Iowa state revenue healthy, but future declines loom

DES MOINES — Iowa’s state budget is even healthier than fiscal experts previously estimated — for the moment.

But over the next two budget years — once newly approved state income tax cuts go into effect — Iowa’s state revenues are projected to decline, according to new projections made Thursday by the state’s revenue estimating panel.

Should those projections hold true, it would be the first time Iowa state revenue declined in consecutive budget years since the 2009 and 2010 budget years, according to state records.

Despite that projected decline in future state revenue, Kraig Paulsen, the state’s budget department director and Gov. Kim Reynolds’ representative on the revenue estimating panel, said the state’s finances remain strong. He said so long as state revenues continue to grow at their historical average of roughly 3 or 4 percent, no state department or agency will be forced to cut its budget in future years.

“We’re in an extremely, extremely strong financial position,” Paulsen said after Thursday’s meeting of the Revenue Estimating Conference. “I don’t foresee cuts to any services.”

The three-person panel is comprised of a member from the governor’s office, one from the state’s nonpartisan fiscal and legal analysis agency and a member of the public.

The panel added roughly $205 million to its revenue projection for the current budget year, which concludes at the end of June. That would put total state revenue for the budget year at more than $9.2 billion.

That would likely add to the state’s budget surplus, which going into the budget year stood at more than $1.2 billion. And that’s in addition to the state’s emergency accounts, which are stocked with more than $800 million, and the Taxpayer Relief Fund, which went into the year with $90.4 million and could, according to Paulsen, balloon to almost $2 billion by the end of the budget year.

Statehouse Republican leaders celebrated the latest projections and touted their stewardship of the state’s finances over the past six years, when they have had full control of the state lawmaking and budget-writing process.

“Thanks to the governor’s leadership and House Republicans’ responsible budgeting, Iowa’s economy remains strong,” House Speaker Pat Grassley, a Republican from New Hartford, said in a statement. “So strong that we were able to deliver the largest tax cut in Iowa history while continuing to fund Iowans’ priorities in the state budget.”

Majority statehouse Republicans have already started their work on crafting the next state budget. They plan to spend in the ballpark of $8.2 billion, which would be a small increase over the current, $8.1 billion state budget.

In the next budget year, which starts July 1, state revenues are projected to decline slightly, from $9.21 billion to $9.16 billion, or 0.2 percent. In the following budget year, which covers July 1, 2023, to June 30, 2024, state revenue is projected to fall by another 2 percent, to $8.96 billion.

The primary reason: a reduction in future state income tax revenue as the result of state individual and business income tax cuts recently signed into law. The cuts will reduce state revenue by $263 million in the next budget year and $561 million in the following budget year. At full implementation in 2028, the cuts will reduce state revenue by $1.9 billion.

The new tax cuts contained a provision that would use the state Taxpayer Relief Fund to supplement the state budget in the case that state revenues are insufficient to fund state services. The fund is where revenue over and above what was forecast is deposited and was intended to provide ongoing tax relief.

“Iowa’s budget experts predicted a steep decline in state revenues next year just after hundreds of millions in new tax giveaways to corporations and millionaires were signed into law,” said Rep. Jo Oldson, a Democrat from Des Moines and the top Democrat on the House budget committee. “While most Iowans won’t see another penny in their pocket for years, they instead will be paying more in property taxes and health care to pay for the GOP’s giveaways to corporations and millionaires.”

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