More cuts to Iowa state budget likely

DES MOINES - Gov. Kim Reynolds and legislators likely are going to have to consider midyear budget cuts ranging from $50 to $90 million after a state panel Monday left its current budget growth projections unchanged and slightly lowered the expectations for fiscal 2019.

The three-member state Revenue Estimating Conference decided to keep its fiscal 2018 revenue growth projection at 2.4 percent, or slightly more than $7.128 billion, through June 30.

But it lowered the fiscal 2019 growth estimate by $9.3 million to nearly $7.416 billion - figures that by law become the numbers the governor and Iowa Legislature must use for budgeting purposes in the upcoming legislative session.

'Iowa revenues, while still growing, are disappointing for the first five months of the fiscal year,” said panel member Holly Lyons of the nonpartisan Legislative Services Agency. 'There is nothing, however, to indicate that the revenue growth will turn negative but growth is very slow, slower than the revenue estimating conference forecast last October. Most Iowa economic indicators would suggest slow but steady growth.”

While unchanged from October, the revenue estimate spelled some bad news because the projection then was scaled back by $133 million, which could portend cuts or more borrowing from the state's cash reserves.

'Some midyear adjustments will be required yet this fiscal year,” said David Roederer, a panel member who also directs the state Department of Management and is Reynolds' budget director. 'Even before October, we were saying (to state agency heads) you need to be prepared. So it's not like this is catching anybody by surprise.”

This would be the second year in a row that Reynolds and the Legislature have had to make adjustments because of slower-than-expected revenue growth. For fiscal 2017, lawmakers made nearly $118 million in cuts and transfers and borrowed $131 million from reserves - a figure that increased to $144 million when Reynolds learned she needed more when the 2017 fiscal books were closed.

Conference members said Iowa's economy continues to grow, but Iowans' personal incomes and wages are not increasing as rapidly as projected. At the same time, sluggish farm prices continue to pose challenges and manufacturers are constrained by a lack of skilled workers to fill vacant positions. Added to that is uncertainty over federal tax changes and trade agreements that impact the state's finances.

'We're very firmly on the side of ‘we're not sure what's going to happen,'” Roederer said in concluding his analysis.

The revenue projections form the backdrop for new budget discussions for Reynolds, majority Republicans and minority Democrats when the Legislature convenes Jan. 8.

'Agriculture plays a large part in our economy and when corn is selling for $3 per bushel, it's going to have a significant effect on the budget like we're seeing now. This is not unique to Iowa, and many surrounding states are dealing with this challenge as well,” said Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee.

'While revenue estimates can be unpredictable, House Republicans are not,” Grassley added. 'We will continue to live within our means and pass a responsible budget that funds Iowans' priorities.”

For their part, legislative Democrats said they were willing to work in a bipartisan manner to make a 'midcourse correction” that would invest in job-creation initiatives by paring back some tax credits.

'The state budget has become an embarrassment to all Iowans, regardless of their political beliefs,” said Rep. Chris Hall, D-Sioux City, ranking member of House Appropriations Committee. 'Paychecks and family income are stagnant. Iowa now ranks dead last in the country for economic growth and the next legislative session will be spent paying off $144 million of debt.”

Reynolds' office countered the Democratic criticism by issuing a statement noting that Iowa was named the third best-run state in the nation, according to a financial analysis issued Monday that cited Iowa's 17-year low unemployment rate, the strength of the state's pension fund, its AAA credit rating, and its low poverty rate.

l Comments: (515) 243-7220; rod.boshart@thegazette.com