Reynolds expects fiscal 2017 revenue shortfall; still mum on solutions

Gov. Kim Reynolds acknowledged Monday 'it looks like there probably will be a shortfall” when Iowa closes the books on its 2017 fiscal year.

As state officials have been warning, she said, 'it looks like the revenue is going to come up a little bit short.”

Reynolds didn't offer specific solutions but assured a WHO Radio audience that the state will honor its commitments.

'We are reviewing what our options are at this point and how we address that,” she said.

Although the Revenue Estimating Conference - the three-member panel of state officials and a private sector representative - has downgrade expectations three times this fiscal year, Reynolds was quick to note that revenues are actually growing. 'It's just not at the rate we projected,” she said.

Stare revenues this fiscal year, which ends in just a few weeks on June 30, are running short of the $6.982 billion projected, according to the non-partisan Legislative Services Agency.

Overall, the state's receipts are running 1.3 percent ahead of last year but less than the 2.8 percent growth forecast.

State revenues for fiscal 2017 would need to finish $190.2 million ahead of last year to hit that mark.

Reynolds noted that 22 states - the most since the Great Recession - are experiencing slow revenue growth. 'So it's not something that's isolated in Iowa,” she said.

Iowa has $600 million in reserves so one possible response to a shortfall would be to tap those again. Former Gov. Terry Branstad already borrowed $131 million from the cash reserve earlier this spring to keep the budget balanced with the promise of repaying the funds in two years. And the Legislature clawed back tens of millions in appropriations it had already approved.

Although the fiscal year ends soon, the state won't know for sure whether there is shortfall until it closes the books in September, according to Department of Management Director David Roederer.

The governor has the option of calling the Legislature back into session to deal with the budget. Reynolds didn't address that Monday evening, and previously suggested it's too soon to say.

In the long run, she said, Iowa needs to grow its economy by creating an environment conducive to job creation and business development. Reynolds mentioned she will lead an all-agriculture trade mission to China this year that she hopes that will lead to expanded markets for Iowa crops and livestock as well as other products.

'Softness” in the agricultural sector is one of the causes of the slowdown in state revenues, Roederer told WOI-TV last weekend. From roughly 2005 to 2010, the state's gross agricultural product was about $4 billion, he said. It increased to about $8 billion in recent years but has fallen to about $2.5 billion.

Reynolds also talked about overhauling Iowa's taxes to be more attractive to business and job growth, to provide stable revenues and to bring the tax code in line with changes in the economy.

Sales tax revenue has been stagnant in part, Reynolds said, because of increased online shopping. Although many online retailers don't collect it, sales tax is owed on those purchases.

l Comments: (319) 398-8375; james.lynch@thegazette.com