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Reporters Roundtable: Declining Tax Revenues and Budget Cuts

posted on October 30, 2009

Borg: A fiscal tsunami. Declining state tax revenues creating tidal wave changes. Iowa political journalists assess the consequences on this edition of Iowa Press.

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On statewide Iowa Public Television, this is the Friday, October 30 edition of Iowa Press. Here is Dean Borg.

Borg: The state budget cut story currently unfolding in Iowa is producing ever-expanding shock waves that promise long-term consequences, and not only economic, possibly political. The seismic shock began earlier this month with Iowa’s revenue estimating conference delivering news that expected tax revenues during this fiscal year are far short of what’s budgeted, Governor Culver then responding with a 10-percent across-the-board cut in all appropriations, and that set off budgetary shock waves across state government that are continuing. And that’s all taking place in a political environment with democratic Governor Culver up for re-election a year from now and also republican Senator Chuck Grassley.

Borg: Both of them aren’t yet sure who their opponents will be. We’re looking for perspective today from political journalists who have been covering the stories and considering those effects, Associated Press Senior Political Writer Mike Glover, Radio Iowa News Director Kay Henderson, James Lynch writes for the Gazette published in Cedar Rapids and Des Moines Register Political Columnist Kathie Obradovich.

Borg: Kay I’m going to ask you, first of all I said a 10-percent across-the-board cut. Governor Culver announced that a couple of weeks ago. This week he made some changes in that. Now where do we stand in all of this?

Henderson: Well, Dean, you’ve already mentioned earthquakes and tsunamis, and the ground hasn’t yet settled. When there’s a tsunami, the flood waters recede and there’s a mess left behind. We’re all standing on shifting ground right now because the governor has essentially put the unions on notice make concessions or hundreds of workers in the departments of corrections and public safety will be laid off. So this story is still playing out in front of us.

Glover: And we don’t know precisely – the governor ordered about a $565 million cut in state spending.

Borg: More than had been anticipated was needed.

Glover: More than had been anticipated that was needed, but we don’t know if it’s going to be enough. This economy, the budget is all in flux. There may be some signs nationally the economy is starting to turn around. I don’t see a lot of signs in the state that the state economy is starting to recover, that the state budget is going to come back. So, this is a story that’s going to unfold probably over the next year at least where we’re going to be hearing the dominant factor in both the gubernatorial election and in legislative elections. It’s going to be the handling of this state’s budget, how we got into this mess and how Culver is leading us out of it, if he is.

Lynch: And, Dean, there’s going to be pressure to do more cutting when the legislature comes back in January. There’s going to be a push to do more cutting because it doesn’t look like, as Mike said, that revenues are going to grow significantly. At the same time I think legislators are going to be fighting to protect what they think are their priorities and preserve those programs.

Glover: If you look at the scope of what’s going to happen for the next budget year, I’ve already talked to some democratic legislative leaders who said the governor cut $565 million out of this year’s budget. They’re looking at least $550 million out of next year’s budget, which would be another 10-percent.

Obradovich: Legislative leaders are kind of trying to control expectations here a little bit They’re telling the lobby, they’re telling all these interest groups do not even come back and try to talk to us about restoring your budget cut. You’re going to be cut more and you should be getting prepared for that.

Borg: But, Kathie, back to the original question I asked Kay. Why would the governor have an across-the-board cut and then ten days later come back and say, “No, I’m going to do it selectively,” because I didn’t think he could do that?

Obradovich: Statutorily his choices are to cut across-the-board or bring back the legislature. Now, in those wide options, he’s got some wiggle room, and one of those is to start carving out some things that he wants to restore. Probably a lot of those things he’ll have to ask the legislature to do.

Glover: And he would disagree with that argument that his choices are across-the-board or call the legislature back. He argues -- and I’m not a lawyer, I don’t know the legal basis – he argues he can do an across-the-board cut and then go in and do some selective reinforcements, put money back into some areas. He picked out a couple of areas, vulnerable children and vulnerable adults. And he’s restoring funding for those as well as a little bit in a couple of other agencies. He argues he has the statutory authority to do that which makes it in effect not an across-the-board cut. It’s an across-the-board cut except where for these two or three key areas that I like.

Henderson: Not only does he argue that he has the statutory authority to do this, but right now he has the political authority to do it because democrats control the debate agenda in the legislature and they are behind the scenes indicating support for the changes that he is making. For example, the Department of Human Services is proposing a cut in the reimbursement rates for care for Medicaid patients in nursing homes. That rate is actually set by legislators. The Department of Human Services is recommending that the cut go into effect December 1, expecting and knowing because of assurances behind the scenes that legislators will okay that once they come in, in January.

