Panel bumps Iowa's tax revenue forecast

State revenue forecasters issued a cautiously optimistic outlook Monday that state tax collections will grow rather than decline this fiscal year.

Three members of the state Revenue Estimating Conference revised their projection for growth in state revenue upward by $297.7 million. They said they believe the Iowa economy is recovering and that in turn will mean the state will see tax receipts grow by 2.2 percent through June 30, not decline by 3.1 percent as they previously believed last March.

Gov. Chet Culver and Democrats who control the Legislature hailed the improved revenue estimates as a positive sign, while Republicans hoping to return to power said it's a sign that government is doing better but not the 114,000 Iowans still unemployed due to a lingering, job-zapping national recession.

“I have been committed to keeping our fiscal house in order, creating good jobs for Iowans, and continuing our sound fiscal management. That approach has prepared us for tough times, and today's report demonstrates that,” Culver said in a statement following the REC quarterly meeting. “Though unemployment remains too high, these revenue figures point to a sustained recovery in which jobs should be following right behind.”

Jeff Boeyink, manager of former Republican Gov. Terry Branstad's 2010 campaign, said the revised numbers held little comfort for Iowans mired in a jobless recovery, while House GOP Leader Kraig Paulsen of Hiawatha lamented the number translate into more money for government and less for taxpayers and Senate GOP Leader Paul McKinley of Chariton said a rosier outlook “is maybe shining a little bit brighter on the great golden dome but there is little of that reflection reaching Main Street.”

The improved outlook means the state budget could end the current fiscal year with a $480 million cushion, and a modest improvement for fiscal 2012 could ease pressures in crafting a new budget next legislative session, although state officials still concede they face a significant challenge going forward. Overall, the panel raised the fiscal 2011 net receipts expectations from $5.46 billion set in March to $5.758 billion – a move from a 3.1 percent decline to a 2.2 percent growth projection – and set the fiscal 2012 revenue projection 3.3 percent higher at $5.946 billion.

“These are positive numbers and we're headed in the right direction,” said Dick Oshlo, director of the state Department of Management and chairman of the three-member state Revenue Estimating Conference, which voted to raise the projections for tax collections from $5.381 billion to nearly $5.677 billion for the current fiscal year and to $5.88 billion in fiscal 2012.

“There are certain segments of the economy that are still sluggish coming out of the deep recession,” Oshlo added. “This should be taken as a good sign. We're headed in the right direction. We're not going backwards. We're improving.”

REC member Holly Lyons of the Legislative Services Agency said her cautious optimism was tempered by the fact that employment and wages continue to lag in Iowa. With tax collections heavily dependent on personal income and sales tax increases for growth, she said the recovery could take some time.

“Until the state experiences job growth, the revenues are going to be slow to recover,” she said. “So the climb back to the previous levels -- prior to the recession -- are going to take a long time. We're talking potentially years, not months.”

The bottom-line result of Monday's unanimous action was to increase the projected growth in state revenue for the current year of $297.7 million. Also, the preliminary growth estimate for fiscal 2012 represented an increase of $188.3 million, but that number will be revisited at the December REC meeting when the panel locks in a forecast that will become the basis for the governor and Legislature to craft a new state budget.

House Speaker Pat Murphy, D-Dubuque, and House Majority Leader Kevin McCarthy, D-Des Moines, said the improved numbers signal that Iowa's economy has begun a strong recovery.

“We made tough choices last year to keep the state budget balanced without raising taxes and focused on small businesses and renewable energy to help grow a stronger economy. It's clear our efforts are having an impact,” the top House Democrats said in a joint statement. “We know many families are still struggling today and that's why we'll keep focused on creating good-paying jobs and growing our economy."

Rep. Scott Raecker, R-Urbandale, the ranking Republican on the House Appropriations Committee, said Monday's revised numbers were “better news than we had,” but he said the next General Assembly still will face a significant challenge given the level of one-time money that was used to construct this year's spending plan and continued uncertainty over the economy and the future of federal tax cuts policy – which could create a $200 million problem for the state budget because Iowans are allowed to deduct their federal tax liability on their state income tax returns.

The state still faces a significant budget gap for fiscal 2012, Raecker added. “After the election, there are serious issues we need to focus on.”

REC member David Underwood of Mason City said first quarter growth in state revenue was “a little big of happy news,” but he noted there remains a “tremendous amount of uncertainty” in the national economic forecasts that still cloud the future outlook.

“I'm going to remain a little bit cautious yet, but certainly a little bit more optimistic than where we were,” he said.

Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, said Monday's report of rising state revenues was another sign that the legislative response to the national recession is working.

“This is more proof that our economy is starting to improve and that we have laid the foundation for a lasting recovery,” Dvorsky said. “In the face of a lingering national recession, we cut almost $200 million from the state budget during the 2010 session by streamlining and downsizing state government and focusing on job creation and long-term growth. Today's improved projections are another sign that we were on the right track.”

Dvorsky said the improved outlook followed recent news that the state ended fiscal 2010 with an ending balance and cash reserves that totaled $754.6 million.