State revenues take double-digit plunge

DES MOINES – A spike in state tax refunds and continued negative economic factors caused a double-digit plunge in May's state revenues, state officials said Monday.

The decline raised new concerns whether the revised fiscal 2009 state budget would hold without additional adjustments, although Gov. Chet Culver's fiscal experts cited warning signs but no cause for alarm as they closely monitor the financial balance sheets.

“Gov. Culver knows that these are difficult economic times, and that we in state government must be prepared for any eventuality,” said Culver spokesman Troy Price.

“That is why he has used sound budgeting practices during the current fiscal year to ensure state government not only meets its obligations but has an adequate ending balance on June 30,” he added. “While we continue to monitor incoming state receipts, we believe state revenues will end the fiscal year in line with the projections of the Revenue Estimating Conference.”

Net state receipts fell by 12.4 percent last month and pushed tax collections into the negative column by 4.5 percent with one month left in the current fiscal year, according to the Legislative Services Agency's monthly revenue report. Recently revised Revenue Estimating Conference projections pegged the yearly drop in state tax receipts at 2.6 percent below last fiscal year's $6.02 billion in tax collections.

Legislative Services Agency official Holly Lyons, who also is a member of the state Revenue Estimating Conference, said May's decline was worse than the three-member panel predicted and could force yet another budget adjustment to finish fiscal 2009 with a positive balance.

“We're looking at a $111 million problem right now,” Lyons said given that net receipts are nearly two points below the revised REC estimate of negative 2.6 percent for the fiscal year that ends June 30.

“The numbers are lower than we thought they would be and it looks primarily due to refunds,” Lyons said. “It's pretty clear the recession is hitting us now. The rest of the country is talking about coming out of the recession and it looks like we're right smack in the middle of it.”

Culver's budget experts said May's revenue figures raised a red flag but represented one piece of a complicated budget puzzle that they will monitor until the fiscal 2009 books officially close in September.

Lawmakers adjourned their 2009 session last month with a projected $44.6 million ending balance. Gov. Chet Culver has the authority to order an across-the-board cut – an unlikely option with one month left in the fiscal year -- or to transfer up to $50 million from the cash reserve if need be to cover any end-of-the-year imbalance. That surplus money would have to be paid back to the cash reserve by the end of the following fiscal year.

Jeff Robinson, a Legislative Services Agency senior analyst, said state tax refunds were up 25 percent – double the projection -- due to losses Iowa investors suffered via stock market declines and an 11 percent drop in personal income tax receipts with more Iowans losing their jobs.

May also saw double-digit revenue declines in corporate income, tobacco and franchise tax receipts, and sales and use tax collections were flat despite a limited rate increase in one sector that was expected to generate positive results, he said.

Robinson said he expected June tax receipts to continue the negative trend of the past two months.