DES MOINES --- The expert panel charged with forecasting Iowa’s state revenues painted a rosy picture of the state’s budget and future financial health.
The state’s Revenue Estimating Conference during its regular meeting Friday at the Iowa Capitol projected continued growth of 1.5% for each of the next two fiscal years, growing a state budget that would surpass the $9 billion mark in the fiscal year that starts in June of 2023.
“I’m left to conclude that with a reasonable degree of confidence we should expect continued growth in both Iowa’s economy and the state revenue that it drives,” said Kraig Paulsen, the panel’s chairman who was participating in his first REC meeting after recently being named interim director of the state Department of Management.
Holly Lyons, a panel member and director of fiscal services for the state’s nonpartisan Legislative Services Agency, credited the state’s good fiscal health to higher-than-expected consumer spending --- especially in March, April and May --- that revealed a pent-up demand for goods and services, an improving economy, and “massive” federal assistance.
Lyons said roughly $11 billion in federal funding has been pumped into Iowa’s economy through myriad pandemic-related assistance programs, which she said provided a “huge boost” to state income tax collections and sales tax revenue.
“While there are some headwinds facing the global economy and, to some extent, the Iowa economy, Iowa remains in strong financial position,” Lyons said. “LSA is cautiously optimistic in our Fiscal Year ’22 and Fiscal Year ’23 estimates.”
Lyons cautioned, however, that the influx of federal assistance creates uncertainty for what the state’s economy will look like next year and after. She said once that funding fades, it is difficult to predict what Iowans’ spending habits will look like.
“We continue to be in strange times with an unbelievable level of uncertainty,” Lyons said. “It’s still very uncertain how much of the shifts in consumer and business and worker behaviors will persist.”
The REC’s third member is David Underwood, of Clear Lake, the panel’s public member.
In addition to the projected revenue growth, Iowa’s current budget has a surplus of more than $1.2 billion, the state’s taxpayer relief fund contains more than $1 billion, and the cash reserve and economic emergency funds contain a combined $817 million.
Statehouse Republicans, who have agenda-setting majorities in both chambers of the Iowa Legislature, quickly reacted to the latest projections with pledges to enact more tax reductions.
“Now, with full reserve accounts and record setting surpluses, it is time to permanently reduce income taxes and continue to reward work and investment,” Senate Majority Leader and Ankeny Republican Jack Whitver said in a statement. “Iowa should remain a national leader in implementing successful economic policies to make the state an even better place to live, work and raise a family.”
Republican Gov. Kim Reynolds in a statement said the latest revenue numbers show an “over-collection of taxpayer dollars.”
“I’ll be working with my team and legislative leaders to introduce legislation that will build upon our previous historic tax cuts and will continue to return to Iowans their hard-earned money while ensuring our state prospers and grows,” Reynolds said.
Rep. Gary Mohr, chairman of the House budget committee and a Bettendorf Republican, added in a statement, “Iowa House Republicans will continue to work with the Senate and governor’s office to continue the budgeting policies Iowans have come to expect from us: implementing a balanced budget, properly funding our priorities, and allowing Iowans to keep more of their hard-earned money.”
The top Democrats on the Iowa Legislature’s budget committees both, in issued statements, highlighted the role that federal relief funding --- approved by congressional Democrats and President Joe Biden --- played in Iowa’s fiscal health, and said any future state tax reductions should be targeted.
“Democratic tax cuts have always focused on the middle-class, and working families have already seen the results of our tax cuts and expansion of the child tax credit this year,” said Rep. Chris Hall, from Sioux City. “Any tax changes made next session must be targeted to middle class families, not just the wealthy and special interests.”
Sen. Joe Bolkcom, from Iowa City, added, “Kim Reynolds and Jack Whitver want to give more tax cuts for the wealthiest few. Iowa Senate Democrats support tax cuts for hard working families --- the Iowans who need and deserve the relief. We oppose more state handouts and sweetheart deals for Gov. Reynolds’ financial donors and friends.”
The REC will meet again in December and update its projections. Those figures will provide guide rails to state lawmakers as they craft next year’s state budget during the 2022 legislative session.