has been the theme of the new year so far for me. Or five days short, as the case may be.

In any case, before we start the new political year for real, I thought it might be fun to share our predictions for the new year. Here are nine predictions of mine for two thousand and nine.

1. The state budget is in far worse shape then we think. Expect the fight over the budget to get ugly, quick.

The Iowa state fiscal year runs from July 1 2008 to June 30 2009–right in the heart of the economic meltdown. Given that the estimates for this period are just starting to come in, it's reasonable to assume that the stories we're currently hearing about the “budget crisis” represent only the tip of a much larger iceberg. Likewise, the 1.5% across-the-board cut currently proposed by Gov. Culver isn't going to be nearly enough to solve the crisis. It's going to get ugly and fast.

2. Unemployment will hit 10% by the end of 2009, and recovery will not come until early 2010.

Call me a pessimist, but I think things are going to get much worse before they get better. When you combine the potential failure of the Big 3 (a still unresolved issue, by the way), plus a global manufacturing slowdown, with the fact that up to 25% of retail stores may declare bankrupcy in the next year–you have the recipie for unmitigated economic disaster.  

To complicate matters, I do not expect President Obama's recovery measures to be passed before May of this year. (There are already signs that a long battle is ahead for this bill.) That means that many of the infrastructure projects given funds through the program will miss out on the summer construction window–meaning they likely won't start until Summer 2010. Many other measures, like tax cuts or social programs won't go into effect until 2010 as well…moving the light at the end of the tunnel further and further away.

3. The Big 3 will not survive in their current form. Get ready for the Big 2.

Regardless of whether the auto bailout was the correct move at the time, by the time the big ball drops in 2010–there will no longer be a Big 3 as we know them now. My best guess is that one of the Big 3 automakers (most likely Chrysler) will implode into disorganized bankrupcy. No buyer will be found, and the brand will simply cease to exist. This will spark a crisis that will either lead to the organized bankrupcy/restructuring of the other companies, or government assistance with severe Bob Corker style conditions. 

The good news is that out of the multitude of laid-off engineers and designers, we could see new  and innovative technologies, designs, and companies form. By 2020 we could all be driving solar hybrids designed and built by ex-Big 3 designers who started their own companies.

6. The Supreme Court will rule in favor of same-sex marriage in the case of Varnum v. Brien.

Beware the ides of March rings true in Iowa in 2009. Expect a ruling on the case of Varnum v. Brien to come down with a rulings for several other cases on March 13, the conclusion of the Court's March session. When that happens expect a whirlwind of craziness to descend on the state: national media, a rush of spring weddings, celebrity attention, half-cocked legal challenges, right-wing rants, Fred Phelps-ian protests, legislative blustering, Steve Deace's head exploding, and who knows what else.

I don't think the moon turning to blood, the dead walking the streets, or any other Pat Robertson-style pronouncements will come true…but expect a wild ride.

5. The Republican candidate for Governor will be a serious contender who already holds a major elected office.

The current fight over the RPI chair has a definite and familiar theme: change. Old hacks are out, new hacks are in. While there is a faction of the GOP that clings to BVP like life preserver, the majority of the party is, I think, waiting for someone new to come along.

That someone is either State Auditor David Vaudt, Sec. of Agriculture Bill Northey, or 4th District Congressman Tom Latham.

Vaudt looks to emerge as one of the main faces of opposition to Culver on budget issues, a position he could use to slingshot him to the governorship. Northey is the darling of the Republican Party and, with agricultural issues on the back-burner this year and little to do, may find the Governor's race an attractive prospect. Latham, by all measures a low-importance member of the minority party might decide that its now or never for him. And he has nothing to lose: if he wins, he's the Governor; if he loses, he can run again as the elder-statesman in the dogfight that will be the new 3rd district.

Ouch:

Gov. Chet Culver announced an across-the-board budget cut today and said education and Medicaid won’t escape unscathed.

Culver announced a 1.5 percent across-the board reduction in an attempt to deal with the state’s declining revenues.

The governor said staff reductions and employee furloughs are likely, which will be determined by each department. “It’s going to be painful,” he said.

The cuts announced today amount to $91.4 million and will have an effect on services, Culver acknowledged. In addition, Culver ordered a transfer of $10 million of unused money into the general budget. Most of that transfer money will come from an underground storage tank account, which is used to investigate and clean up any past petroleum contamination from underground storage tanks.

A week ago, Culver announced $40 million in cuts, largely through a hiring freeze and limiting out-of-state travel. In addition, Culver said he will ask the Legislature to withdraw plans for a $37 million new office building.