Obradovich: The word notwithstanding is a powerful word in state government. I think that whatever Culver does, he’s going to find support to do that when lawmakers come back.

Glover: If I’m a critic who thinks that the governor has exceeded his authority, all I have to do is stand up and say, no, I don’t want to restore funding for vulnerable children who might die on the streets without it. So politically it’s impossible to –

Henderson: And the other political component to this is republicans are not inclined to say, I would like to spend more.” So not only does he have support from democrats in the legislature who support the changes he’s making, but it’s really hard for republicans to make the argument that we need to spend more.

Borg: Doesn’t this set up, Jim, a very contentious legislative session?

Lynch: I think they’re all contentious at this point.

Borg: Always try in a session to delay the money discussions until the very last, and all the back-room negotiating goes on during the session while they act on rather seemingly innocuous things. And then the money budget problems are hammered out at the last. Now this is going to be up front.

Lynch: Well, this year they’re cutting the session by twenty days, so they’re going to have less time to work out those deals in the back room apparently. So, they’ll have to work faster, or they won’t get the job done. But, yes, it’s going to be very contentious because you’re going to have groups that are still going to ask for more money and they’re going to make the case that unemployment is up and problems associated with people having tough economic times are growing, whether that’s more children needing food assistance or Medicaid, those sorts of things. And at the same time there are still people out there who want good roads and safe communities.

Glover: And democrats will say this actually makes their task easier because there is so little and state revenues have dropped so much that they can just throw up the signs no to everybody. Don’t even bother walking in my door and asking for anything, the answer is no before you even come – hear those signals right now.

Borg: That brings up another thing I’d like to raise, and that is does this open the door to some things that may have been politically unthinkable in the past, such as phasing out some things that politically you couldn’t have done under better circumstances.

Glover: One of the more fascinating stories that’s going to play out over the next couple of months, I think, is how the state’s labor laws get affected by this. The state is going to go to the unions representing state workers and say you’re going to have to take a big cut in pay and benefits to make this budget balance. The state worker unions understand that, and they understand the option is going to be laying off a few thousand of their members. So they’ll probably accept it. But don’t think they won’t want to get something for it. Okay, you can give us a 10-percent pay cut this year, but next year when the legislature comes in expanding the scope of bargaining and those kinds of things, they’re back on the table.

Borg: Yes, they’re back on the table but they’ve already given a concession. I understand what you’re saying because labor unions are in the business of negotiating you give, you take and then something in return. But you can’t promise in return. In this case you’ve already given away a salary increase, but you’re not sure what’s going to happen in the legislature.

Glover: Most promises at the statehouse – I don’t know if you guys all agree with this – most promises at the statehouse are written in invisible ink. There’s no piece of paper that tracks it down, but everybody understands what the promise is. If the state worker unions give back a big pay concession, the unspoken concession will be when we come to you in January and talk about scope of bargaining, you’ll be listening.

Obradovich: Speaking of things that are politically impossible becoming possible, how many of us would have thought that lawmakers would seriously be talking about bringing back video gambling to Iowa after the whole touch play debacle happened? I think they’re seriously thinking that they’re going to debate this in the next legislative session. Now, that is one of those contentious debates, and you never know which way a gambling debate is going to end up. And so while they’re in the back room negotiating the budget, this will be something for us to watch.

Borg: Well, what I may even comment on that is that late this week I saw the Department of Agriculture, the announcement that they’re transferring a component of their weights and measures division to Iowa Central Community College in Iowa Falls into the educational system. They’re spinning it off in order to save some money. Now, that’s something in the past they might have argued we want that. Those are agriculture jobs.

Henderson: One thing that I think we’re going to see play out in this legislature is a debate about the size and the scope of government overall, not just the state level government but school districts, cities, and counties. One idea which has been bandied about is having one superintendent per county in Iowa to get rid of the overhead in the education system. I think this will not pass, but I think it gives us a preview of what’s going to happen after reapportionment because rural areas of the state will lose legislators. There will be more urban legislators and they are more interested in that kind of change at the educational level.

Glover: The dirty little secret about government in Iowa is government is an economic development engine. If you start talking about shrinking the state’s economy, cutting into the number of jobs. In fact, government is the biggest employer in this state.

