Forecasters bump Iowa tax revenue estimates

But some uncertainty about financial 'cliff' facing federal government

State revenue forecasters Thursday issued a bullish outlook for tax collections through June 2014, but said they would feel better about their growth estimates if they could predict the weather and how Congress will deal with the approaching financial “cliff” facing the federal government.

The three-member Revenue Estimating Conference said Iowa’s economy outperformed expectations for fiscal 2012, and that trend has continued into the first quarter of the current fiscal year, prompting the panel to boost the growth estimate for fiscal 2013 by $171.4 million over last year’s $6.311 billion total. REC members expected receipts to grow by 3.7 percent in fiscal 2014 – a $241.1 million increase that brought the overall projected growth in state tax collections through June 2014 to $412.5 million over last fiscal year.

However, REC chairman David Roederer, who also serves as Gov. Terry Branstad’s director of the state Department of Management, sounded “a cautionary note” that the numbers could fluctuate significantly in coming months depending how federal officials resolve tax and spending issues that will confront them after the November election and whether Iowa’s current drought cycle continues into next year’s growing season.

“Those are big question marks,” he said.

REC member Holly Lyons of the Legislative Services Agency called the new revenue projections “reasonable” given some positive signs in the housing market and other sectors of Iowa’s economy, but she said conditions could change in 2013 depending on the outcome of a number of unknown factors.

REC member David Underwood of Mason City said growth in manufacturing has been impacted by the lack of available skilled workers and he expected the farm sector would continue to show growth but not as strong as prior years due to hot and dry weather – factors that create uncertainty in the economic outlook. He also said the Iowa revenue numbers could experience a $300 million swing depending on how Congress and the president address federal debt and deficit challenges – but the panel adopted estimates that likely reflected a worst-case scenario when factoring the potential consequences of Iowa’s federal deductibility law.

The REC will meet again in December to finalize revenue estimates that will become the basis for state budgeting during the 2013 legislative session.

Some state agencies already have forwarded double-digit spending requests for fiscal 2014 but Roederer did not expect a spending spree when the governor presents his two-year state budget plan to the Legislature in January.

“Don’t count on it,” Roederer told reporters. “Government is still growing at a faster pace than our population is. We believe that this does not relieve the pressure on doing what we need to do to make sure that we can become as efficient as we possibly can. I can assure you that people’s wants and desires will always exceed the amount of revenue available.”

If anything, Roederer said the numbers indicate the state may be collecting more taxes than are needed and reductions may be in order for state income and sales taxes.

“I think it’s fair to say that when the economy outperforms what budgets were based on that a legitimate argument should be that money should go back to the taxpayers. Those are issues that are going to have to be dealt with as we move forward,” he said

Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, issued a statement after the REC revised its projections upward indicating that the rebounding Iowa economy could provide a path to balance the next state budget “without gutting education and job creation efforts.”

“Today’s report of rising state revenues is another sign that Iowa’s response to the national recession is working,” Dvorsky said. “As we begin planning for the next state budget, we hope that Gov. Branstad and Republican legislators will join our efforts to balance the state budget without raising taxes and without gutting education and job creation efforts. That’s the only way that middle-class Iowa families and Main Street businesses will benefit from a lasting recovery.”

House Speaker Kraig Paulsen, R-Hiawatha, said House Republicans will work to ensure the state does not spend more than it takes in during the upcoming budgeting cycle, adding that “any additional revenue that isn’t needed to balance the budget or fill the reserve funds should not be spent.  It should be returned to the taxpayers.”

The REC revised numbers projected state net tax receipts to grow by 3 percent in the current fiscal year over the $6.165 million collected in fiscal 2012. The new fiscal 2014 estimated for net tax collections was set at more than $6.626 billion.



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