DES MOINES — With economic growth in Iowa now forecast to be stronger than expected, state government is projected for the first time to collect more than $8 billion in net general-fund tax receipts this fiscal year.
The three members of the state’s Revenue Estimating Conference on Thursday bumped up their October estimate for state revenue growth by $48.5 million, bringing their fiscal 2020 expectations for tax collections to nearly $8.015 billion — a 2 percent increase that tops last fiscal year by $155.8 million.
Then for fiscal 2021 — the year that Gov. Kim Reynolds and lawmakers will budget for in their upcoming legislative session — panel members projected Iowa’s modest but steady economic growth would generate $8.249 billion in tax receipts for another increase of 2.9 percent.
“All in all, we feel things are moving well,” said panel chairman David Roederer, director of the state Department of Management and the governor’s budget director. “That doesn’t mean that we should look at everything going gangbusters, but it is actually a little stronger growth than we thought it would be when we met back in October.”
Panel members said the growth was fueled by higher sales tax revenue due to an expansion of online sales and services now being collected under a state law change. Personal income tax receipts, though, have leveled off due to a 2018 tax-cut package that lowered withholdings and rates.
Revenue panel member Holly Lyons of the Legislative Service Agency expressed cautious optimism, but noted many economists are warning of a possible recession although nothing in Iowa’s outlook signals major concern — despite sluggish farm prices and slowly growing wages in a tight labor market.
“While there are still no telltale signs of a recession, one reads and hears from economists that the U.S. economy is living on borrowed time and that a downturn is inevitable,” she said. “It’s just a matter of when and how severe the downturn will be.”
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Lyons said Iowa’s economy continues to be buffeted at times by the continued trade wars and business uncertainty, but she told Thursday’s gathering “there is no harbinger of recession, no serious signs of downturn. The Iowa economy continues to grow slowly but steadily.”
Roederer said he’s heard the recession talk, too, given the country is in a long, sustained and “uncharted” growth period, but he noted most indicators still show good growth and Iowa’s tax collections are coming in better than expected at this point, although that could slow in the new year.
“It’s kind of like predicting a snowstorm,” Roederer said of a possible recession. “We know it’s coming, we just don’t know when or how bad.”
By law, the governor and Legislature have to use the December estimate as a starting point for building next fiscal year’s state budget — which goes from July 1, 2020, to June 30, 2021. The state’s 99 percent spending limitation means the governor will have about $230 million in new money to budget.
“This allows for a good, solid budget,” said Roederer. He said the Reynolds’ budget team will have a better sense of what the overall package will look like once it assesses to two largest expenditures — state aid to K-12 schools.
However, minority Democrats said the state faces a lot of unmet needs in education, child care, housing, health care and rural broadband that could be addressed better had Republicans not lowered tax collections by $400 million in 2018 with a package of cuts skewed to higher-income Iowans and businesses.
“It’s just a question of priorities,” said Rep. Chris Hall, D-Sioux City, ranking member on the House Appropriations Committee.
The message he took away from Thursday’s meeting was that the Iowa economy “is living on borrowed time, so we need to plan prudently, keep a lean budget but make sure it’s one that helps the average person, not just ones at the top.”
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Sen. Joe Bolkcom, D-Iowa City, ranking member on the Senate Appropriations Committee, said revenue growth “should be more robust if not for the massive income tax cut that they gave to the richest Iowans.” He predicted Iowa’s privately run Medicaid program will take most of the new money available for fiscal 2021.
“Even though there is new money, we’re going to have a really, really difficult time investing in K-12, higher education, the community colleges, the courts, public safety — the whole litany of investments people would like us to make,” said Bolkcom.
Rep. Gary Mohr, R-Bettendorf, chairman of the House Appropriations Committee, said Iowa’s economy clearly is growing, which bodes well for the future as legislators look to invest in education, health care, public safety and other fiscal 2021 priorities.
“Iowa has a healthy surplus, full reserve accounts, and the tax cuts we passed in 2018 are just starting to positively impact families and small businesses,” he said.
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