Borg: You know, one of the things that set off some gasps, I think, in the projected effects of the budget cuts was the number of prison guards who are going to be laid off and losing their jobs. Ordinarily in prisons, it’s out of sight, out of mind. People don’t care much. They care about more pocketbook issues than themselves. But there was kind of a collective gasp across the state. And laying off that many prison guards, what’s going to happen? What about the safety, Kathie?

Obradovich: Well, I think the safety issue is a key one. And one of the reasons that prison guards seem to be a big target is because that agency has lots and lots of general fund revenue and it’s mostly jobs. It’s mostly salaries. So there’s not other places for them to cut. So they stick out like a sore thumb. There’s also, I think, a little bit of what we call the firemen first mentality, which is you put the most shocking cut out there and try to build up public support for somehow getting a little bit of money back into the system. I don’t want to accuse people of having those kind of motives, but we see it happen all the time.

Glover: I would.

Lynch: I don’t think anybody expected the governor to enact that kind of a layoff at the prisons when announced this 10-percent across-the-board cut. I don’t think anybody expected that he wouldn’t go back in and say, “Wait a minute, we can’t lay off all our prison guards and let the prisoners run the prisons.” So that’s not surprising. And I think it is a little bit – there is a little bit of shock value there that it gets people’s attention and now he’s identifying some priorities in public safety.

Borg: Let me go back to labor union – labor unions here for a second. AFSCME is one of them, the federation of state, municipal, and county employees. Are there other unions involved here?

Glover: The state police officers council and another union representing some mid-level professional employees. That’s about 300 in one union and about 700 in the other. So by far the bulk of them is AFSCME, which is about 13,000 or 14,000.

Borg: Is it fair to say – accurate to say that they now hold a major key to Iowa’s fiscal health?

Glover: They hold – they will play a major role in how Iowa deals with this budget crunch. They can’t alter the outcome. I mean the outcome is state revenues are down and the governor is cutting spending 10-percent across-the-board, so there will be $565 million less spent in this year’s budget. They will have a say over how that $565 million cut is imposed, where it’s imposed by cutting everybody’s pay, whether it’s imposed by leaving pay in place and laying off some people. They’ll have a say in that, but they won’t have a say on the bottom line is that $565 million is gone from this year’s budget.

Henderson: And if they do agree to reopen negotiations on their contracts, it will be a bit of political history. During the depths of the farm crisis and recession that hit Iowa in the early 1990s, former Governor Terry Branstad sought similar concessions from AFSCME and the other state employees union and they did not agree to those. So if Chet Culver is able to get concessions from the union, that would be setting a little bit of political history.

Glover: One of the things that Terry Branstad did was they had negotiated a contract with state workers, and during the depths of the farm crisis, Terry Branstad said, “I’m not going to fund it. We don’t have the money. I’m just not going to pay for it. Yeah, we negotiated the contract. They negotiated the pay increase. I’m not going to fund it.” AFSCME took him to court and 9-0, when there was nine people in the Supreme Court, the Supreme Court backed the union.

Borg: Did the unions at all – go ahead, Jim.

Lynch: Well, I was going to say the unions have leverage this year, but it will continue into the future. If they give concessions this year, they’re going to come back and remind legislators year after year that, you know, we’re not where we should be. We’re still behind. You need to help us catch up to where we should be. So it puts them in a strong bargaining position this year as well as years down the road.

Borg: What do you think is the tenor of – do unions at all in this scenario which they find themselves as a key player, do they at all, Kathie, care about public image?

Obradovich: I think they do care to a certain extend, but they also have to have the big picture in mind for the state work force. Layoffs are probably a more temporary problem for them – a more temporary setback than pay cuts because these jobs come back more quickly. And it takes a lot longer time to build back up if you take major pay concessions. So if you look at the long-term and what’s better for the state work force, they have to keep that in mind. Plus, I think that they have their own members say, “Look, we have sacrificed already. It’s a time for the public to step up.”

Borg: And if they do demand some concessions, as we’ve already discussed, they might be more palatable in the total public eye in the future if there are some concessions.

Glover: And I think AFSCME, first of all, it’s a large union and yes, it’s concerned about its image in their members’ eyes because that’s, at the end of the day, who elects them. So they care about that. The bottom line I think for the whole thing is they understand that there’s, as I said earlier, there’s $565 million that’s not going to be spent this year, and they can have a say over how that cut is imposed. They don’t have a say over imposing the cut.

Borg: Well, there are some political implications here. What are the political implications for Governor Culver, Kay?

