CORONAVIRUS

Coronavirus drains Iowa tax collections

Revenue Estimating panel lowers estimates by half a billion dollars

Members of the state Revenue Estimating Conference - David Underwood (left), David Roederer (center) and Holly Lyons - c
Members of the state Revenue Estimating Conference — David Underwood (left), David Roederer (center) and Holly Lyons — consult during a March 12 meeting in Des Moines. The panel on Friday revised state revenue estimates downward, given the impact the coronavirus has had on the Iowa economy. (Rod Boshart/Gazette Des Moines Bureau)

DES MOINES — The coronavirus pandemic that hit Iowa last March will knock down expected state tax collections in Iowa by more than a half-billion dollars through June 2021, a state panel of economic experts projected Friday.

Members of the state Revenue Estimating Conference lowered their forecast for tax collections by nearly $150 million in the current fiscal year that ends June 30. And they revised their fiscal 2021 revenue expectations downward by about $360 million from levels they forecast March 12.

“There is no economic model that accounts for a global pandemic or no recent history on how state, local, national or global economies recover from a health crisis of this magnitude. We just don’t know,” said REC member Holly Lyons of the Legislative Services Agency. “It’s just an exceptionally uncertain, volatile and even fearful time.”

Given that backdrop, REC members said they expect the state will collect $7.941 billion this fiscal year — a 1 percent increase, or $82.4 million more than fiscal 2019. That compares to their original growth estimate of 3 percent and nearly $8.091 billion they set in March.

In fiscal 2021 — the year for which state legislators and Gov. Kim Reynolds will formulate a spending plan when lawmakers reconvene Wednesday — REC members expect state revenue will slip by 0.8 percent to $7.877 billion — a drop of nearly $65 million from this fiscal year.

The panel kept its 4.1 percent growth estimate for fiscal 2022, but the nearly $8.2 billion projection is now down $375 million from the March estimate made just as the virus was spreading into Iowa.

Shortly after that March REC meeting, Lyons said “our world and life as we knew it was turned upside down due to COVID-19 outbreaks in the United States. This has exacted a tremendous toll across our state in terms of suffering and loss of life in addition to the economic impact.”

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Even so, REC chairman David Roederer, head of the state Department of Management and Reynolds’ budget director, said Iowa is aided financially by strong reserves.

Also, he said, the billions of dollars in federal funds being funneled to individuals, businesses and government is helping the state weather the “self-induced” economic “coma” that was necessary to halt the novel coronavirus spread.

“I believe that, while bruised and somewhat battered, our fundamentals are still quite strong in this state,” Roederer said in offering the most-optimistic view of Iowa’s economic future under an ongoing pandemic.

“Economically, I believe that we are on the upswing,” he said. “Toilet paper is back in stock, so I think this was the beginning of the recovery, roll by roll. The question is how fast will we recover and at what level.

“There’s no economic model of what happens when a pandemic comes through and closes your economy, and there’s no model that says how we come out of it and how quickly we bounce back.”

REC member David Underwood, a Clear Lake businessman, argued to set a far lower estimate of state tax collections, noting federal stimulus funds eventually will run out.

“I don’t believe we’ve reached the bottom,” said Underwood, who worried the state could climb out of its economic doldrums only to “fall back rather quickly” if COVID-19 cases resurge.

“I’m not quite as optimistic for the recovery as either one of you but not terribly less optimistic,” he said. “We certainly aren’t at any kind of normal today.”

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Lyons said the real economic consequences of the pandemic are still unknown and that’s why she resisted a deeper reduction.

“I’m a little concerned about the message that we send,” she said. “There’s enough fear and trepidation now out there.”

Roederer said the governor and legislators will have to use the lower revenue projections next week when the 2020 session resumes to craft a fiscal 2021 state budget and finalize a shortened list of policy priorities.

Friday’s REC action likely lowered the state’s projected fiscal 2020 surplus by $150 million, to $390 million, while there is nearly $800 million in the state’s cash and emergency reserves.

“When the pandemic began, the state budget had a large projected surplus and our reserve accounts were fully filled,” said Rep. Gary Mohr, R-Bettendorf, chairman of the House Appropriations Committee. “Our thoughtful actions have put the state in a position where we can more easily react to situations like the emergency we face today,

“When we return to the Capitol next week, we will continue to budget in a cautious and conservative manner that funds our priorities in a responsible way.”

Majority Republicans have given Reynolds considerable leeway in using federal CARES Act proceeds of $1.25 billion for Iowa for one-time purposes. But they have indicated they do not plan to use the federal stimulus funds or state reserve accounts to fund ongoing expenses in the fiscal 2021 state budget.

“Today’s estimate projects more than $500 million in reductions since they (the REC) last met in March, spread over two fiscal years. Panelists cautioned this number was optimistic and lacking much of the data still needed,” said Rep. Chris Hall, D-Sioux City, ranking member of the House Appropriations Committee.

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“With unemployment over 10 percent, Iowa families and businesses are experiencing historic uncertainty at work and at home,” Hall said in a statement. “Unfortunately, the lack of transparency in the state’s COVID response has created even more uncertainty for Iowans.

“The Legislature must be transparent in how Iowans’ tax dollars are being spent, and we must prevent reckless spread of the virus to put our economy back on track in the safest way possible.”

Comments: (515) 243-7220; rod.boshart@thegazette.com

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