Iowa Legislative Leaders Prepare for Fiscal Cliff Worst-case Scenario

By James Q. Lynch and Rod Boshart, Reporters

JOHNSTON, Iowa - Iowa legislative leaders hope their congressional counterparts will come to an agreement to prevent the nation – and state – from going over the fiscal cliff.

However, House Speaker Kraig Paulsen and Senate Majority Leader Mike Gronstal said Nov. 28 that as they put together the next state budget they will plan for a "worst-case scenario."

"My hope and my expectation is they will have resolved their (budget) decisions that they have to make before we have to do ours" Paulsen said on Iowa Public Television's Iowa Press that will air this weekend.

There always is a level of uncertainty about federal funds, Gronstal said, because the state fiscal year begins July and the federal budget year starts Oct. 1.

"We don't know what they're going to do in next October's budget," he said. "Those uncertainties are always there."

Those uncertainties stem from the failure of Congress and President Obama to reach an agreement on dealing with the expiration of the Budget Control Act of 2011. If there is no agreement, the Bush era tax cuts and last year's payroll tax cuts will expire causing tax hikes for most Americans.

That's been accounted for in the state's revenue projections, Paulsen said.

The other part of the budget deal was sequestration of federal funds. That would result in cuts to 28 of 42 streams of federal funding to the states, according to the Council of State Governments

"It appears right now if that would go through untouched that will be about fifty to sixty million dollars in lost revenue to the state," Paulsen said. The state's general fund budget is more than $6 billion.

In that case, lawmakers "can assemble things based kind of a worst-case scenario (and) make adjustments as that maybe turns out not to be the worst-case," Gronstal said.

Neither he nor Paulsen offered a description of what the worst-case scenario would mean for Iowans.

However, the Council of State Governments said the cuts would fall across a range of departments and services, from special education and low-income heating assistance to veterans' employment and training.

The "worst-case" is an identifiable number, Gronstal said, but human services, including Medicaid, likely will take the biggest hits.

Also, if the budget deal expires and federal taxes go up, state revenue will drop, Gronstal said.

"With federal deductibility, state revenues go down because (Iowa taxpayers) are able to deduct more federal taxes," he explained.

The state may catch a break because of the late start of the 2013 session. Lawmakers will convene Jan. 14 and Paulsen and Gronstal hope a deal to avert the fiscal cliff will be agreed to before then.

Iowa Press airs at 7:30 p.m. Nov. 30 and noon Dec. 2 on IPTV, and at 8:30 a.m. Saturday on IPTV World. It will be available online here.
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