Combined with cuts announced Dec. 9, the total is $178.4 million in reduced expenses in the current budget year that ends June 30.

Clearly spending cuts in the current year are unavoidable because of the decline in projected revenues.

When state legislators draft next year’s budget, though, I hope they will not rely only on spending cuts to make up for projected lower revenues. David Sirota explains why:

Almost every single economist agrees, the last thing we want to do in a recession is slash government spending. We want, in fact, to increase that spending so that it is a counter-cyclical force to a deteriorating economy. So the question, then, is how to most safely generate the revenue to maintain or increase that spending. By  “most safely” I mean how to raise the revenue in a way that will minimize any negative economic impact. And the answer comes from Joseph Stiglitz:

 

“[T]ax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”

So, first and foremost, you don’t want dramatic spending cuts (beyond the usual rooting out of waste/fraud) and you don’t want to raise taxes on middle- and lower-income citizens who both need the money for necessities, and are the demographics that will most quickly spend money in a stimulative way. That leaves taxes on the super-rich, and Stiglitz – unlike anti-tax ideologues – has actual data to make his case.

For more information, see Budget Cuts or Tax Increases at the State Level:

Which is Preferable During an Economic Downturn?

Will Democrats dare to raise taxes, knowing that Republican candidates and interest groups will hammer them for it in 2010?

I have no idea, but if drastic spending cuts send the economy further into recession, 2010 isn’t going to be a picnic for Democrats anyway. I doubt they’ll rally the troops with “At least we didn’t raise your taxes” as a campaign message.

When analyzing the new Iowa House Democratic committee assignments, Chase Martyn noticed,

Almost all vulnerable Democratic incumbents have been kept off the Ways and Means committee.  In a year of budget shortfalls, Ways and Means will likely have to send some tax-increasing bills to the floor.

Post any thoughts about the budget/spending/taxes debate in this thread.

UPDATE: The press release from Culver’s office is after the jump.

SECOND UPDATE: If you think Iowa’s budget outlook is grim, read this short piece about the situation in California.

THIRD UPDATE: Nancy Sebring, the superintendent of the Des Moines Public Schools, announced plans to cut $3.3 million from the current-year budget (about 1 percent) in light of the state budget cuts. Presumably most if not all school districts in Iowa will need to take similar action. I wouldn’t be surprised if fiscal constraints force more of our small school districts to merge.

Three days after he announced plans to cut $40 million from the current-year budget and delay a planned expenditure of $37 billion, Governor Chet Culver said on Friday that he will announce a further $60 million in spending cuts next week. The total state budget for the current fiscal year is $6.1 billion.

Iowa’s Revenue Estimating Conference met the same day and “lowered this fiscal year’s revenue estimate by $99.5 million and next year’s estimate by $132.6 million.”

Iowa House Republican leader Kraig Paulsen slammed Democrats in a statement:

Democrats have put this state in a precarious position […] At a time when the national economy was on it’s way down, Democrats increased state spending by over $2,000 per family, over the span of two years they’ve hired more than 2600 new state employees, and loaded up budgets with pork projects for their preferred constituents. The only thing they have left to show for it is a gaping hole in the budget.

Give me a break. The Republican Party long ago stopped being the party of fiscal responsibility. John McCain himself admitted this:

We lost the election in 2006 because we lost our way. […] Spending lurched completely out of control.

Anyway, the New York Times reported last month,

At least 37 states and the District of Columbia have faced or are facing budget gaps totaling $66 billion in the 2009 fiscal year. Most states, which rely on sales, income and property taxes, are seeing a significant drop in such revenues or increases that are below the inflation rate, compared to the same period last year.

Click here to view a graphic showing which states have budget problems. If you look at that map, you can see that many states’ projected budget shortfalls are larger per capita than Iowa’s. This is a tough economy, and not only for states run by Democrats.

Meanwhile, House Speaker Pat Murphy promised,

We will take action in January to keep the 2009 budget balanced. There will be difficult decisions to make, but we will not balance the state budget on the backs of middle class families in these difficult times.

House Majority Leader Kevin McCarthy commented,

We have over $620 million in the state’s rainy day funds and we have a Governor and state legislature that are committed to fiscal discipline.

Yet, we need to be prepared for real cuts in budgets for both 2009 and 2010.  There will be real cuts and there will be real pain, but I do believe that Iowa is in a better position to weather this budget storm than almost any other state.  

Jason Hancock’s piece about the various budget projections for Iowa is worth a read. The most pessimistic scenario is quite grim.

Very tough choices will have to be made during the legislative session. I wouldn’t expect the return of much, if any, of the state money that was “swept” from other programs last summer to pay for flood relief.