Federal tax code change leads to increase in Iowa's state revenues

A “decently positive” year for Iowa's revenues looks even better, thanks to changes in the federal tax code.

Although the state won't close the books on the fiscal year until September, today's balance sheet shows state revenues increased 8.7 percent over the previous July 1-to-June 30 fiscal year, according to the Legislative Services Agency.

General fund net revenues ended the cash fiscal year $532 million higher than fiscal 2012, the LSA reported Monday afternoon. Again, Robinson cautioned that the numbers won't be final until September.

Revenues were $212 million more than the 5.2 percent projection by the Revenue Estimating Conference, but LSA fiscal analyst Jeff Robinson attributes that more to changes in federal tax law than growth in the Iowa economy.

“It was a decently positive year for the state's economy and on top of that there was one big gob of money” from Iowans acting to avoid the prospects of higher tax rates in 2013, Robinson explained.

The unanticipated surge in receipts came as “people sold a lot of stuff in December to avoid higher capital gains taxes,” Robinson said. “There were a lot of dividend payments, more so than usual, and people, who could, got paid in December rather than January.”

Gov. Terry Branstad is encouraged by “what appears to be continued, robust growth … (and) appears to signal that our economy continues to grow,” according to his spokesman, Tim Albrecht.

“However, while the government collects this revenue, it still belongs to Iowa's taxpayers,” Albrecht said. “The governor always is looking at opportunities for returning this overpayment back to the taxpayers in a responsible way.”

Iowa House Speaker Kraig Paulsen, R-Hiawatha, struck a similar theme. The unexpected revenue growth will fuel proposals for additional spending, but Paulsen believes Iowans are comfortable with the “balanced approach” the split control Legislature took this year to provide tax relief and make strategic investments.

With an ending balance likely to exceed $900 million, Paulsen said Republicans will look for ways to return some of that to taxpayers, probably through an income tax cut. Given the financial uncertainty in Washington with budget sequestration and Congress' inability to approve a budget, Paulsen would like to increase the amount the state puts away in the event federal funding for state programs dries up

Given that 2014 is an election year, Paulsen said “there's no question there are some folks who want to go on a spending spree.” However, House Republicans will “resist anything where we are using one-time money for ongoing expenses.”

That's one issue the Legislature will have to deal with, agreed Senate Ways and Means Committee Chairman Joe Bolkcom, D-Iowa City.

However, he noted the state still has infrastructure needs, such as replacing aging buildings on regents' university campuses and helping communities develop flood protection.

“Then there is the whole issue of water quality. We have dangerous nitrate levels in many Iowa rivers,” Bolkcom said.

Along with targeted tax cuts, those would be some of his priorities.

“We should be cautious in our use of the ending balance,” Bolkcom said, and not go out and spend it willy-nilly.”

On the way to posting an 8.7 percent gain in revenue, Iowa had its first-ever billion-dollar month in May, Robinson said.

Iowa taxpayers paid nearly $1.023 billion in state taxes last month, topping the previous record month for tax receipts by more than $200 million. State tax collections previously totaled $794.5 million in May 2012, $791.1 million in May 2007 and $782 million in May 2011.

For the year, Robinson said, the state collected $212 million more than the REC had projected.

Generally, he said, excess was in individual income taxes. The rest of numbers were pretty close to projections.

He doubts revenue will grow at the same rate this year.

Iowans who paid more in federal income taxes in fiscal 2013 will deduct that from taxable income when they file in April 2014, Robinson said.

All revenue categories – sales taxes, corporate taxes, fuel taxes and others – posted gains with the exception of gaming revenue, he said. That was down because the Legislature routed less gaming revenue into the general fund.