Borg: Fiscal surgery. Iowa governor Chet Culver aligning state spending to match severely slumping state revenues. We’re discussing the budget, the cuts and the consequences, with Governor Chet Culver on this edition of 'Iowa Press.'
Funding for Iowa Press was provided by Friends … the Iowa Public Television Foundation. The Iowa Bankers Association ... for personal, business, and commercial needs, Iowa banks help Iowans reach their financial goals.
On statewide Iowa Public Television, this is the Friday, October 16 edition of Iowa Press. Here is Dean Borg.
Borg: The money isn't there. Simply stated, that's what Iowa’s revenue estimating conference said a little over a week ago in projecting that state tax revenues through the middle of next year. In fact, the state is expecting some $415 million short of budgeted spending. Within 24 hours of that report, Governor Chet Culver was cutting that budgeted spending by 10 percent, actually reducing spending $150 million more than the projected shortfall in revenue. Well, the action is still cascading down from the governor's office through state government, the court system, school districts, state universities, everything receiving state appropriations. For the most part taxpayers -- you can also call them voters -- haven't yet felt the effects. So it's with that background we're seeking insight today from Iowa’s governor, Chet Culver. Welcome to Iowa Press.
Culver: Thanks, Dean. Good to be with you.
Borg: Thank you. Also at the Iowa Press table Associated Press Senior Political Writer Mike Glover and Radio Iowa News Director Kay Henderson.
Glover: Governor, as Dean mentioned, the revenue estimating conference cut about 7.1 percent from its forecast of how much money you'd have to spend in this current fiscal year. You cut 10 percent. Why cut bigger than the forecast called for?
Culver: Well, first of all, Iowa, like every other state in the nation, is going through a very difficult economic time. I said last week we are on unchartered waters in many respects. No governor has ever had to do more than a 4.5-percent across-the-board. The reality is it has really hit our state, and I want to be fiscally responsible. I want to make sure that we have funding for our priorities, things like education and health care, senior citizens, our veterans, but we also have to balance the budget. That means making tough decisions. That’s why I made a 10-percent across-the-board cut. It’s really about getting through the fiscal year. We have to see what the revenue estimating conference says in December. We don't know with any certainty what the projections will be. So I thought it was important to have a cushion of about $150 million instead of going through another round potentially of severe cuts. Finally, we have to set ourselves up for the 2011 budget, which we will start working on in January when the legislature convenes. And the more we can get our budget in balance now, the easier it will be to come up with a budget for fiscal year '11.
Glover: One of the clearest fallouts of your budget cut will be furloughs, layoffs to state workers. How many layoffs will be caused by this budget cut?
Culver: Well, we'll know a lot more on October 20 when the department directors provide me with their reports in terms of how they're going to meet that across-the-board cut. It is certainly going to be severe. Hundreds of layoffs potentially, more than that across every branch of government but, clearly, my focus is the executive branch. The good news here is we have some real opportunities to reform our budgeting practices, to take a fine-tooth comb out to look at every line item of the 250 lines in that state budget and really go through a painful process of figuring out what are essential services. Finally, we have 2,300 state employees in the executive branch alone that are eligible for retirement, but a lot of those individuals are not retiring in large part because they don't have health care coverage, for example, between the age of 60 and 65 before Medicare kicks in. So I’m interested in working with those state employees, maybe working with the private sector in figuring out if we could come up with perhaps a Cobra-like coverage to cover them and then shrink our payroll essentially at the same time. So there are a lot of ways that we can balance this budget and make these cuts, but layoffs will certainly result. But that's happening in nearly every business in Iowa, every business in America. Families are having to cut back and do with less. And every government entity, from the federal government to the local governments, are having to go through, unfortunately, these tough layoffs.
Glover: Will the average viewer of this program feel what's going to happen in state government?
