DES MOINES — State revenue predictors Friday boosted Iowa’s tax collections forecasts by $240 million over the next 16 months. The upswing is mostly from the positive effects from federal tax cuts, and are unlikely to remove the need for cuts in the budget that ends June 30.
The three-member Revenue Estimating Conference bumped up its current-year growth estimate by $33.3 million from December to nearly $7.271 billion, but David Roederer, REC chairman and Gov. Kim Reynolds’ budget manager, said the increase was not enough to resolve a projected budget shortfall.
Roederer said the fiscal 2018 budget was about $27 million “short” when the governor laid out her spending plan in January. That plan included about $11.2 million in extra revenue from the federal tax cuts because of Iowa’s federal deductibility feature, so the increased revenue identified Friday would not be enough to balance the ledger and provide a small surplus cushion, he said.
“So it’s going to come down to a question -- there still needs to be some reductions in funding, and it’s what the comfort level will be for the governor and the Legislature is what the ending balance needs to be for fiscal 2018,” Roederer told reporters after the meeting.
While Friday’s revisions did not solve the state’s shortfall problem, he said the positive adjustments “is better news than if it was $33 million going in the other direction.”
In January the governor proposed erasing the projected shortfall in the current budget year by:
- “De-appropriating” $19.4 million in selective cuts to various budget areas
- Making a $10 million adjustment in Medicaid spending
- Using revenue from the expected federal tax windfall to the state to balance the ledger and close the year with a $3.6 million balance
She proposes using any future state gain from the federal tax changes into lower individual state income tax rates, eliminating federal deductibility and simplifying Iowa’s complicated tax system.
Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, issued a statement after the REC indicating “we have a much clearer picture of what adjustments are truly necessary” for the current budget but did not spell out a plan of action.
“We are continuing to see growth in Iowa’s economy, but we need to be cautious with every budget decision we make,” Grassley said in his statement. “With this updated information, we will move forward with the (fiscal 2019) budgeting process using a pragmatic, conservative approach.”
But Rep. Chris Hall, D-Sioux City, ranking member of House Appropriations Committee, said even with the additional revenue Statehouse Republicans still face a budget crisis after borrowing $144 million from state reserves to balance last year’s budget.
“You can’t put lipstick on a pig,” said Sen. Joe Bolkcom, D-Iowa City, ranking member of the Senate Appropriations Committee. “No matter how Statehouse Republicans try to spin it, they still have a giant budget mess on their hands.”
Earlier this week, the governor said she was hopeful Friday’s revised growth estimates could reduce or erase a projected shortfall.
“We want to minimize the de-appropriation as much as we can because I want to make sure again that we do it in a manner that has as little disruption as possible," she said.
At last count, the House and Senate were about $11 million apart on reaching agreement on how much they'll make current year cuts. Senate Republicans started at about $52 million in adjustments, but they pared their de-appropriation bill back to $44 million, while the House Appropriations Committee amended Senate File 2117 to cut nearly $33 million from the current spending plan.
Senate Republicans were not available for comment on Friday, but Senate Appropriations Chairman Charles Schneider, R-West Des Moines, said Monday lawmakers were awaiting the REC revisions before proceeding. “We want to make sure that we’re leaving ourselves enough cushion to absorb any revision downward,” he noted.
For the fiscal 2019 budget that lawmakers will start assembling next week, the REC increased revenue estimate by $206.8 million to $7.734 billion – a 6.4 percent growth rate that Roederer attributed to the positive effects of federal tax cuts that were expected to bring in an extra $188.3 million.
Overall, the revised fiscal 2019 revenue growth estimate was $462 million higher than expected state tax collections for the current year. Roederer said some of that extra money would be used for budgeting or rolled into state income tax cuts being formulated by legislative Republicans and the governor.
Along with making revisions to estimates for fiscal years 2018 and 2019, the panel members set their first projections for fiscal 2020 tax collections at $8.035 billion – an increase of 3.9 percent.