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Neighbors Growing Together | Jul 16, 2018

Estimate of Iowa’s revenue growth takes a hit

Another round of belt-tightening likely for state agencies
By Rod Boshart, Gazette Des Moines Bureau | Oct 24, 2017

DES MOINES — State agencies appear to be in line for a new round of belt tightening after a panel Thursday scaled back estimated growth in tax collections by $133 million, likely forcing Gov. Kim Reynolds and the GOP-led Legislature to consider spending revisions before the fiscal year ends June 30.

David Roederer, chairman of the three-member Revenue Estimating Conference and director of the Iowa Department of Management, said state receipts still are projected to grow by 2.4 percent this fiscal year, but the increase is below the expected revenue that the fiscal 2018 state budget was based on.

“We’re going to have to adjust that downward,” Roederer said after the panel lowered its 4.3 percent growth expectation. “We’ll have to figure out what’s the best approach as far as making recommendations to the governor and the Legislature.”

He said state agencies are being cautioned to monitor spending decisions with the expectation that the already appropriated levels for the remaining eight-plus months of the fiscal year will be pared back.

“The worst thing to do would be to pretend that nothing was changing and just say, ‘oh, well, we’re not going to do anything.’ That’s not a good approach,” said Roederer, who noted that state agencies have been told to start making adjustments now.

Panel member Holly Lyons of the Legislative Services Agency said Iowa continues to see slow but modest growth, but not at the rate anticipated when the revenue estimating group met last March. She said positive signs are offset by uncertainty over federal tax reform, health care and budget deficit issues.

Likewise, panel member David Underwood of Mason City said employers continue to struggle to fill skilled jobs and farmers continue to face economic challenges that are a drag on state tax collections. Added to that, said Roederer, are negative ramifications over international events and trade issues and eroding sales tax collections from a major shift to online purchases.

He said state revenue continues to grow against that backdrop, “although it’s not as robust as some would like.”

According to fiscal analysts, state receipts plus transfers for the fiscal 2017 year that ended last June 30 finished at $7.24 billion. But that number gets backed down to $7.096 billion when $144 million that was borrowed from emergency reserves to erase a shortfall is taken into account.

Revenue plus transfer projections for the current fiscal year are basically flat when those adjustments, plus Thursday’s action to scale back current year tax collections, are factored in. Preliminary estimates for fiscal 2019 project growth of slightly better than 4 percent but panel members meet again in December to set the official estimate that will be used by the governor and the Legislature for next year’s budgeting cycle.

Following Thursday’s meeting, Rep. Pat Grassley, R-New Hartford, said the slower-than-anticipated growth relates to Iowa’s farm economy and mirrors what many other states are seeing.

“While that is not ideal, it is reality,” Grassley said in a statement in which he pledged that House Republicans would “continue to budget conservatively and protect taxpayers.”

Rep. Chris Hall, D-Sioux City, ranking member of the House Appropriations Committee, said he is concerned that what growth the state is seeing will go to pay off the $144 million the governor and majority Republicans “put on the state’s credit card this year” rather than investing in education, expanding job training and revitalizing rural Iowa. That debt has “hamstrung” the budget, he said.

“We have stagnant wages but still the majority party in the Legislature and Gov. Reynolds are unwilling to increase the minimum wage or take steps to make wages more competitive in the state of Iowa,” he said.

Grassley countered that Democrats are shifting the blame to state tax credits and ignoring rural Iowans while opposing GOP efforts to align spending with revenue without offering solutions or savings.

But Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee, said “the bottom line is that economic prosperity and fiscal responsibility will only return if Gov. Reynolds and Republican legislators start working in a bipartisan way to make smart investments in Iowa workers and their families.”

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