Government

After years of shortfalls, Iowa posts strong tax growth

Lower federal taxes boost the state's fiscal 2019 picture

The Iowa State House cupola on Thur. Mar 11, 2016. (Rebecca F. Miller/The Gazette)
The Iowa State House cupola on Thur. Mar 11, 2016. (Rebecca F. Miller/The Gazette)
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DES MOINES — State government started its new fiscal year Monday awash in black ink.

State tax collections for fiscal 2019, which ended Sunday, came in about $99 million above the growth estimate and up about $521 million over the previous year.

To be sure, those numbers could be revised by the time the books on fiscal 2019 are officially closed in September, state officials said, but some said they were evidence of a sound direction for the state.

“Contrary to the ‘sky is falling’ rhetoric from the opposition, tax reform did not create a budget crisis,” said Iowa Senate Majority Leader Jack Whitver, R-Ankeny. “Instead, tax revenue is rising, the economy is growing, Iowans have more jobs, more income, and more opportunity than ever before.”

He said Monday’s numbers are an indication state government is “on strong financial footing” after several rocky years marked by midyear transfers, de-appropriations and spending adjustments.

Total gross state tax receipts from July 1, 2018, through June 30 were nearly $9.352 billion, said Jeff Robinson, a senior tax analyst for the Legislative Services Agency. That compares with a revised expectation of $9.253 billion the state’s revenue estimating panel set in March.

Preliminary net receipts showed personal income tax collections were up $213.7 million over fiscal 2018; corporate income tax receipts rose by $102.1 million and sales/use taxes were up $79.1 million.

Net state tax receipts grew by about $479 million, or 6.6 percent, after a relative flat June.

“It was a really good tax year,” said Robinson, both in terms of individual and corporate income tax collections. “Federal deductibility is responsible for some portion of that, and probably economic factors are the other reasons probably.”

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Iowa is one of the few states where residents can deduct their federal income tax liabilities from their state income taxes. That current feature of the Iowa tax code, called federal deductibility, means that when federal tax rates fall — as they did beginning in February 2018 — Iowa taxpayers were able to deduct less from their state bill.

Iowa’s individual and corporate income tax revenue exceeded estimates by a combined $124 million, said Robinson — numbers impacted by both cuts in federal tax rates and the Jan. 1 start of a multiyear phase-in of state income tax rate reduction initially reflected in lower payroll withholdings.

Iowa’s sales and use tax collections — also impacted by recent tax law changes — were $68 million below projections.

“There’s no doubt that federal deductibility played into it, it’s just what percentage of our growth is attributed to that,” said Robinson. “It had to have contributed to both 2018 growth and 2019 growth for sure. It’s difficult to project.”

Whitver said the state closed fiscal 2019 with an expected surplus of at least $166 million with unemployment among the nation’s lowest rates and wage growth among the nation’s highest.

Final fiscal 2019 numbers won’t be known until after refunds, accruals, transfers and other financial transactions have been tabulated in September, state officials said Monday.

For the new fiscal year, the General Assembly appropriated and the governor approved $7.644 billion from the general fund, which is $193.8 million below the expenditure limitation, according to the Legislative Services Agency.

Overall, the state budget includes about $197.2 million beyond fiscal 2019 spending once one-time issues are addressed — like the $113.1 million for repayment of the cash reserve; over $2 million for indigent defense; $69 million of a $150.3 million supplemental for Medicaid; and another $15 million in disaster funding for flood victims.

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Agency projections issued Monday called for an estimated ending balance — or surplus — of $217.1 million next June 30, the end of fiscal 2020.

Minority Democrats argued the current-year spending level is well below the allowed 99 percent threshold, and has shortchanged many priority areas as a result.

Education and health/human services received the largest share of the budget, with K-12 schools getting about $90 million in new money, regent universities getting a $12 million increase and community colleges a $4.7 million raise over fiscal 2019.

Rep Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, said the new spending plan was a “cautious” approach given the uncertainty of crop prices and conditions, trade and tariff issues affecting exports prospects and the desire to meet tax-cut triggers prescribed in the multiyear legislation.

“We’ll continue to be cautious. We’ve been burned on those estimates in the past and that isn’t a slight on the Revenue Estimating Conference. That’s just more that it’s a very difficult thing to estimate,” Grassley said in an interview. “We’re just trying leave ourselves in a position where we can continue to fund our priorities in the budget and follow through with that (tax cut) commitment.”

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

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