Government

State model shows Iowa budget growth with tax cuts

Reynolds administration pins forecast on 4 percent growth

From left, acting Lt. Gov. Adam Gregg, Gov. Kim Reynolds and David Roederer, director of the state Department of Management, open hearings Nov. 13, 2007, on the fiscal 2019 state budget. Legislators later approved a state income tax cut beginning in the 2019 tax year. (Rod Boshart/The Gazette)
From left, acting Lt. Gov. Adam Gregg, Gov. Kim Reynolds and David Roederer, director of the state Department of Management, open hearings Nov. 13, 2007, on the fiscal 2019 state budget. Legislators later approved a state income tax cut beginning in the 2019 tax year. (Rod Boshart/The Gazette)
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DES MOINES — Budget models made by Gov. Kim Reynolds’ administration indicate the governor and lawmakers will have an estimated $230 to $250 million annually for new spending, even as new state income tax-cut legislation reduces the revenue stream by $2 billion through 2023.

Officials within the Iowa Department of Management expect state tax collections will grow by the historical average of 4 percent annually for the next five years. Projections already set by the Revenue Estimating Conference in March forecast $7.734 billion net receipts, or 6.4 percent growth, for the current fiscal year that began this month, and $8.035 billion in fiscal 2020 — a jump of 3.9 percent.

During the 2018 session, the GOP-led Legislature approved and Reynolds later signed a multiyear tax-cut package beginning with the 2019 tax year. The plan will pare back revenue by $100 million in the current spending plan, which is slated to appropriate $7.48 billion through June 30, 2019.

The tax cut impact shrinks the state revenue prospects by another $162.9 million in fiscal 2020 and then gradually has about a 1 percent negative impact on state tax receipts available for budgeting in future years, according to state Management Department projections.

Legislative Democrats have argued that Republicans have put the state budget on “a starvation diet” to make room for tax cuts that primarily benefit wealthy Iowans, but Republicans say some belt-tightening was needed to address past spending imbalances brought on by lower-than-expected revenue growth and to repay money borrowed from state reserves.

Reynolds said the projected state tax collections and money available for future appropriations under the state’s 99 percent expenditure limitation were critical to her moving forward with a tax-cut plan she believes will provide adequate resources to fund priorities in areas of education, health care, public safety and economic/workforce development. The plan also sets economic and growth “triggers” that must be met for the tax cuts to proceed beyond 2022, she noted.

“We wanted to make sure that we did it in a responsible manner so that I could continue to honor our priorities,” Reynolds said in a recent interview.

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“Iowans have to remember that if we hadn’t done anything, their taxes were going to go up because of federal deductibility. They would have gone up on the very individuals that we want to help and that’s families, workers, small businesses, farmers. And so this is an opportunity to pass those savings on,” she said.

The governor added that she wants state policymakers to scrutinize state tax-credit and corporate income tax rates during the interim with an eye on addressing those areas next legislative session.

Democrat Fred Hubbell, a retired Des Moines businessman and corporate executive who is challenging Reynolds in this November’s general election, questions whether now is a prudent time to embark on state tax cuts when the governor and legislative Republicans have been forced to make midyear spending cuts the past two budgets to balance shortfalls that have impacted schools and health care programs, caused college students to pay higher tuition and thwarted most priorities he hopes to fund if put in charge of state finances.

“They’ve cut regents and community colleges three years in a row. They’ve consistently underfunded education, done nothing for health care,” said Hubbell, “They’ve already not been adequately funding the priorities that I would have as governor. So, now that we’re reducing revenues even further. I don’t see how it’s going to improve funding those kinds of priorities in our state.”

David Roederer, director of the Management Department, leader of the Revenue Estimating Conference and Reynolds’ state budget director, said the projections his agency put together indicate there is room within the state budget for paring back tax collections while providing steady spending growth of up to $250 million annually — providing that revenue comes in around the yearly average of 4 percent growth.

Critics point to economic uncertainty associated with international trade disputes that could hurt agriculture, manufacturing and export revenue critical to the state’s economy, as well as problems besetting other states like Kansas that embarked on aggressive tax-cut plans as red flags for Iowans.

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