Culver: Yes, there will be consequences. This is going to be a very painful process. But we are required by law to balance the budget. We can't borrow money like they can in Washington, D.C. We don't want to run up a deficit, a debt. In fact, I want to keep our AAA bond rating. We’re one of 11 states that has earned that AAA bond rating. We earned that on my watch because we have built up our reserves. Back to Dean's question, with that 10-percent across-the-board, we now are in a position where we've built back our reserves to around $500-, $600 million. That’s important that we maintain our fiscal stability with that bond rating.
Henderson: Governor, a few minutes ago you said you wanted to protect priorities like education, but by cutting by 10 percent across-the-board, you cut education too. Critics say you should have convened a legislative session this fall to deal with specific cuts and maybe implement the kind of early retirement plan that you've been talking about.
Culver: Well, first of all, I didn't want to pass the buck to the legislature. I think this is where leadership is required. I wanted to step up and take swift, decisive action to get this budget in balance. If I would have called a special session, we would have had 150 different opinions in terms of how we arrive at a 10-percent across-the-board or 10-percent cut in state government. We would have had every special interest lined up in the lobby at the Capitol with their own ideas in terms of how to arrive at that 10-percent cost savings. We would have had every government entity say that they needed to be held harmless. And I have watched what's happened in places like California and New York, where it has -- actually a special session has resulted in more chaos and more challenge in terms of balancing the budget. And we couldn't afford to wait. And finally we have an opportunity. This is not just going to mean layoffs. This is going to mean more efficient government, more effective delivery of services. Instead of laying off teachers, for example, we might be able to combine our technology services to save tens of millions of dollars instead of laying people off.
Henderson: You have also said that there was no way that this could have been foreseen, yet others were seeing the danger signs many, many months ago. This past week you said the budget shortfall for the coming fiscal year could be as much as a billion dollars. Why should Iowans believe your estimate of a billion dollars for next year when you, in your own words, didn't see this coming?
Culver: Well, first of all, it's not my estimate, and that's part of the challenge. There are three people on the revenue estimating conference. It’s a bipartisan group. We have a public sector member -- a private sector member, I should say. They voted unanimously in March on the projection for the fiscal year '10 budget. When they reconvened last week, they admitted that they were off 8.4 percent. Their March projection was off $414 million. So those are the three people in this state that I’m required by law and the legislature is required to look to in terms of figuring out those projections. That’s one reason why I think we need reform when it comes to estimating our revenue for the future. I think we should have more private sector involvement in that. Perhaps the REC should meet more frequently so that we can figure out with more certainty where this budget number is going to be. Finally -- finally, no one, in fairness to the REC members, could have predicted this kind of economic tsunami that has hit this country. This is the worst worldwide recession we've seen in generations. But we can do better, I think, when it comes to projecting our revenue, and I’m going to work on that as a part of this reform effort.
Borg: You spoke of the effects in the possible layoffs and things like that. What should be the response of the state's unionized employees? What are you communicating to them?
Culver: Well, first of all, I thanked them for being at the table for the last several months. We’ve had very productive conversations about finding efficiencies, reorganizing government. They have been actively involved in that process.
Borg: But we're at the here and now, and it's going to be quick and dirty. What are you saying?
Culver: Well, I plan on having meetings with labor leaders. We have contractual obligations under the labor management contracts that we've signed and agreed to. And I believe that every state employee, whether they're in the union or not, they're willing to sacrifice. They’re willing to help us meet this cut.
Glover: Do you want to reopen negotiations and maybe rework the deal you made with them?
Culver: I think that we have to have very serious conversations about how we're going to arrive at a 10-percent across-the-board savings, and I think everything needs to be on the table.
Glover: And that would include more negotiations with the state worker unions, perhaps reopening those contracts?
Culver: I think it's very important to be respectful of the labor management process. I’m going to sit down and we're going to have a very candid conversation about what we can do, labor and management working together, to minimize the effect that this is going to have on hard-working state employees.
Glover: What happens if the unions say to you, Governor, we have a deal, we have a contract?
