May tax receipts raise Iowa state budget concerns

DES MOINES - State fiscal experts are nervously watching tax collections after a lackluster May that pulled revenues below the growth estimate with one month left in the fiscal year and the budget teetering on a $1.7 million ending balance for June 30.

The state Department of Revenue took in $966.3 million in gross tax receipts in May - the largest revenue month with the April 30 deadline for filing personal income returns. However, that was 6.2 percent below the $1.03 billion collected the previous fiscal year, according to Jeff Robinson, a senior tax analyst with the Legislative Services Agency.

That decline, coupled with a 'massive” spike in state tax refunds, left the state trailing the projected 2.8 percent growth in tax collections for fiscal 2017 by $75.1 million through May with Robinson estimating the state will need to exceed last June's tax receipts by at least $97 million and grow by another 2.8 percent to hit the target of $6.982 billion by June 30.

'The month of May was really bad but it was mostly because we were still paying refunds in May when we normally don't,” said Robinson, noting the state refunded less than $100 million in May 2016 versus $335 million last month - a delay revenue agency officials say was caused by stepped-up fraud prevention efforts at the state and federal levels. The state also transfers sales taxes collected to counties for school infrastructure that total $434.2 million so far this year.

'Refunds were off the charts compared to last year,” added Robinson, which contributed to a 32.4 percent decline in net state receipts last month and drew the growth rate for the period of July through May down to 1.2 percent compared to 7.2 percent in April.

'We needed $172 million and we got $75 million. You can consider us short by $97 million at the moment,” he said. State revenues for fiscal 2017 need to finish $190.2 million ahead of last year to hit the 2.8 percent growth estimate set by the state Revenue Estimating Conference.

'It seems like a tall order, particularly since things haven't been strong for a year or more,” Robinson noted.

The revenue picture is concerning for Gov. Kim Reynolds' administration, given there are limited options to address a budget shortfall in the waning weeks of a fiscal year and Iowa law requires a balanced state budget.

'Obviously, it's not what we had expected,” said David Roederer, director of the state Department of Management, of the May revenue report. 'We were feeling pretty confident up until a few days ago that our numbers were holding very good,” he added.

'As far as where we go from here, we're obviously going to be exploring our options,” said Roederer, given the state doesn't officially close the books on the 2017 fiscal year until September.

'We'll have to see, obviously, what June does,” added Roederer. 'In the first part of May, we were above what our projections were, but then the last few days in May that was reduced so we'll have to see what the first part of June is.”

The state's largest receipts category - personal income tax collections - took a 16.1 percent hit last month but remain 2.5 percent, or $101.6 million, ahead of last fiscal year, according to the Legislative Services Agency monthly report.

State sales and use tax collections are up 0.4 percent this fiscal year but below the Revenue Estimating Conference growth estimate - a situation that Roederer attributes to online purchases where state use taxes are due but not being paid or collected. He said most U.S. states are grappling with that problem.

Other factors at play are economic problems impacting agriculture and manufacturing, as well as the possibility that taxpayers reported losses this year in anticipation of a forthcoming federal tax cut that impacts state receipts negatively due to Iowa's federal deductibility law.

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