Henderson: On one hand, you have democrats who behind the scenes say quit this daily bleeding. Just cut off the arm and move on. We don’t want to have this continual discussion with groups which are important to us in the 2010 election, unions and teachers. We don’t want those people disheartened by these cuts and the daily story about how the cuts are impacting people; whereas, if you look at this from sort of the 30,000 feet level, Iowans in general don’t oppose cutting state government by 10-percent. Iowans in general who like to drive more quickly on the interstate highways probably don’t regret that there will be fewer troopers out there to arrest them if they’re caught going 75 or 80 miles an hour. So in the general scheme of things, if you step back and look as this, it could be a boon to a Culver candidacy because he will be able to address republican complaints that he and other democrats are profligate spenders.

Borg: So a possible plus for him could be a minus.

Henderson: It’s a minus internally in democratic politics, but in terms of the entire electorate, it’s a plus.

Glover: And it depends on how democrats handle it between now and next November, how they spin it, how they play it. But I talked to a democratic legislator just this past week, and he said that as a democrat he doesn’t like cutting the Department of Human Services. He doesn’t like cutting the Department of Public Health as a democratic, as a philosophical base. He said, “As a political issue,” he said, “I’m very, very comfortable doing these cuts because anytime you cut government, you’re going to have people backing you up. In the internal sort of democratic politics, what’s they’re choice going to be Chet Culver who imposed a 10-percent budget cut, or potentially a Terry Branstad who might have imposed a bigger budget cut? At the end of the day, I think republicans will drive those democrats home.

Obradovich: Even if people don’t like their specific program being cut – we’re hearing – you know, they have a lot of suggestions for other programs that they’d like to see cut. State government as a whole they think is too big. And I also think that there is not support for raising taxes in a recession. I think Culver has made a pretty strong stand on that, and that helps them a lot going forward, especially against Terry Branstad who did raise taxes in the early 90s.

Lynch: And I think he played it well I taking a pay cut himself and going on TV and saying, looks, I feel your pain too because I’m taking a pay cut. Potentially that was wise. He’s trying to get out in front of that and sort of inoculate himself from the criticism. I think there will be some criticism that he really hasn’t shown leadership here. He just said cut 10-percent and then put it off on his department heads to figure out how to do that. And now he’s saying, well, I’m going to save some public safety jobs and some corrections jobs that, in the end, what leadership has he shown is the argument that republicans will be making.

Glover: The interesting thing will be how they cast that argument. What are they going to say? A republican who is critical of Culver’s handling of the budget, are you going to say, okay, if I were governor, I’d raise the sales tax. That’s what I would do. I wouldn’t do this. If I were governor, I’d cut here and cut here and cut here and cut here. The answer that they’ve come up with so far I think is not a particularly politically sailable one.

Borg: Democrats have come up with.

Henderson: Republicans.

Glover: Republicans. The argument that republicans have come up with is Culver has mismanaged the budget, he spent too much last year, and that’s why we’re having to do these spending cuts, and I don’t think that resonates, sells well with independent voters. I think independent voters look at a governor imposing a big 10-percent cut in state spending, I don’t think that’s a bad policy.

Borg: Kay, let’s hone in just a little bit more closely here. We’ve been talking about the political implications here. Governor Culver, as I noted previously in the show, is up for re-election in a little over a year from now, next November 2010. So is Senator Chuck Grassley.

Henderson: Correct.

Borg: One, Chuck Grassley, a republican. Culver, a democrat. We don’t yet know who is running against them, their primaries in each opposing political party, but would you consider either one of them vulnerable?

Henderson: Sure.

Borg: The incumbents?

Henderson: I think incumbents are going to be vulnerable in 2010 because incumbents in general of either party are going to come under fire. Senator Grassley has the unique problem of trying to convince his conservative base that he is conservative enough to continue representing them in Washington. He also has the unique problem of having been a leading voice in the health care debate, which motivates democratic voters from their base to come out and oppose him. Now, if I looked at my tea leaves here, I might say that there is a candidate emerging who would be a formidable challenger in the name of Roxanne Conlin, mainly because she is a successful trial lawyer who could partially fund her own campaign. She will be able to raise money from other trial lawyers across the country, and she has nothing to lose. She’s not an elected official right now, and she can go out there and make the case without worrying about losing her current job.

Obradovich: I agree with everything Kay said about incumbents being vulnerable. At the same time this is Iowa, and we re-elected Terry Branstad to four consecutive terms. We keep incumbents around for a long time in Iowa. I think things have to get even worse than they are right now before I would say that Terry Branstad is likely to be the next governor or that Roxanne Conlin is likely to be the next U.S. senator.

