Revenue update sets stage for budget deal

DES MOINES - Iowa's slow, 'lackluster” revenue growth should send a cautionary signal to state budget-makers, experts said Wednesday in testimony before the Legislature.

Tax collection numbers show, however, that there could be room to increase funding in some priority areas as lawmakers negotiate a spending deal.

The three-member state Revenue Estimating Conference on Wednesday left its 3.3 percent growth estimate unchanged for the current fiscal year at almost $7.05 billion. It did, however, bump up its fiscal 2017 estimate by about $30 million to 4.4 percent growth and projected a fiscal 2018 revenue increase at 4.1 percent.

'Iowa's current economy is a little lackluster,” said REC member Holly Lyons of the Legislative Services Agency.

'We're not experiencing ‘no growth' or, worse yet, negative growth, but we are experiencing slow growth,” she added. 'It's like when you're walking against a stiff Iowa wind in the springtime. The wind may blow you back, and it may be a little off course, but you still move forward and reach your destination.”

For leaders of the split-control Legislature, that destination is agreeing to a spending level for fiscal 2017 that fits within the $7.36 billion in taxes the state is projected to collect for the 12-month period that begins July 1. According to the REC, next fiscal year's 4.4 percent rise in revenues equates to $311.8 million.

'These updated estimates should finally put an end to the cries of ‘the sky is falling' on the Iowa economy,' ” Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, said in a statement. 'As we have done for many years, we will responsibly balance the state budget without raising taxes.”

Iowa's has a spending limitations law and a surplus of one-time money beyond its cash and emergency reserves that factor into the fiscal 2017 budget plan being assembled by legislators and Gov. Terry Branstad. But leaders say their agreement on a tax-policy package this week paves the way for them to decide by next week how much state aid to provide K-12 schools and other spending targets within an overall fiscal 2017 budget plan.

'I don't know if we'll finalize it this week, but I think very likely we'll finalize it over the next one,” said Senate Majority Leader Mike Gronstal, D-Council Bluffs.

'Today's REC estimate confirms House Republicans' responsible approach to the state budget,” Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, said in a statement. 'The REC has recognized that Iowa is experiencing slow and steady revenue growth, and that a realistic approach to government spending is a wise path to follow.”

REC chairman David Roederer, who also directs the state Department of Management, said uncertainty in global and domestic economic conditions should create caution for legislators heading into the crux of state government's budget-making process.

'We need to be careful. We need to be extra cautious because we don't know whether or not we've bottomed out,” Roederer said after the REC meeting. 'We're increasing this at a slow rate. We need to be looking long term and making sure that we don't overspend.”

Lyons noted that Iowa recovered from the 2009 recession with several years of excellent growth but has seen the outlook weaken because of depressed oil-related investment, a glut of business inventories and a strong U.S. dollar. That has created a drag on global trade, negatively affecting Iowa's manufacturing and farm sectors.

Low unemployment, growth in wages and increased consumer spending have been bright spots in Iowa, panel members said, but they worried that sales tax growth might be hampered by expanding online sales that avoid state taxation.

REC member David Underwood, a retired business executive from Mason City, said Iowa still has positive drivers that are offsetting weaknesses in the U.S. economy.

'In Iowa, we're very lucky in that we're not on the list of those states that are in recession or teetering on the brink,” Underwood said.