Information about the State of Iowa's Budget

Budget Process. Producing a budget is a continuous process that begins in June with budget instructions distributed by the Department of Management to agencies. From July to September, departments using the Governor's strategic policies and the budget instructions, develop a department request. The department request, by statute, must be submitted by October 1. From October through early January, the Governor, with assistance from the departments, Governor's staff, and Department of Management budget staff prepare the Governor's recommendation that is included in the Iowa Report and the Iowa Budget Book. By February 1, the Governor must present his recommendations to the Legislature. The Governor's recommendations can be accessed online at http://www.dom.state.ia.us/. In January, the Governor's recommendation information is transmitted electronically to the Legislative Service Agency. See the Legislative Service Agency website http://staffweb.legis.state.ia.us/lfb/. Once a budget is enacted by the Legislature and signed by the Governor, this information is updated in the I3 (Integrated Information for Iowa) Budget System and provided to departments with appropriate salary projection information. This in turn is updated and made ready for the I3 Financial System for the budget year beginning July 1.

Governor's Recommendation. The Governor, per Chapter 8 of the Code of Iowa, must present spending recommendations to the Legislature for any revisions to the current year and the upcoming fiscal year. The Governor presents an overview of his recommendations in the Iowa Report and detailed recommendations are included in the Iowa Budget Book. Only the Legislature can authorize expenditures by the State of Iowa. The Governor recommends spending levels, which the Legislature chooses to accept or modify. The Governor may sign or veto legislative appropriations, either entire bills or portions of appropriation bills with an item veto. The Legislature may override any veto by a two-thirds majority vote.

Fiscal Years. It is important when reading the budget to consider which fiscal year is being discussed. The state fiscal year runs from July 1 to the following June 30 and is numbered for the calendar year in which it ends. The State of Iowa operates on a modified accrual basis which provides that encumbrances on June 30 must be paid within 60 days after year end. The Legislature may enact exceptions to this statute and usually do so for capital items which may run for several years.

Financing of State Spending. Frequent reference is made to State General Fund appropriations or expenditures from all funding sources. Expenditures from all funding sources include both State General Fund expenditures as well as expenditures from all other funds of the state that number in excess of 700 funds. All money spent by the state must first be authorized by the Legislature, either from the State General Fund or from the other funds established by constitution or by legislative authorization. In the legislative acts, this authorization is called an appropriation. A portion of the revenues deposited into a fund are appropriated to be spent for the purpose identified in the appropriation. Thus appropriations are limits on the amount funds that may be spent. The State General Fund receives the most attention in the budget because it is the largest source of "uncommitted" revenue available to the state. It is also the fund to which most general tax receipts are credited. The Legislature makes specific appropriations from appropriable receipts that are deposited in the general fund or from special revenue funds. Examples of general fund appropriable receipts include the major tax sources such as personal income tax, corporate income tax, sales and use tax. The Legislature may spend State General Fund appropriable receipts for any governmental purpose.

In addition, some receipts are deposited as a supplement to appropriations and are considered appropriated receipts as they are generally identified for a specific purpose. Examples would be categorical federal funds, some license fees or repayment receipts. These receipts are subject to appropriation but amounts, with the exception of federal block grants, are not specifically identified. Departments would expend these funds in conjunction with the state appropriations.

Special revenue funds, by contrast, are dedicated to a specific purpose. As an example, the Road Use Tax Fund can only be used for transportation purposes. The Legislature may not spend monies from the Road Use Tax Fund to build new prisons. Some funds have specific standing authority to spend revenues.

Official Revenue Estimates. The General Fund revenue forecast is made each year by the Revenue Estimating Conference (REC), which consists of the Director of Legislative Services Agency serving as the representative of the Legislature, the Director of the Department of Management serving as the representative of the Governor, and a third person agreed upon by the other two members. The REC meets quarterly and arrives at the official General Fund revenue estimate used by all parties in the budget process. In December of each year, the REC establishes the official estimate that will be used by the Governor and the Legislature in crafting the next year's budget.

Budget Reserves. The Governor, in his recommendations and the Legislature, in the authorizing process, are directed to appropriate no more than 99% of the REC General Fund estimate or 95% of any new or expanded tax or revenue sources to the General Fund. Any balance in the general fund at year end must be used to replenish the Cash Reserve Fund and the Economic Emergency Fund until these reserves are met. The Cash Reserve Fund is limited to 7.5% of the State General Fund appropriable revenues and the Economic Emergency Fund is limited to 2.5%. The Cash Reserve Fund limit must be reached prior to depositing funds in the Economic Emergency Fund. Once the funds are full, any remaining funds are available for authorization in the next fiscal year.

