WATERLOO -- As a national financial crisis deepens and threatens the state, Republicans and Democrats acknowledge some tough budget decisions loom.

"I can't say this enough: We're going to reach a point where we're going to have to reduce spending, increase taxes or tap the (reserve fund)," said Rep. Tami Wiencek, R-Waterloo.

The realities of those unpleasant options are central to Republicans' efforts to wrest control of the Legislature away from Democrats. House and Senate races in Waterloo and Cedar Falls are no exception.

Walt Rogers, challenger in Iowa Senate District 10, has criticized incumbent Sen. Jeff Danielson, D-Cedar Falls, and his fellow Democrats for increasing spending 13 percent the last two years.

"If the state of Iowa wants to avoid financial trouble down the road, it's time to rein in irresponsible spending, but the current legislature shows no interest in doing that," Rogers said.

Republican Carlin Hageman, who is challenging Bob Kressig, D-Cedar Falls, in House District 19, said he is concerned Democrats did not adequately prepare for the possibility of a recession, which could impact funding for education and flood recovery.

Democrats argue the criticisms are overblown.

Their party balanced the state budget and deposited record amounts in the state reserve fund, they say, while controlling college tuition costs, expanding health care access for children and investing in the state's bioeconomy.

They also point to Standard and Poor's, an independent credit rating agency, which recently increased Iowa's standing to its highest level.

In doing so, the agency praised the state for accomplishing the very things Republicans say Democrats failed to do. It lauded the state's good fiscal management, willingness to restrain spending, strong reserves, good income levels and low debt burden.

"This idea that we're spending wildly in Des Moines -- let's just look at an independent group, Standard and Poor's. Really what that is saying is the state's in good financial, fiscal shape," Kressig said.

Critics contend numbers don't lie: The state's spending this fiscal year exceeds its revenues by about $370 million.

Iowa is not alone. It is one of 29 states facing more than $48 billion in combined shortfalls, according to a report released Monday by the Center on Budget and Policy Priorities.

State laws, however, help mitigate the financial pain. Every year the Legislature must balance the budget and cannot spend more than 99 percent of projected revenues.

Republicans across the state regularly cite two reports, one from the state auditor and one from the Iowa Taxpayers Association, which note the budget shortfall. The reports also criticize the Legislature for balancing the budget by borrowing from funds allocated for specific needs, like housing assistance for seniors.

Wiencek acknowledges both parties use accounting tricks to balance the budget but argues Democrats stumbled most in spending beyond the state's means.

The last two years the budget has increased by about $750 million. Wiencek said it took about eight years to surpass that spending number when Republicans controlled the Legislature and Gov. Tom Vilsack, a Democrat, held office.

"There is a huge difference between having a Democratic governor and Republican legislature and the trifecta," she said, referring to Democratic control of the House, Senate and governor's mansion.

Danielson, however, said the state is in relatively good shape to deal with economic hardship because of strong reserves. The state should weather any financial downturn by making mid-year adjustments to the budget, he said.

"We do have growth, but it is slowing, so we need to be careful going forward," he said.

A panel of state budget experts predicted on Thursday that revenues will fall short of original projections because of the credit crisis on Wall Street.

Yet the news was not all bad. The state should still see a modest boost in revenue, the panel said. It cautioned it is too early to tell the full impact of the national financial crisis.

Gov. Chet Culver, a Democrat, has already ordered the budgets of the state's executive agencies to remain the same next year without any growth.

Courier Des Moines Bureau reporter Fred Love contributed to this report.

Contact Jens Manuel Krogstad at (319) 291-1580 or jens.krogstad@wcfcourier.com.