State tax collections take drastic plunge

Note: Monthly General Fund Revenue Receipts Through May 31, 2014, can be found here

By Rod Boshart, Gazette Des Moines Bureau

DES MOINES - A drastic drop in state tax collections last month has Gov. Terry Branstad taking a cautious look at spending.

State fiscal analysts said Monday that May net tax receipts took a bigger-than-expected nose dive of 17.6 percent, pushing revenue collections to a 5.9 percent decline compared to the same fiscal period a year ago. That translates into a $355.5 million drop, which was deeper than the 2.6 percent decline revenue estimators expected for fiscal 2014.

David Roederer, who directs the state Department of Management and chairs the Revenue Estimating Conference, said federal tax changes in January 2013 caused some revenue swings that no one could fully predict. The effect was a record high month for tax collections in May 2013 that was followed by a downward swing last month.

'We didn't know the extent and it had a bigger impact than what we were anticipating,” he said.

'The economy is still growing. It's this year that's an anomaly,” Roederer added. 'We were holding pretty good until about two weeks ago.”

Jeff Robinson, a tax analyst for the Legislative Services Agency, said net state tax receipts went from $917.9 million in May 2013 to $756 million last month, a 17.6 percent decline that made a difference of $161.9 million in the state's balance sheet. Through 11 months of the current fiscal year, state tax receipts stood at $5.71 billion compared with nearly $6.066 billion last fiscal year that included a huge May windfall related to federal tax issues and how Iowa taxpayers responded to them.

'Last year we saw a big boost from that and this year that boost wasn't there and it looks like a hole,” Robinson said.

While revenue issues related to tax decisions fluctuated, money collected from tax withholdings on wages earned by working Iowans and purchases Iowans made that were subject to sales and use taxes held relatively steady through May - an indicator that Iowa's economy continues moderate growth, Robinson said.

'If you use those as your economy gauges, we're still fine,” Robinson said. 'We're still seeing good growth; not great growth, but good growth. It does not look to be slowing.”

During his weekly news conference on Monday, Branstad said a slowing farm economy and other financial concerns prompted him to veto items passed by the 2014 Legislature with a net effect of about $135.5 million to preserve long-range commitments that have been made for property tax relief and education reform.

Even with his vetoes, the state's general fund spending will grow by 7.5 percent to nearly $6.98 billion for the 12-month period that begins July 1. With other money taken into account for infrastructure projects, technology, special direct pay funding of skilled worker initiatives, performance of duty requirements and health programs using tobacco receipts, Roederer said total state spending in fiscal 2015 will be just over $7.5 billion, up 4.8 percent from the current fiscal year.

'I feel a responsibility to make sure that the decisions we make and that the spending level is sustainable for the long-term,” Branstad told reporters, 'especially in light of those major commitments we've made in property tax relief and to local governments to reimburse them for the reduction in property tax as well as to our children and teachers through the education reform.”

Sen. Jack Hatch, D-Des Moines, who is running to unseat Branstad in the 2014 gubernatorial race, accused Branstad of making 'reckless and thoughtless vetoes” that chopped funding for environmental improvements, radon testing in schools and even $400,000 to market a new Home Base initiative to veterans.

'The state is sitting here with close to a $900 million surplus,” Hatch told reporters. 'It's a matter of priorities, it's true, but the state revenues are projected to grow enough to provide for those proposals.”

Roederer said private money will be sought to market the new financial incentives for veterans. The state Department of Human Services expects to be able to make adjustments internally to address a possible shortfall in Medicaid funding this month and to provide education services for former residents at the Iowa Juvenile Home in Toledo that was closed last January.

l Comments: (515) 243-7220; rod.boshart@sourcemedia.net