Glover: The last time Iowa’s voters defeated a sitting governor was 1962. I think we don’t know yet, Dean. This is a unique historical year coming up in 2010. It is the first mid-term election of a newly elected democratic president. History would tell you that’s a good year for republicans. So if you just look strictly at history, it’s a pretty good republican year. However, the economy is the central argument, the central issue in the next year’s election. That would argue for a pretty good democratic year. The answer is we don’t really know yet. We know in the senate race, Roxanne Conlin is probably the most prominent democrat being mentioned as a potential opponent. Terry Branstad is probably the most prominent republican mentioned as an opponent for Governor Culver. But I remember interviewing Barack Obama on the day that Bill Clinton came out to campaign for his wife, Hillary. All the talk in the media was gaga about the Clinton juggernaut, the Clinton dynasty, who can stand in the way of it. And I remember Obama saying elections are not about how we get back to where we were. Elections are about where we go from here. It’s about moving forward, not going backwards. That will be a critical argument for both Branstad and Conlin.

Lynch: And I think in a way Roxanne Conlin does Chuck Grassley a favor because she solidifies his base. When the conservatives look at the option there and say Roxanne Conlin is the other option, it makes Chuck Grassley look a lot better even if he isn’t quite as conservative as he used to be.

Borg: The key there, and he just said it, is consolidate. Because another question I was going to ask all of you is does the fractionalized Republican Party pose a problem for Senator Grassley?

Glover: Yes, yes. The fractionalized Republican Party poses a problem for any republican candidate, because the Republican Party as it has drifted towards the right has alienated itself from independent midstream voters that settle elections in this country. You’re right, Jim. At the end of the day Roxanne Conlin will energize those conservatives, motivate them to vote for Grassley if they have questions about it. One thing she can’t do is move those independent voters who the republicans have spent the last two years, frankly, working overtime to alienate.

Glover: I think it’s less a problem for Grassley than it is for the republican gubernatorial candidate, though. Grassley tends to run his own campaigns. It’s been in motion for years. He’s been in office for, what, fifty years and so I think it affects him less. Whoever the republican nominee is for governor, it’s going to be a problem because this is a real fight about not only who the nominee is going to be but the direction of the party.

Borg: Kathie, you had something.

Obradovich: I was just going to agree with Mike a little bit in putting Roxanne in the category of kind of a retro candidate. She’s never been elected. She has been on the ballot before. Back in 1982 she ran against Terry Branstad, yes. But she has not served – she doesn’t have a record really to defend, and I think that also being a woman puts her a little bit in the category of a change candidate.

Lynch: We haven’t seen a real response to her tentative announcement that she’s getting in that democrats are saying, oh wow, this race is over. We have a candidate now. Her – the announcement of this surprise or mystery candidate I think has been somewhat muted that, you know, there hasn’t been overwhelming support.

Glover: And like I say, next year history and all kinds of forces will tell you about next year, but we have a year to go until next year’s election. We’ll have to see how Roxanne is as a candidate. We’ll have to see how Terry Branstad is as a candidate. It’s a different era than when he was last –

Obradovich: It’s lucky she has a primary, actually.

Borg: Kay, just in the few seconds that we have remaining, has the republican primary here – we had candidate before Terry Branstad alluded to the fact that he might get in, and now it looks like in. Has that frozen that primary race until there’s actually an announcement, or is the campaign going on unimpeded?

Henderson: Well, I think the starting gun started last week when Branstad announced his resignation from Des Moines University. And on Friday – or rather Saturday, November 7, we’re going to have the first opportunity to size up modern-day Terry Branstad against boy-Governor Terry Branstad. He’s older. We’ll see if he’s wiser. We’ll see if he’s as nimble.

Glover: And we are making the assumption that Roxanne Conlin is the candidate for the United States senate and Terry Branstad is the candidate for governor. I think everybody in politics in this state is making that assumption. There’s no exploring or committees or anything like that. They’re in.

Borg: Thank you all for your perspectives. On our next edition of Iowa Press, we’re talking with an Iowan with a major role in moving legislation through Congress changing the nation’s health care system. Democratic Senator Tom Harkin will be here commenting on that challenge and America’s dilemma in Afghanistan, among other things. You’ll see our conversation with Senator Harkin at the usual Iowa Press times, 7:30 Friday night and 11:30 Sunday morning. And a reminder too that the Internet is your connection to our Iowa Press staff. Our e-mail address is iowapress@iptv.org. We’d like to hear from you. I’m Dean Borg. Thanks for joining us today.

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