DES MOINES — A panel of state revenue experts on Monday projected continued slow growth for the Iowa economy but did not see signs of an impending recession.
The state Revenue Estimating Conference said that based on its projections, Iowa’s lack of a skilled workforce to meet manufacturing and construction demand, “troubling” uncertainty around the world and domestic issues that affect the farm economy are putting a drag on the state’s economic outlook and dampening expectations for tax collections through June 2021.
Citing caution, revenue conference members set state revenue growth at 1.4 percent for the current fiscal year, or a little more than $7.966 billion, and 2.7 percent in fiscal 2021 — when they expect state tax collections to approach $8.182 billion.
Revenue conference member Holly Lyons of the Legislative Services Agency said the Iowa and U.S. economies continue to grow, although slowly and at a time when there are “significant uncertainties clouding the forecast.” Despite the negatives, she said she did not see factors pointing to an economy that is “tipping toward recession anytime soon.”
“While there is uncertainty in the economic forecast, there are no dark storm clouds indicating a recession is imminent,” Lyons said.
Lyons came into Monday’s meeting with state revenue growth projections approaching 2.8 percent for both fiscal years.
David Roederer, who leads the revenue conference and directs the state Department of Management, said he expected net state receipts plus transfers would drop this fiscal year compared with the nearly $7.859 billion that was collected during the 12 months that ended June 30.
Last year’s 6.4 percent growth rate was driven by federal tax cuts that netted more state revenue because of Iowa’s federal deductibility law and a state tax cut package that lowered personal income collections but bolstered sales tax receipts by capturing more online sales.
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Revenue conference member David Underwood, a retired financial manager from Mason City, brokered a compromise position that landed the fiscal 2020 revenue estimate about $100 million before the LSA projection but well above Roederer’s target. The three members agreed on a fiscal 2021 estimate that expects the state treasury to collect an extra $323 million over the 19-plus months until June 30, 2021.
“I’m just disappointed that we’re at this point we have so much uncertainty still hanging over us, which makes it difficult to see the rosy side of it,” Underwood said. “I think we have to be a little bit cautious.”
Roederer, who also serves as Gov. Kim Reynolds’ budget director, said conference members will revisit revenue estimates in December when they set the numbers the governor and Legislature are required to use for state budgeting purposes under the state’s spending limitation law.
Overall, he said Monday’s discussion was “good news” because the projected revenue growth, coupled with the $289 million surplus balance last fiscal year, should mean there will be “no need for a midyear budget adjustment” similar to what happened in past budgeting cycles.
“We see a softening, we see a slowdown, but nothing into what we would classify as a recession,” he said.
Roederer said the aftermath of the recent tax-cut package is playing out about as expected with a “transition period of time.” But he thought the state remained on target to meet “triggers” of 4 percent revenue growth and at least $8.1 billion in tax collections for fiscal 2022 that were set by lawmakers as measures needed to be met for the state to phase out its federal deductibility law — a provision whereby Iowans can deduct their federal tax liability from their state taxes.
Rep. Chris Hall, D-Sioux City, ranking member of the House Appropriations Committee, said Monday’s meeting affirmed what many Iowans already knew: Low wages are not keeping up with the rising costs to support their families.
“Biofuels plants have closed, and lower demand for crops have caused job losses for Iowans,” Hall said in a statement. “We know the reckless trade policies and tariffs to appease Big Oil and special interests in D.C. are a drag on Iowa’s economy.
“At the same time, the governor and Republican lawmakers have made millionaires, corporations and special interests their top priority,” Hall added. “Building the state budget next year will be challenging because the wealthy and corporations are scheduled to get $228 million in new tax breaks. Democrats believe it’s time to make everyday Iowans the top priority again.