When Gov. Terry Branstad unveils his new budget plan to Iowa lawmakers next January, one of the major issues on the table will be what to do with the state’s record $688.1 million budget surplus from fiscal year 2012. The surplus is in addition to the state’s “rainy day” savings funds that have already been filled to the maximum Iowa law allows. It exists mainly because revenue estimates of state income and sales taxes for 2012 were below the amount actually collected. The state is required to have a balanced budget from year to year, but unforeseen surpluses or deficits are allowed to be carried forward to the next fiscal year’s budget, where lawmakers must decide what to do with them.

I believe it would be prudent for lawmakers to take a conservative approach to allocating the surplus. Revenue surpluses depend heavily on factors in the general economic environment that are outside the control of state lawmakers. A surplus this year does not guarantee a surplus next year, so any excess revenue should be considered one-time money. Iowa law might allow these surpluses to be carried forward and spent however legislators deem worthy, but sound budgeting principles should dictate that one-time money not be used to fund recurring expenditures.

There are plenty of one-time expenditures that would be good ways to allocate this surplus. These include a partial return to taxpayers, infrastructure improvements, an additional reserve fund in the event that impending federal budget problems lead to decreased state funding, or an infusion of cash into IPERS, which currently is facing a $6 billion shortfall. 

Legislators would be wise to focus on one of these options instead of one that will require perpetual expenditures, which could lead to the state facing a deficit situation in future years.