Reynolds says she followed law in tapping emergency funds | Charlotte Observer

Gov. Kim Reynolds on Thursday defended her decision to tap an emergency fund to balance the state budget last year, arguing she followed the law despite a lawsuit challenging that assertion.

Reynolds answered "yes" to reporters when asked if she followed the law as written in transferring $13 million from the fund. The move allowed Reynolds to avoid calling lawmakers back for a special session.

Reynolds did not elaborate on her assessment but added: "I feel that we operated within the intent of the law."

The issue is at the heart of a lawsuit recently filed by Rep. Chris Hall, a Sioux City Democrat who claims the Republican governor and her budget aide illegally transferred the money because certain financial conditions weren't met. Hall's lawsuit contends the detail ensures the fund is tapped in true economic emergencies and not because of what the lawsuit described as fiscal mismanagement.

State Treasurer Michael Fitzgerald, also a Democrat, warned Reynolds in September the fund transfer could lead to a court challenge.

Reynolds, who called the lawsuit politically motivated, argued the issue should be resolved through legislative action that addresses an outdated reference to when a key panel meets to talk about the budget.

"The statute is outdated and the Legislature has the opportunity to come in and update it," she said. "And I would think that that's what they would want to do instead of filing a costly lawsuit."

House Speaker Linda Upmeyer, a Clear Lake Republican, said earlier Thursday she was open to changing the law. She appeared at odds with Reynolds but also supportive of her action.

"I do believe that Gov. Reynolds was entirely complying with the spirit of the law ... it was not, perhaps, the letter of the law. So we will be happy to change that," Upmeyer said.

Reynolds and Upmeyer spoke at a legislative forum at the state Capitol hosted by The Associated Press. Iowa Republicans, who control the statehouse, used the annual event to highlight their interest in passing a tax overhaul plan when lawmakers convene Monday for the next legislative session.

Republicans did not offer specifics, such as how they planned to push tax legislation despite a constrained budget. Lawmakers are expected to soon address a $37 million shortfall in the current budget of roughly $7.2 billion. They face another possible shortfall for the state budget that goes into effect in July, though officials are reviewing how a new federal tax law will impact finances.

Senate Majority Leader Bill Dix, a Shell Rock Republican, said his focus is a rate reduction but he's open to simplification. He didn't offer information to explain his interest "to make our state more competitive" but he highlighted Iowa's decision in the late 90s to cut income taxes.

Democratic Senate Minority Leader Janet Petersen of Des Moines said her party is open to discussing an update to the tax code but one that's fair. She said a tax plan implemented in Kansas in 2013 hurt that state's incoming revenue in a way that reduced services.

"Iowans don't want to be the next Kansas," she said.

Reynolds, who was sworn in last May, is preparing to preside over her first legislative session as governor. She plans to provide more details on a tax plan during her Condition of the State address on Tuesday. She's also expected to address expanding workforce training opportunities, an issue she called a priority.

The former lieutenant governor is finishing the final term of Gov. Terry Branstad, who stepped down to be U.S. ambassador to China. Reynolds is seeking her own four-year term in this year's gubernatorial election.