Culver: Well, I think that's premature at this point. I think we're going to have to put all hands on deck. I’m going to need the Republican legislators. I’m going to need the unions. I’m going to need state employees, department directors, the chief judge of the judicial branch, the leaders in the legislature. We’re going to all have to work on this. That’s what Iowans expect, Mike. I think it's time to lock arms and come together and figure this out. That’s what we get paid to do, and I know that I’m going to do my part.
Borg: In that same vein, there are contracts yet to be negotiated. You’re a former classroom teacher, and you know that we're coming up now to the times that those teachers across the state and individual contracts in school districts will be negotiating new contracts. What are you going to tell the ISEA in what they should be asking statewide?
Culver: Well, first of all, we have the best teachers in America in the state of Iowa, and I’m proud to be one of them.
Borg: Well, you might all say we have the best state workers and so on. But we're in, again, quick and dirty. What are you going to communicate to ISEA?
Culver: Well, again, we're going to have to all work together. I’m going to work with every school district in this state. I’m going to work with the school board administrators. I’m going to work with the local school boards, and we're going to figure this out and bring everyone together and get through this tough economic time.
Borg: Let me just ask it this way. When people are losing their jobs across state government, are you going to advise ISEA ask for no salary increase?
Culver: Well, I think it's fair -- I think most people would understand that a salary increase in any government anywhere right now is not going to happen. There’s not -- we do not have the resources. So -- and I don't know where anyone who would expect an increase would think we're going to get the money.
Glover: What do you say to Republican charges that we got in this mess because you overspent, you spent too much money in the last couple of legislative sessions, ran up the debt, and that's why we're here? How do you answer that charge?
Culver: Well, first of all, it's the political season. It has started earlier than normal. We’ve got a statewide election for governor in 2010, so a lot of this rhetoric I think you have to take with a grain of salt. Here are the facts. After the 10-percent across-the-board cut, the executive branch will be smaller than the day I inherited the job. We are spending more -- or spending less. We have fewer state employees, we will after the 10-percent cut goes into effect. And we actually spent 2.5 percent less in fiscal year '10 even before the 10-percent across-the-board than we did in fiscal year '08. There’s a lot of rhetoric on other side. They’ll throw in the federal stimulus money and add that to our spending. That’s federal money. It’s not state money. And so we'll have a healthy discussion and debate about this over the next 12 or 13 months, and I’m going to have the facts on my side when it comes to fiscal responsibility. S & P doesn't just hand out AAA bond ratings. We earned it on my watch. We’re one of 11 states that has earned that AAA bond rating. If you go look at the S & P report, they will note our fiscal management and our fiscal integrity because we have taken the tough steps, including this 10-percent across-the-board cut. A lot of states don't do that. They raise taxes. They raise sales tax. They raise income tax. They spend down their entire reserves. I’m not going to do that as long as I’m the governor.
Henderson: Governor, in addition to paying salaries, state money is used to provide services to needy Iowans. How do you intend to manage the cuts in the Medicaid budget, which provides health care to poor and disabled Iowans?
Culver: Well, Kay, that's why these plans that we've asked the department directors to submit by October 20 are so important. There’s going to be a lot of give and take between my office and these departments, we are going to prioritize the cuts. And we're going to protect senior citizens. We’re going to protect our veterans. We’re going to protect the most vulnerable Iowans, our children, and then we will make cuts after that, basically looking at nonessential services. Let me give you one example. Some state agencies have in their 2010 budget, $300-, $400-, $500,000 for things like travel and association memberships. The question is should we be spending that kind of money on those items or should we preserve, maybe, 10 or 20 jobs in that department instead.
Glover: Are you saying -- are you saying that there's fat in the budget?
Culver: Well, I’m saying that we have to be as lean and mean as ever before and we have to be efficient. And, yes, there are opportunities. I’ve been trying, for example, for years to look at using a group purchasing contract to require every state agency in the executive branch to buy on the same contract when they buy pencils or a computer. We’ve not successfully been able to get that changed through the legislative process. I believe in January that this is the time to make those fundamental changes in terms of how we budget and what our priorities are.
