DES MOINES — The fiscal 2019 budgeting cycle will be “tough,” but Gov. Kim Reynolds said Monday she believes there still would be room for reducing Iowa’s income taxes if Congress does so for federal taxes.

Reynolds has begun the process of assembling her first state budget blueprint since succeeding former Gov. Terry Branstad last May, conducting hearings with executive-branch agency leaders that will run into early December.

Executive-branch agencies are seeking about $7.306 billion in the next fiscal year, about a 3.4 percent increase over the current year level of $7.067 billion.

The state Revenue Estimating Conference set a preliminary growth estimate in October of fiscal 2019 tax collections at $7.425 billion. But the panel meets again Dec. 11 to finalize the official revenue level available for budgeting by the governor and Legislature next session.

Most of the agency directors who met Monday with the governor made status-quo requests for the next fiscal year, which begins July 1, 2018. But big-ticket asks are expected for human services and Medicaid spending, and Reynolds also plans to repay $111 million in fiscal 2019 that was borrowed from the cash reserve to balance last year’s ledger.

In addition, K-12 education is among Reynolds’ priorities, with each percentage increase costing slightly more than $40 million, according to projections by the nonpartisan Legislative Services Agency.

“We’re anticipating another tough budget year so we want them going into the next budgeting cycle being conscientious of what the environment looks like today,” said Reynolds.

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Changes to Iowa’s collective bargaining law should give agencies more flexibility in managing their spending going forward, she said.

Reynolds said her administration is closely monitoring state tax collections as well as progress by the Republicans who control Congress and the White House in pulling together a federal tax overhaul package.

That package could affect the state’s fiscal position, given that Iowans can deduct their federal tax liabilities from their state income taxes.

Lower federal taxes would reduce the amount that Iowans could deduct on their Iowa returns, providing a windfall to the state budget.

Reynolds said easing Iowans’ tax burden is a key element of her priorities to create a competitive business environment, boost workplace skills for the future, educate students for a knowledge economy, pursue energy innovations that keep down business costs and expand broadband throughout Iowa.

“We’re monitoring the revenue, we’re seeing what that looks like. But I think (tax reform) is really the next step that we need to take to make Iowa competitive and so it’s my intent to continue to take a look at that,” she told reporters. “There are still a lot of variables out there that we are watching.”

During her budget presentation, Chris Kramer, acting director of the state Department of Cultural Affairs, said building and sustaining culturally viable communities has become an important element in creating a competitive business climate.

“Employers tell us that this is critical as they attract workers to jobs located in our small towns and our larger cities, and now more than ever employees weigh arts, culture and quality of life in their career decisions,” Kramer said. “We must continue to invest in order to keep our talent.”

Katherine Averill, superintendent of the Iowa Division of Credit Unions, said her agency needs an extra $255,000 to upgrade technology to protect a database of highly sensitive information from cyberattack.

“The likelihood of breach is present in this current state,” she said in promoting a three-year upgrading project.

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