Iowa state revenue predicted to rise 4 percent in fiscal 2017

DES MOINES - State tax collections are expected to grow by 4 percent next fiscal year, but revenue estimators sounded a cautionary note Thursday about Iowa's economic outlook and legislators braced for another tight state budget that could trigger another partisan battle at the Statehouse.

Iowa is still on track to end the current fiscal year with net tax receipts topping $7 billion, but the three-member Revenue Estimating Conference reduced their October projections by $8.9 million for the current fiscal year and $21.5 million for fiscal 2017. Check out the full quarterly revenue estimate here

'We're expecting growth, just a bit weaker than originally anticipated. We're tapping on the brakes just a little bit and hopefully it's just temporary,” said REC member Holly Lyons, a Legislative Services Agency official who recommended reducing the yearly estimates by more than the panel decided Thursday.

The new growth estimates call for the state to take in nearly $7.046 billion for the current fiscal year, a 3.3 percent increase that was slightly downgraded, and more than $7.327 billion in fiscal 2017 - a 4 percent boost for the fiscal year that begins next July 1.

REC member David Underwood of Mason City said he sees 'red flags that things are slowing” in Iowa's economy that are prompting a decline in confidence among businesses he has contacting and causing him to 'put on my pessimist hat” in revising the December revenue estimates.

REC chairman David Roederer, Gov. Terry Branstad's management director and budget architect, agreed that there were 'some cautionary signals” at the international, federal and state levels that are slowing the economy but added 'it' just a question of how hard do you put the brakes on.”

'We're continuing to grow, which is a good thing, but we're growing more at a moderate to slow pace than an exuberant pace,” he said.

According to the REC, state revenue will grow by a projected $281.8 million in fiscal 2017, but Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, said budget-makers will have only $153 million in new money to spend next session when past commitments and other factors under Iowa's 99 percent spending limitation law are taken into account.

'It will be difficult to do the work we have to do and stay within that $153 million in revenue now that we do know,” Grassley told reporters.

'Anytime we put a budget together it's going to be tough, especially when you have a split-control Legislature,” he added. 'There still is growth. Iowans shouldn't be concerned we're in some emergency. But we're going to have to find savings somewhere in the budget.”

Senate President Pam Jochum, D-Dubuque, said education, human services and fulfilling past commitments will be top priorities. Majority Senate Democrats have not discussed funding levels yet, but she said K-12 schools need more than the 1.25 percent boost in supplemental state aid they received for the current year.

'The schools have already communicated with us that when they take into account what they got for the current year that they need 3 (percent) to 4 percent just to keep their head above water,” Jochum told reporters after the REC meeting. She said he hopes next year's funding for K-12 school is higher than the 2 percent passed by the Iowa House and sent to the Senate last session, 'but I don't think it's going to go lower than that.”

Grassley said LSA estimates indicate that each 1 percent increase in state aid to schools costs about $41 million. He said Medicaid costs are projected to increase by $65 million, presuming that Branstad's planned transition to private managed care takes place Jan. 1, while school reforms will carry at least a $53.5 million price tag and promised commercial property tax relief credits will cost another $25 million in fiscal 2017.

Roederer said his office will now take the official revenue estimates and begin crafting a budget plan that the governor will unveil to the split-control Legislature on Jan. 12, the second day of the 2016 session.

'While the December revenue estimates show an increase in state revenues, Governor Branstad believes that, like hardworking Iowa families, we must remain responsible, frugal and diligent in crafting our budget,” said Branstad spokesman Ben Hammes in a statement.

'Governor Branstad looks forward to working with the House and Senate to give Iowans a stable and sustainable budget representing our priorities,” he added.