New forecast predicts fewer Iowa state budget cuts

Short-term boost from federal tax cuts won't close entire gap

Members of the state Revenue Estimating Conference (left to right) David Underwood, David Roederer and Holly Lyons discuss the outlook for state tax collections during a meeting Friday at the state Capitol. (Rod Boshart/The Gazette)
Members of the state Revenue Estimating Conference (left to right) David Underwood, David Roederer and Holly Lyons discuss the outlook for state tax collections during a meeting Friday at the state Capitol. (Rod Boshart/The Gazette)

DES MOINES — State revenue predictors Friday boosted Iowa’s tax collections forecasts by $240 million over the next 16 months mostly due to the positive effects of federal tax cuts, but that short-term boost likely won’t erase the need for making spending cuts in the fiscal year that ends June 30.

The three-member Revenue Estimating Conference bumped up the current-year growth estimate it made in December by $33.3 million, to a total of nearly $7.271 billion. But David Roederer, the panel’s chairman and Gov. Kim Reynolds’ budget manager, said the increase was not enough to resolve a projected budget shortfall.

He said the fiscal 2018 budget was about $27 million “short” when the governor laid out her spending plan to lawmakers in January. That spending blueprint already included about $11.2 million in extra revenue from the federal tax cuts, due to Iowa’s federal deductibility feature. So the increased revenue identified Friday would not be enough to balance the ledger and leave a small cushion, he said.

“So it’s going to come down to a question — there still needs to be some reductions in funding and it’s what the comfort level will be for the governor and the Legislature is what the ending balance needs to be for fiscal 2018,” Roederer told reporters after the meeting.

While the revision did not solve Iowa’s shortfall problem, he said the positive adjustment “is better news than if it was $33 million going in the other direction.”

In January, the governor proposed erasing a projected shortfall in the current budget by “de-appropriating” $19.4 million in selective cuts to various budget areas, while also making a $10 million adjustment in Medicaid spending and using revenue from the federal tax windfall to balance the ledger and end the year with a $3.6 million balance.

She proposed plowing any future state gain from the federal tax changes into lower individual state income tax rates, eliminating federal deductibility and simplifying Iowa’s tax system.


Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, issued a statement after the estimate Friday indicating “we have a much clearer picture of what adjustments are truly necessary,” but did not spell out a plan of action.

“We are continuing to see growth in Iowa’s economy, but we need to be cautious with every budget decision we make,” Grassley said in his statement. “With this updated information, we will move forward with the (fiscal 2019) budgeting process using a pragmatic, conservative approach.”

But Rep. Chris Hall, D-Sioux City, ranking member of House Appropriations Committee, said even with the additional revenue, Statehouse Republicans still face a budget crisis after borrowing $144 million from reserves to balance last year’s budget.

“You can’t put lipstick on a pig,” said Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee. “No matter how Statehouse Republicans try to spin it, they still have a giant budget mess on their hands.”

Earlier this week, the governor said she was hopeful Friday’s revised growth estimates could reduce or erase a projected shortfall and the need to cut spending.

“We want to minimize the de-appropriation as much as we can because I want to make sure again that we do it in a manner that has as little disruption as possible,” she said.

At last count, the House and Senate were about $11 million apart on reaching agreement on how much they’ll cut from the current budget.

Senate Republicans started at about $52 million in adjustments, but they pared their de-appropriation bill back to $44 million. The House Appropriations Committee amended Senate File 2117 to cut nearly $33 million from the budget.


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Key Senate Republicans were not available for comment Friday, but Senate Appropriations Chairman Charles Schneider, R-West Des Moines, had said Monday that lawmakers were awaiting the new revisions before proceeding.

For the fiscal 2019 budget that lawmakers will start assembling next week, the panel bumped up its revenue estimate by $206.8 million to a total of $7.734 billion — a 6.4 percent growth that Roederer attributed heavily to the positive effects of federal tax cuts that were expected to bring in an extra $188.3 million.

Overall, the revised fiscal 2019 revenue growth estimate was $462 million higher than expected state tax collections for the current year. Roederer said some of that extra money would be used for spending or get rolled into state income tax cuts being formulated by legislative Republicans and Reynolds.

Along with making revisions to their estimates for fiscal years 2018 and 2019, the panel members set their first projections for fiscal 2020 tax collections at $8.035 billion — an increase of 3.9 percent.

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