Iowa panel predicts slight drop in state revenue

DES MOINES — Iowa’s estimated revenue for the current budget year improved slightly from December, but still is expected to be below last year as 2022 tax cuts take effect, according to the state’s Revenue Estimating Conference.

And in fiscal 2024, which begins July 1, revenues are expected to be about 1 percent below 2023, the panel said.

The Revenue Estimating Conference, a panel that meets every quarter to project state revenues, released the updated figures Friday. Iowa lawmakers will soon begin crafting the budget for the next fiscal year, using projections from the panel.

The panel estimated Iowa’s net revenue for fiscal 2023 will be around $9.75 billion, a 0.5 percent drop from $9.8 billion in 2022. But it’s an increase from the $9.62 billion the group estimated in December.

The year-over-year reduction was expected as tax cuts passed by Republicans in 2022, especially the elimination of the tax on retirement income, take effect. But Kraig Paulsen, director of the Iowa Department of Revenue and Department of Management, said other taxes, particularly the sales tax, have come in strong, boosting the predictions for the year.

“The state of Iowa continues to be on strong financial footing, and I see no reason to expect that to change into the foreseeable future,” Paulsen said.

In fiscal 2024, the panel expects the state’s revenue to drop to $9.65 billion, also due largely to tax cuts. That’s an increase from the December meeting, which estimated fiscal 2024 revenues at $9.63 billion.

Lawmakers are required by law to use the lower of the two estimates between December and March when crafting the state budget, meaning they will be working with the $9.63 billion figure from December.

Tax changes in Iowa

Last year’s tax reductions, signed into law by Gov. Kim Reynold, will lower the highest tax bracket over the next three years, until all Iowa taxpayers pay a flat 3.9 percent rate on their income. Taxes on retirement income were eliminated, and the corporate income tax will continue to fall if corporate tax revenues hit certain benchmarks, resulting in an expected reduction of $1.9 billion from the state budget.

“The impacts of last year's tax cuts are starting to show up, in particular in withholding revenues, but even still, the state is in a very strong revenue position,” Paulsen said.

The Revenue Estimating Conference is a three-member panel, made up of Paulsen, Jennifer Acton from the nonpartisan Legislative Services Agency and David Underwood, an economist from Mason City.

In a statement on Friday, Republican Senate Majority Leader Jack Whitver, of Grimes, said the projections confirm that Republicans are keeping the state’s economy strong while cutting taxes.

“With a projection of nearly $2.7 billion in the Taxpayer Relief Fund and an ending balance of more than $1.7 billion in FY 2023, Iowa is undoubtedly in the strongest financial position the state has ever been,” Whitver said. “Despite ‘sky-is-falling’ claims from Democrats, the future in Iowa has never been brighter.”

As of December, the Legislative Services Agency had estimated Iowa’s 2023 ending surplus would be $1.6 billion, and Friday’s estimates would bring that number higher.

Democrats see ‘lackluster growth’

But Democrats said the numbers show “lackluster growth” and said the tax cuts are only benefiting the wealthy and corporations.

“The Legislature needs to focus on issues like lowering costs and raising wages. Instead, GOP lawmakers have been too focused on politics this session,” said Rep. Timi Brown-Powers, D-Waterloo, the ranking member of the House Appropriations Committee.

“As they continue working on bills that will drive more Iowans out of state and make Iowa look unwelcoming, it’s time to get this session back on track and focus on doing what’s best for Iowans again.”