Forecasters reduce state revenue projection

DES MOINES - Cautious state revenue estimators scaled back the year's growth estimate of tax collections by $121 million Tuesday. They cited declining farm income and flat sales activity among Iowa consumers as cause for at least short-term concern amid economic turbulence.

The three-member Revenue Estimating Conference reduced its March estimate of $7.175 billion for the fiscal year that runs through June 30 to $7.054 billion. It's a level that still reflects 3.4 percent yearly growth but is less optimistic than six months ago.

'The message I don't want to send is that the sky is falling, because it's not falling,” said REC member Holly Lyons of the Legislative Services Agency.

State tax receipts still are expected to grow by $235 million during the current 12-month budgeting cycle.

REC chairman David Roederer called Iowa's financial sky 'partly cloudy,” given uncertainty over how sluggish farm prices could 'ripple” through the economy, coupled with growing turmoil in China and the Middle East that could influence export markets.

'We need to be expressing caution,” Roederer said.

REC member David Underwood of Mason City expressed concern about the global economic slowdown and a low inflation rate that is holding down wage growth. On the upside, he said the 2016 presidential race probably will mean TV and radio stations in Iowa 'are going to have a banner year” in political advertising.

Panel members noted they are making projections based upon three months of data that looked good until September. The data gauged growth rates of 3.4 percent this year and a 4.2 percent boost in tax collections for fiscal 2017 that would generate revenue approaching $7.35 billion.

'The Iowa economy seems to have hit a bit of turbulence in the form of declining farm income and flat growth in sales tax revenue,” Lyons said. 'Using an analogy - on a jet, when you experience turbulence in midflight, a pilot sometimes lowers altitude or, in this case, lowers the growth estimates for the near term until you can get a handle on the situation and find smoother air.”

Roederer, who is director of the state Department of Management and Gov. Terry Branstad's top budget official, said it is too early to say how slowing tax collections might affect the state's budget, but he doubts spending would have to be cut. He based that on a state surplus of more than $300 million above emergency reserves that could absorb a continued downtown. He said the slowdown bolsters the governor's decision to veto one-time spending by lawmakers who cited concerns over slumping farm income.

The REC meets again in December to consider revisions to its estimates. Those predictions will serve as the official revenue numbers that next year's split-control Legislature use for budgeting purposes when crafting the state's fiscal 2017 budget.