Henderson: But back to Medicaid spending, then nursing homes won't see a reduction in their payments? Doctors and health care providers who provide services to Medicaid payments will not see reductions in their payments?
Culver: Well, look, here's the reality. There’s no denying the fact that this is going to be tough. This is going to be painful. And there's no way to sugar coat the worst economic downturn since the Great Depression. So, yes, there are going to be cuts. There will be a domino effect. What I’m trying to do as governor is minimize the effect that that will have on our most vulnerable citizens. And there are choices that we will make in terms of how we arrive at cost savings to equal $565 million over the next month or so.
Glover: When you issued your 10-percent spending cut, you urged local school districts to use their reserves rather than tap into property taxes to make up for loss of state funds. What can you do to put some teeth into that urging to assure that property taxes won't go up? Republicans say the effect of your cut is going to be a big property tax increase.
Culver: Well, I share the Republicans' concern. I share the Farm Bureau's concern. That’s why I’ve proposed that the first bill that we pass when we reconvene January is to require school districts to spend their cash reserves down to a certain level before they raise property taxes. Right now we have an excess across the state of $400 million in reserves for those school districts, and this cut equals for the schools about $250 million or so. Well, to me that looks like an opportunity to use a fair amount, if not all, of the reserves to balance -- to come up with that savings. That just makes common sense to me. And I’m going to work with the school boards. I’m going to work with the Republican and Democratic legislators and the special interest groups like the Farm Bureau, who I met with on Monday on this topic, to get that bill to my desk as quickly as we can when we reconvene the session.
Glover: And what are you hearing from legislative leaders? Is that something they're agreeing to do? Do you have an agreement with them that that's going to happen? Are you confident it's going to happen?
Culver: I’m confident that it's going to happen. I really believe that this is the time -- this is the kind of fundamental change, Dean, that I’m talking about. It just makes sense. And I believe that everyone will take a new look -- a different look at why -- how we spend money and what we require school districts to do in return. Now, let me say this. I also understand the challenges that those school board members have, those superintendents have, so I want to work with them too. We’re not just talking about bankrupting a local school district, but we want to be smart about how we get through this tough budget challenge.
Borg: Does this include such bold things as urging consolidation of school districts, counties, using this as an impetus for major reorganization and money saving in Iowa?
Culver: I think that that is a likely result, that not only the state of Iowa, not only the regents institutions, the executive branch, the judicial branch of government, the legislative branch, I think we're all going to be required to fundamentally change, to reform ourselves, to reinvent ourselves. And that will be the same case at the local level for a city, for a county, or for a school district.
Henderson: This past week the economic development board handed out state grants and loans to businesses. Is it appropriate at this time to continue those programs when state government's budget has been cut?
Culver: Well, first of all, I want to publicly thank Fred Hubbell for taking over the helm at the Department of Economic Development. He is the new interim director. We couldn't have a stronger, more capable business leader at the Department of Economic Development. And Fred Hubbell was there yesterday when that board met, and I know that they are being very smart about these investments and how we use taxpayer money. So I have complete confidence that the right decisions were made yesterday. Let me say this, when we're talking about a return on investment, the type of return I’m looking for as Governor is the one that we recently received when we partnered with Target in Cedar Falls. Target built a $180-million state-of-the-art distribution facility in Cedar Falls. They hired 180 people. The values fund through the economic development department invested five million dollars to make that project a reality. That’s the type of return on investment I think taxpayers of Iowa deserve.
Glover: Let's stick with economic development issues. There’s been a controversy in the Department of Economic Development about the operations of the Film Office. Have you figured out -- have you been told what happened, what went wrong in that office?
Culver: Well, let me tell you this, Mike, we are going to get to the bottom of this as quickly as humanly possible. And I appreciate the fact that the attorney general and the state auditor have stepped up and joined me in that effort. And we are going to review every contract. We’re going to see exactly where those tax credits went. We’re going to make sure that those film producers played by the rules. And we will not be taken for suckers when it comes to these types of tax credits being handed out.
