DES MOINES — As leader of the state’s Revenue Estimating Conference and Gov. Kim Reynolds’ budget director, David Roederer finds himself under a double-barreled fiscal microscope as state officials try to build a revised state budget plan while facing financial calamities unmatched since the Great Depression amid the global coronavirus pandemic.
The good news is the state came into the crisis with a projected $529.3 million surplus on June 30, cash and emergency reserves totaling $766.9 million and received $1.25 billion in COVID-19 stimulus aid from the federal government.
The bad news is unemployment likely has zoomed into the double digits as many Iowa businesses were ordered closed for two months, and state tax collections are starting to tank — partly because tax filing deadlines were moved back from April 30 to July 31. Also, forecasters like Moody’s Analytics are suggesting Iowa will face a tax revenue shortfall of $895 million to $1.14 billion over the rest of this fiscal year and next fiscal year.
Against that backdrop, Roederer — director of the state Department of Management — and his fellow REC members will convene May 29 with the direction to project Iowa’s economic recovery and forecast what level of tax revenue the governor and Legislature can expect when the 2020 session resumes June 3. Legislators will work to fashion a spending plan to finish out the current fiscal year and construct a fiscal 2021 spending plan beginning July 1 that will take into account all the unknowns brought on by a coronavirus pandemic that could drag on until a vaccine can be developed.
Unlike previous economic downturns, the current financial crash was self-imposed when government shut down the economy to slow the spread of the virus by pushing people to stay home, engage in social distancing, limit large gatherings and practice intensive hygiene to protect themselves, their families and other people.
“There was no economic issue that caused this,” said Roederer, who likened the situation to one where a person (analogous to Iowa’s economy) who is relatively healthy gets put in a self-imposed coma “and for all the right reasons.”
The challenge now, he said, is to figure out how to bring the economy back properly.
“If you bring it back too quick, it could do more damage; if you wait too long, then that can also do more damage,” he said.
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“The issue comes back to how quickly can our economy recover and will it be in the same form or will it be changed?” Roederer noted. “Also, there is a significant amount of stimulus that is out there as well so you’ve got to figure out how much of that is reoccurring growth and how much is just one time.
“One of the challenges that we have is that you don’t artificially increase budgets as you go along because you know the next year, the money’s not going to be there,” he added. “It’s a time where it’s just really difficult to see what’s down the road.”
Against that backdrop, Roederer agreed to sit down for a question-and-answer session.
Q: Does it appear that the state will be able to weather the COVID-19 economic downturn without experiencing a fiscal 2020 shortfall?
A: In 2020 we have a rather large surplus that was projected and we’re down toward the end of the fiscal year. What makes this a little more challenging is that a lot of the tax due dates have been extended and so we do not know today what we usually know today. But I’m hopeful that we will get through fiscal year 2020. There will be some shortfall, but I’m confident that we will end with an ending balance.
Q: Some states have had to use employee furloughs or layoffs to deal with negative budget impacts. Do you expect Iowa’s state government will face employee furloughs or layoffs either this fiscal year or in fiscal 2021?
A: I do not believe that will be necessary for sure in fiscal 2020, and it’s our desire not to do that in fiscal 2021, but that’s still months away.
Q: Republican leaders in the Iowa Legislature have indicated they hope to confine state spending plans to projected revenue and not to dip into the state’s emergency cash reserves. How difficult will that be to accomplish especially since the CARES Act can’t be used to backfill the loss of state revenue?
A: It will be a challenge. We will do everything possible to not use reserve funds because reserve funds have to be paid back, and it’s better to adjust your budget on a year by year basis. Certainly that will be the goal.
Q: Have you completed a revised fiscal 2021 state budget plan and has it been shared with lawmakers?
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Might it be August or September before you can really get a solid picture of state revenue given the delayed tax filing deadlines?
A: No and no. It’s like many things in life. You don’t know until it’s over and so you don’t really know until all the tax returns are in, but the Revenue Estimating Conference is going to be meeting and the Legislature and the governor will utilize that number in putting their budget together.
Q: Much of the governor’s initial fiscal 2021 proposal was built around the Invest in Iowa approach. However, the governor previously indicated that has been put on hold. How difficult was it fashioning a new plan without those provisions? Was it like going back to the drawing board?
A: No, it’s not going back to the drawing board because hers was very focused … and it balanced out with the increased spending, there also was an increase in revenue. If you take one part out of the Invest in Iowa plan, then the other part of that may come out as well. I know the governor is trying to implement her priorities based on the amount of projected revenue that’s going to be available, and some areas may need to wait until the following fiscal year, but the governor is exploring various options right now.
Q: Will that require setting up different funding streams for things like mental health, water quality and other elements of that plan?
A: Those are all things that are being discussed.
Q: How challenging is it to foresee the economic future and provide a projection before June 3?
A: It’s always a challenge projecting what revenue will do. One of the factors that is new this time around is the fact that you have an unknown issue out there that is hard to quantify, and that’s called angst or fear. How soon will people feel that they can get back into their normal way of life, and that’s one of the things that we are really struggling with.
Q: What does your crystal ball tell you? Will the REC try to project for a full year or break down as quarterly estimates?
A: We will provide for a whole fiscal year. I don’t really have one (a crystal ball) right now. We will utilize the best information that we have by the time we meet.
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Q: Will fiscal 2021 be a situation where the Legislature and governor set a budget but then it may have to be adjusted and fixed on the fly just because there are so many unknowns that could happen during the next fiscal year?
A: Certainly we hope not but that’s always a possibility. When the Revenue Estimating Conference met in the first part of March we knew not hardly anything about a pandemic and what the impact would be. I don’t think anybody at that time envisioned that our economy was going to be turned off. We mentioned at the time that, look, if in fact the situation changes, then we will convene again — which is what we are doing. When you are into uncharted territory like this, it is very difficult to project what’s going to happen. I don’t think anybody has ever seen an economic downturn take place so fast that was self-imposed. So trying to figure out how quickly we can come out of it — I think that is really what our main challenge is when making projections.”
Q: Can the state afford to stick with the 2.3 percent increase that was approved and signed by the governor for fiscal 2021?
A: I have heard no discussion of lowering that at all.
Q: How much of Iowa’s share of the CARES Act has already been expended?
A: “It’s difficult to come up with that number.” Roederer noted the Federal Emergency Management Agency has provided Iowa with $44 million to be used for personal protective equipment that requires a 35 percent match in state funds, but that matching requirement would be waived if Iowa moves all the expenditures into the CARES account. Also, up to $90 million the state Economic Development Authority is offering in small business relief program grants could come from CARES funding. The same goes for the state’s $26 million no-bid contract for the Test Iowa program.
Q: Are discussions underway to share part of the CARES Act money with local government entities? If so, how much and who would get what amount?
A: The local governments have visited with the governor about that and she will be looking at that as she’s looking at putting together the FY20 adjustments and the FY21 budget.
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