Iowa governor's budget transfer was illegal, lawsuit claims

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  • FILE - In this May 25, 2017, file photo, Iowa Gov. Kim Reynolds speaks during a news conference at the Statehouse in Des Moines, Iowa. State Rep. Chris Hall, D-Sioux City, filed a lawsuit Tuesday, Jan. 2, 2018, against Reynolds and Department of Management director Dave Roederer alleging they broke the law when they transferred $13 million from a reserve fund to balance the state budget. (AP Photo/Charlie Neibergall, File)

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    FILE - In this Jan. 9, 2013, file photo, Iowa Department of Management director David Roederer speaks during a legislative seminar at the Statehouse in Des Moines, Iowa. State Rep. Chris Hall, D-Sioux City, filed a lawsuit Tuesday, Jan. 2, 2018, against Roederer and Republican Gov. Kim Reynolds alleging they broke the law when they transferred $13 million from a reserve fund to balance the state budget. (AP Photo/Charlie Neibergall, File)

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    FILE - In this Feb. 8, 2017, file photo, Iowa State Rep. Chris Hall, D-Sioux City, poses for a photo at the Statehouse in Des Moines, Iowa. Hall filed a lawsuit Tuesday, Jan. 2, 2018, against Republican Gov. Kim Reynolds and Department of Management director Dave Roederer alleging they broke the law when they transferred $13 million from a reserve fund to balance the state budget. (AP Photo/Charlie Neibergall, File)

  • FILE - In this May 25, 2017, file photo, Iowa Gov. Kim Reynolds speaks during a news conference at the Statehouse in Des Moines, Iowa. State Rep. Chris Hall, D-Sioux City, filed a lawsuit Tuesday, Jan. 2, 2018, against Reynolds and Department of Management director Dave Roederer alleging they broke the law when they transferred $13 million from a reserve fund to balance the state budget. (AP Photo/Charlie Neibergall, File)

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    FILE - In this Jan. 9, 2013, file photo, Iowa Department of Management director David Roederer speaks during a legislative seminar at the Statehouse in Des Moines, Iowa. State Rep. Chris Hall, D-Sioux City, filed a lawsuit Tuesday, Jan. 2, 2018, against Roederer and Republican Gov. Kim Reynolds alleging they broke the law when they transferred $13 million from a reserve fund to balance the state budget. (AP Photo/Charlie Neibergall, File)

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    FILE - In this Feb. 8, 2017, file photo, Iowa State Rep. Chris Hall, D-Sioux City, poses for a photo at the Statehouse in Des Moines, Iowa. Hall filed a lawsuit Tuesday, Jan. 2, 2018, against Republican Gov. Kim Reynolds and Department of Management director Dave Roederer alleging they broke the law when they transferred $13 million from a reserve fund to balance the state budget. (AP Photo/Charlie Neibergall, File)

IOWA CITY, Iowa (AP) Republican Gov. Kim Reynolds and a top aide broke the law when they transferred $13 million from a reserve fund to balance the budget, a Democratic lawmaker argues in a lawsuit filed Tuesday.

The lawsuit was filed against Reynolds and Department of Management director Dave Roederer by Rep. Chris Hall of Sioux City, ranking member on the House Appropriations committee.

It asks a court to declare that Reynolds' proclamation ordering the fund transfer in September was illegal and to void "all actions" taken as a result. The lawsuit notes that Reynolds and Roederer could be "liable to the state for $13 million together with interest" if a jury agrees that the transfer was a misuse of appropriations but stops short of asking for that result.

Reynolds' press secretary Brenna Smith said the governor's office is reviewing the lawsuit, which she called politically motivated.

At issue is whether the administration acted legally in September when transferring $13 million from the State Economic Emergency Fund, which was created to cushion the blow of fiscal downturns on core services. The case could be a headache for Reynolds, who succeeded Terry Branstad last May, as she runs for her own four-year term in this year's elections, although its merits might not be decided until 2019 or beyond.

State law allows governors to transfer up to $50 million from the fund when certain conditions are met, including that annual general fund revenue collections be at least 0.5 percent less than estimated by the state's revenue-estimating panel during the third quarter of the year. The $7.1 billion collected for the general fund in fiscal year 2017 was only 0.15 percent or $11 million lower than the panel's March 2017 estimate, not enough to trigger the governor's transfer authority, the lawsuit claims.

State Treasurer Michael Fitzgerald, a Democrat, had warned Reynolds in September that the transfer would be illegal on that basis and could invite legal action.

Reynolds dismissed that interpretation of the law, accusing Fitzgerald of playing "gotcha" politics.

Her aides have argued the governor's transfer authority was triggered when the March 2017 estimate came in 1.5 percent lower than the estimate at its prior meeting in December 2016. They note that the panel no longer meets quarterly, as it did when the emergency fund was created in 2004. Smith said lawmakers are "free to change the outdated transfer statute and we'd encourage them to do so."

Hall's lawsuit argues that, based on the current language of the law, "there is no meaningful dispute" that the conditions to allow the transfer weren't met. That's important because the requirements were intended to distinguish between "shortfalls that are the product of true economic emergencies from those that are the foreseeable result of years of fiscal mismanagement," the lawsuit says.

Hall said he filed the lawsuit "only after significant thought and consideration," calling the case an effort to protect taxpayers and hold the executive branch accountable.

Reynolds ordered the transfer after her administration said the 2017 budget had a $14.6 million shortfall.

Legislative analysts in July had put the shortfall much higher, at $100 million, and some lawmakers believed Reynolds would have to call them back to a special session to fill the hole. But Reynolds and Roederer said that step was unnecessary because the budget ended in far better shape once late tax payments and adjustments were counted and she could make the transfer to cover the remaining deficit.

Democrats have expressed skepticism about the administration's accounting, and the lawsuit gives them the opportunity to learn from officials under oath about how the budget gap shrank. The lawsuit alleges that Reynolds wanted to avoid a special session because it would have drawn "attention to her inability to adequately manage the state's fiscal affairs."

 

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