House File 626 HOUSE FILE BY COMMITTEE ON ECONOMIC GROWTH (SUCCESSOR TO HSB 34) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act revising the requirements for establishing the state 2 general fund expenditure limitation. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 1492HV 80 5 jp/sh/8 PAG LIN 1 1 Section 1. Section 8.54, Code 2003, is amended by adding 1 2 the following new subsection: 1 3 NEW SUBSECTION. 1A. a. For the purposes of this 1 4 subsection, unless the context otherwise requires: 1 5 (1) "Annual inflation factor" means the sum of the annual 1 6 monetary inflation factor and the annual population change 1 7 factor with all of that percent change added to one hundred 1 8 percent. The annual inflation factor shall not be less than 1 9 one hundred percent. 1 10 (2) "Annual monetary inflation factor" means an index, 1 11 expressed as a percentage, determined by the department of 1 12 revenue and finance by October 15 of the calendar year in 1 13 which the fiscal year for which the factor is determined 1 14 ended, which reflects the purchasing power of the dollar as a 1 15 result of inflation during that fiscal year. In determining 1 16 the annual monetary inflation factor, the department of 1 17 revenue and finance shall use the annual percent change, but 1 18 not less than zero percent, in the gross domestic product 1 19 price deflator computed for the second quarter of the calendar 1 20 year by the bureau of economic analysis of the United States 1 21 department of commerce. The annual monetary inflation factor 1 22 shall be expressed as a percentage rounded to the nearest one= 1 23 tenth of one percent. 1 24 (3) "Annual population change factor" means the percentage 1 25 change in the state's annual population estimate for July 1 of 1 26 a calendar year as compared to the state's annual population 1 27 estimate on July 1 of the fiscal year which ended in that 1 28 calendar year. The population estimate used to calculate the 1 29 annual population change factor shall be the estimate issued 1 30 annually in December by the United States bureau of the 1 31 census. 1 32 (4) "Base year appropriation amount" means the amount 1 33 calculated as follows: 1 34 (a) The sum of the amounts appropriated from the general 1 35 fund of the state in each fiscal year of the fiscal period 2 1 beginning July 1, 1997, and ending June 30, 2002. 2 2 (b) Multiplying the sum in subparagraph subdivision (a) by 2 3 the product of the annual inflation factor for each fiscal 2 4 year of the fiscal period beginning July 1, 1997, and ending 2 5 June 30, 2002. 2 6 (c) Dividing the amount calculated in subparagraph 2 7 subdivision (b) by five. 2 8 (5) "Cumulative inflation factor" means the product of the 2 9 annual inflation factor for the fiscal year ending on June 30, 2 10 2003, and all annual inflation factors for subsequent fiscal 2 11 years as determined pursuant to this subsection. 2 12 b. An adjusted base year appropriation amount shall be 2 13 calculated for purposes of determining the state general fund 2 14 expenditure limitation by multiplying the base year 2 15 appropriation amount by the most recently calculated 2 16 cumulative inflation factor. The adjusted base year 2 17 appropriation amount shall be established annually at or about 2 18 the time of the meeting of the revenue estimating conference 2 19 held annually by December 15. 2 20 Sec. 2. Section 8.54, subsection 3, Code 2003, is amended 2 21 to read as follows: 2 22 3. Except as otherwise provided in this section, the state 2 23 general fund expenditure limitation for a fiscal year shall be 2 24ninety=ninethe lesser of the following amounts: 2 25 a. Ninety=nine percent of the adjusted revenue estimate. 2 26 b. The adjusted base year appropriation amount determined 2 27 in accordance with subsection 1A. 2 28 EXPLANATION 2 29 This bill revises the requirements for establishing the 2 30 state general fund expenditure limitation under Code section 2 31 8.54. 2 32 Under current law, the annual expenditure limitation used 2 33 by the governor and general assembly in budget deliberations 2 34 is established based upon 99 percent of the adjusted revenue 2 35 estimate for the succeeding fiscal year. The bill provides 3 1 for calculation of an initial base year appropriation amount 3 2 that is subject to annual adjustment. The bill requires the 3 3 expenditure limitation to be the lesser of either 99 percent 3 4 of the adjusted revenue estimate figure or the adjusted base 3 5 year appropriation amount. The base year appropriation amount 3 6 is defined by the bill as the annual average total 3 7 appropriations from the general fund of the state during the 3 8 five=year fiscal period beginning July 1, 1997, and ending 3 9 June 30, 2002. The base year appropriation amount is subject 3 10 to an annual adjustment inflation factor consisting of the sum 3 11 of an annual monetary inflation factor and an annual 3 12 population change factor. 3 13 The annual monetary inflation factor according to the bill 3 14 is determined by the department of revenue and finance for 3 15 purposes of indexing the state's personal net income tax and 3 16 the population change factor is the percentage change in the 3 17 state's population, based upon estimates issued by the U.S. 3 18 census bureau. The department of revenue and finance's 3 19 inflation factor is equal to the percentage change in the 3 20 gross domestic product implicit price deflator for the fiscal 3 21 year ending in the calendar year plus 100 percent. 3 22 The base year appropriation amount is subject to annual 3 23 adjustment by applying the cumulative inflation factor. The 3 24 cumulative inflation factor is derived as the product of the 3 25 inflation factor for the fiscal year ending June 30, 2003, and 3 26 all annual inflation factors for subsequent years. 3 27 LSB 1492HV 80 3 28 jp/sh/8 3 29