Glover: Have you been able to figure out to this point how much the state is on the hook for? How many contracts are out there? How much are we on the hook for?
Culver: Well, that's exactly what the attorney general is helping us with, with his legal team. And if necessary, the Department of Public Safety, the Department of Criminal Investigation is ready to join if we see any criminal wrongdoing.
Glover: So we don't know yet?
Culver: We do not know yet and we will absolutely make everything public as soon as we find out more information. But I’ve learned enough to know that it's outrageous that we had some of the abuses that we had, including people buying $40-, $50-, $60,000 vehicles for their own personal use. These vehicles weren't even in the movie, and that's just flat out wrong.
Henderson: Governor, this past week Reverend Keith Ratliff of Des Moines, who is president of the Iowa-Nebraska NAACP chapter, raised concerns about the way that he thought you have not yet addressed hiring concerns for minorities in state government, and he endorsed a Republican candidate for governor, Bob Vander Plaats. Are you at fault for not moving quickly enough to answer the complaints of minorities who are applying for jobs in state government?
Culver: We are moving very quickly. We’ve made real progress. We’ve created a diversity council, for example. We’ve required for the first time ever that state employees go through diversity training. We’ve hired additional staff at the Department of Administrative Services to make sure that we're giving those types of opportunities to applicants seeking jobs with state government. Reverend Ratliff is a friend of mine. Everyone has to make a choice when it comes to candidates running for governor. But another thing happened this week. Wayne Ford, the longest serving African-American legislator at the capitol, endorsed my candidacy and had a lot of nice things to say about progress we've made when it comes to diversity.
Glover: Governor, we're moving into politics and that's only appropriate on Iowa Press. Let’s talk about another political topic. You’ve not made your plans formally known. Not a lot of us are holding our breath wondering if you're going to seek a second term. It’s looking like you could be facing the potential of a former four-term governor, Terry Branstad, as a potential opponent. It looks like he may get in the Republican primary. What’s your reaction to that?
Culver: Well, first of all, Mike, I love being Governor of the great state of Iowa. I’m a fifth-generation Iowan. I love this state passionately and it has been an honor and a privilege to serve nearly 3 million people every day as governor.
Glover: Do you love Terry Branstad as much?
Culver: I welcome Terry Branstad to the race.
Borg: How does that change the dynamics of that race to be going against a former governor if he gets the nomination?
Culver: You know, that's for the political pundits to figure out.
Borg: That's for you to figure out if you want to get re-elected.
Culver: You know what I have to figure out, Dean, I have to figure out how to balance this budget. I have to figure out how to help this state rebuild from the floods. I am working tirelessly every day to do both.
Glover: And do you anticipate a tough fight with Terry Branstad? Do you anticipate a tough re-election regardless of who --
Culver: You know, my father has always said that 24 hours is a long time in politics.
Glover: I think he said 24 hours is an eternity in politics.
Culver: Sometimes it could be that too. But the point is no one knows. We have no idea how many candidates might still get in the race for governor. There’s a June primary, so I think that a lot of developments will occur between now and June. And then we'll have two nominees eventually.
Borg: We don't have eternity here. We’re out of time. Thanks, Governor, for being with us today.
Culver: Thank you, Dean.
Borg: On our next edition of Iowa Press, we're further exploring the state's fiscal problems with two Republican legislative leaders. We’ll be questioning the man leading the senate's Republican minority, Paul McKinley of Chariton, and the house minority Republican's leader, Kraig Paulson of Hiawatha. That conversation at the usual times, 7:30 Friday night, 11:30 Sunday morning. I’m Dean Borg. Thanks for joining us today.
Archive editions of Iowa Press can be accessed on the World Wide Web. Audio and video streaming is available, as are transcripts at www.iptv.org.
Funding for Iowa Press' was provided by 'Friends,' the Iowa Public Television Foundation. The Iowa Bankers Association ... for personal, business, and commercial needs, Iowa banks help Iowans reach their financial goals.