During the past several years, the Legislature has also diverted funds from the ending cash balance to the Property Tax Credit Fund and the Senior Living Trust Fund.

State Spending Functions. The State of Iowa groups state spending into either operations or capitals and by function. Functions are groups of agencies which make expenditures for similar programs and purposes. The seven functional areas are: administration and regulation, agriculture and a natural resources, economic development, education, health and human services, justice system and transportation. These functions largely correspond to the Legislature's Appropriation Subcommittees.

The Administration and Regulation function includes state agencies with both administrative and regulatory functions. These include elected officials: Governor, Auditor of State, Secretary of State, Treasurer of State and Legislature Branch as well as the following departments: Department of Administration, Department of Commerce, Department of Human Rights, Department of Inspections and Appeals, Department of Management, Department of Revenue, Iowa Ethics and Campaign Disclosure Board, Iowa Lottery Authority, Iowa Public Employees' Retirement System (IPERS), Iowa Telecommunications and Technology Commission and Office of Drug Control Policy.

The Agriculture and Natural Resources function, as the name implies, incorporates the promotion, protection and regulation of the state's resources. The departments included are the Department of Agriculture and Land Stewardship, headed by an elected official, and Department of Natural Resources.

The Economic Development function promotes Iowa's economy by providing supports to Iowa businesses and the Iowa workforce. The departments included in this function are the Department of Cultural Affairs, Department of Economic Development, Iowa Finance Authority, Iowa Workforce Development, Office of Energy Independence, and Public Employment Relations Board.

The Education function provides services to educate Iowans at all levels. The departments included in this function are the College Student Aid Commission, Department of Education, Iowa Commission for the Blind, and Board of Regents.

The Health and Human Services function provides services and supports to individuals. The departments included are Department of Elder Affairs, Department of Human Services, Department of Public Health and Department of Veterans Affairs.

The Justice System function ensures the safety and security of Iowans. The entities included are Attorney General, Civil Rights Commission, Department of Corrections, Judicial Branch, Law Enforcement Academy, Board of Parole, Department of Public Defense, and Department of Public Safety.

The Transportation function includes the Department of Transportation.

I3 Budget System. The I3 Budget System is a budget preparation system that obtains actual data, maintains current year budget information, provides for entry of department requests and is used to prepare the Governor's budget recommendations. It also includes state core functional areas, mission statements of departments, appropriation descriptions and performance measures. Actual budget information is obtained from the I3 Financial system plus information from 14 other outside systems. This includes the 8 Community Based Corrections facilities, the 5 Regents institutions, and the State Fair Board. The I3 Budget System maintains data at a level to display revenue and object classes. It does not contain detail payments for state vendors or other payees. Instructions and links for updating the I3 Budget System can be found at
http://intranet.iowa.gov/i3/new.html.

Performance Measures. The I3 Budget System provides a link between what Iowa does, how well Iowa does it, and how much it costs. This link between agency performance and budget helps agencies report how dollars are spent and make better decisions about how to allocate resources to achieve results Iowans value. Dollars now directly tie to performance measures developed for each service, product and activity provided by an agency. I/3 Budget now serves as the store of key performance data and provides reporting and analytical tools. As a result, reports can be created to show the resources allocated for services provided, and what value Iowans receive in terms of measurable results.

Collective Bargaining. The State of Iowa negotiates with state employees every two years. The process requires negotiations to be completed by March 15 either through a negotiated settlement or by binding arbitration. This information is provided to the Legislature shortly after negotiations are complete. The Legislature provides an appropriation to the Department of Management to cover the general fund portion of salary increases for state employees. After this has been enacted and prior to the beginning of the fiscal year, the Department of Management distributes these funds based upon projections of salary and benefit changes. The distribution is termed "salary adjustment" and it means the redistribution from the single appropriation to all the departments' appropriations that include salaries.

It should be noted that at certain times during the budget process, this salary adjustment appropriation is included in the Administration and Regulation function and overstates the Administration and Regulation function portion of the budget until the distribution is made.

Year End Report. The State of Iowa's year end financial statements are contained in the Iowa Comprehensive Annual Financial Report prepared by the Department of Administrative Services. See
http://das.sae.iowa.gov/financial_reports/index.html. This report is prepared in accordance with generally accepted accounting principles and audited by the Iowa Auditor of State. It includes information that is recapped based on various governmental groupings of funds.