Controlling State Government Spending

States that have lower tax rates and keep lower spending levels often see greater economic growth and more stable revenues.

Government spending is a concern to many Iowans. Individuals, families, and businesses across Iowa all follow a budget that is not guaranteed to increase every year, yet Iowa’s budget continues to grow.  Iowa’s state budget is $7.3 billion and even with the budget increasing every year the demands on government continue to grow. The question the legislature needs to ask is how can the state meet priorities, raise enough revenue, while at the same time spend tax dollars wisely. The answer to this question rests in following a policy blueprint that lowers tax rates, keeps spending levels low, and establishes the priorities of government.

The legislature should follow priority-based budgeting, which defines the most important objectives of state government. In determining the priorities of the state budget legislators must address these questions:

  1. What is the role of government?
  2. What are the essential services government must provide to fulfill its purpose?
  3. How will we know if government is doing a good job?
  4. What should all of this cost?
  5. When cuts must be made, how will they be properly prioritized?

The first priority of any government is to provide for the common defense and safety of the citizenry and upholding liberty. In Article 1, the Iowa Constitution provides that government is “instituted for the protection, security, and benefit of the people…” The Iowa Constitution mandates that the state protect the natural rights of all Iowans, which “include enjoying and defending life and liberty, acquiring, possessing and protecting property, and pursuing and obtaining safety and happiness.” This is the main priority for state government.

Nevertheless, there will be disagreements on what should be the additional priorities of the government. Progressives and liberals argue that public education, health care, and numerous other programs are grossly underfunded and need more taxpayer dollars. Voices from the left have called for universal state-single single payer health care in Iowa. Even in the last legislative session some Republicans demanded state spending grow 4 percent annually before they would support reducing individual income tax rates.

When taxpayers hear policymakers demanded more spending or new programs they should ask where the money will come from within the budget or what taxes will be raised to finance new spending? As an example, education is and should be a priority of the legislature, but this does not mean that structural reforms cannot be made to improve educational outcomes in Iowa.

The majority of Iowa’s budget is spent on education and Medicaid.

For Fiscal Year 2017, 56.2 percent of Iowa’s budget was dedicated to funding public education, while 24.7 percent was appropriated for health and human services. Iowa’s Medicaid population continues to increase, which will provide further stress on the state budget. In addition, during the last legislative session legislative leaders stated that both education and Medicaid were “off limits” — meaning that these programs would not be subject to any budget cuts.

Iowa is required to balance its budget every fiscal year and state code dictates that the legislature can only spend 99 percent of the revenues. This means that the legislature must make some difficult decisions when it comes to budgeting, because the state cannot rely on deficit spending. Many states have utilized priority-based budgeting to not only resolve fiscal crisis, but also to respect taxpayer’s dollars. The state of Washington utilized priority-based budgeting to resolve a $2.4 billion budget deficit without raising taxes. Governor Matt Bevin in attempting to restore fiscal stability in Kentucky is currently advocating priority-based budgeting and “his budget calls for a 6.25 percent spending reduction by eliminating 70 government programs and slicing administrative and overhead costs.”

Iowa should embrace priority-based budgeting. As the demands for more government spending increases, Iowa must learn that states with high levels of government spending and taxes do more harm because they destroy economic growth. Illinois, Connecticut, among others prove that raising taxes to provide for more government spending is bad public policy. A hard lesson for many policymakers to learn is that the more you tax something, the less you will get. States that have lower tax rates and keep lower spending levels often see greater economic growth and more stable revenues.

By following priority-based budgeting, Iowa will have an opportunity to not only review the state budget, but also eliminate state programs that are either wasteful or better served by the private sector. Policymakers in Iowa will also have to consider structural reforms to many state programs, especially education and Medicaid. Priority-based budgeting, along with lowering tax rates and controlling spending will provide for a more stable and healthy budget for all Iowans.

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