The Bottom Line

by State Senator Mike Breitbach

I haven’t gotten back into my normal newsletter routine yet but I wanted to reconnect as we come up on the holidays and start to gear up for the start of the next legislative session.
It was good to be able to talk to many of you at the fairs, various parades and other activities that took place over the summer. I was able to meet with almost all of the presidential candidates as they traveled through Iowa. Some in Iowa see this as a curse but I enjoy the opportunity of being able to actually meet and visit with the candidates.  
We will be able to start submitting bills for consideration for the upcoming session soon. If you have legislation you would like to see proposed or something you feel we should address, please let me know so we can get started on it. Legislative forums will start soon and I will try and keep you posted as we schedule them. As always if you have any questions feel free to contact me.

Senator Mike Breitbach

The following is some information put together to let you know what is happening in the state.

Facts Demonstrate Continued Investment in Education
As January approaches, people often ask questions regarding key issues likely to be discussed in the upcoming 2016 Legislative session. Education and the budget are among the topics we often agree should be addressed reasonably and responsibly.
Senate Republicans will continue to stress the importance of responsible spending and treating our state budget like we do our family budget – which means we must not spend more than we receive. It is vital we do not overpromise only to under-deliver.
Recent Revenue Estimating Conference reports indicate state revenues are not rising as anticipated. The ag economy is not as strong as in recent years due to lagging commodity prices. We also were dealt a significant blow last spring when the avian flu devastated our poultry industry. All of these factors impact Iowa’s economy and our state budget.
Despite the warning signs of another challenging budget year, media reports and partisan attacks have already begun calling out the Governor and Republicans in the legislature to increase funding for our schools. Senate Republicans believe it is important to provide our students a world class education and give them the necessary resources to be successful in their careers.
During debate over school funding last session, the question was raised whether or not we are making a large enough investment in our schools. While there is a difference in opinion, the facts suggest we are making significant investments. Over the past 20 years, the legislature has doubled the state portion of education funding.
In 1993-1994, the appropriation to Iowa public schools through state aid was $1.3 billion or 37.8 percent of the state’s general fund. Twenty years later, the state appropriation for 2013-2014 was $2.7 billion and 41.9 percent of the general fund dollars. Average teacher salary increased from $30,760 (32nd in the nation) in 1993 to $52,032 (ranked 25th in the nation) in 2013. Dollars per pupil also have increased from $3,406 per student in 1994, to $6,446 in 2015-2016.
As the legislature increased financial resources over the past 20 years, the state experienced a decline in public school enrollment from 497,000 in 1993-1994 to 478,000 in 2013-2014.
We have been disciplined to not overpromise and under-deliver, and providing stable funding gives our schools steady increases rather than a rollercoaster funding ride. The facts show we are continuing to make a substantial investment in our state’s greatest resource – our young people.
 
Harvest season in Iowa
With the arrival of fall, harvest in Iowa is in full swing.  Dry conditions and warm temperatures have made the fall harvest ideal.  Iowa farmers have harvested 65 percent of the soybean crop and 30 percent of the corn crop, putting soybean harvest 10 days ahead of last year and corn 12 days ahead of last year, according to the United State Department of Agriculture.
One downside to the dry conditions combined with heavy winds is field fires have become an issue. Field fires have been reported in eastern and western Iowa. Most of the fires have been in harvested fields, but some corn crops were damaged and concern for buildings remains high.
The good news in Iowa is the USDA predicts producers will harvest a record 2.42 billion bushels of corn (or 8.3 million bushels more than predicted last month) and 520.5 million bushels of soybeans, which is the second-highest amount recorded.
The downside, as reported throughout the year, is bumper crops and instability in international markets have pushed commodity prices lower - creating fear of below break-even revenues for farmers.
Agriculture is definitely important to our economy. We found out recently the Iowa Revenue Estimating Conference forecast was cut by $121 million due to the predicted slump in farm income.
Senate Republicans continue to support cautious spending and living within our means. The taxpayers work hard and expect their elected officials to reflect their values by not creating bigger problems in the future by overspending.

REC Update for October FY 2016:
The REC decreased its March estimate by $121 million to $7.054 billion. This estimate is still an increase of 3.4 percent compared to actual FY 2015 revenues.  However, the result of this decrease from the March estimate is that “ongoing expenditures” for FY 2016 are now $116.5 million above “ongoing revenues” and the surplus is getting used up faster than originally anticipated. This does not factor in the necessary supplemental for Medicaid, which is estimated to be around $76 million.
FY 2017:
The REC’s first estimate for FY 2017 is $7.348 billion, an increase of $294.4 million (4.2 percent) compared to its newly revised FY 2016 estimate. However, if you compare the revenue estimate for FY 2017 ($7.348 billion) to the ongoing expenditures for FY 2016 ($7.171 billion), that leaves us only $177.2 million in “new spending.”
Built-in and anticipated increases for FY 2017 total $260 million. While we will not likely fund all the built-in expenditures, there are probably around $150 million worth of built-in expenditures that will be difficult to avoid such as the necessary increases in Medicaid ($65 million), 0% SSA ($43.7 million), our share of the Medicaid expansion bill (Iowa Health and Wellness Plan - $25 million).  Funding just these built-ins alone leaves less than $20 million for the rest of state government if you want to stay under “ongoing revenues.”
All this being said, the new revenue estimates for both fiscal years are pretty conservative, reacting to the first three months of FY 2016 revenues, and could go up in December. If the estimates do not increase in December, we will be in for a worse fight this year than last year.
As a note, the estimates this week did not take into account any change in revenue that could result from the consumables rules change discussed in recent weeks.
The REC will meet again in December to issue the estimate used to establish the budget for FY 2017.
Concerns voiced at the REC during the meeting:
Nationally, and in Iowa, the economy continues to grow, but slowly.
Reduction in farm income and the ripple effect in the economy is a major concern.
The slowdown in the Chinese market and turmoil in the Middle East is a worry.
Uncertainty of tax cut extensions at the federal level is a concern.
Uncertainty on interest rate policy from the Federal Reserve is of concern.
It is troublesome that the leading indicators in Iowa have declined the last eight months.
Low unemployment in Iowa is great, but it has caused an issue with business expansion and filling of high skilled jobs.  
State economic development incentives (Flood mitigation, R and D tax credits, sales and use tax rebates and others) have greatly impacted the flow of General Fund revenue.
Strong U.S. dollar is negatively impacting manufacturing.