DES MOINES -- Gov. Kim Reynolds and legislators face another relatively tight budget year, but not the prospects for more midyear shortfalls thanks to continued strength in an economy that still faces uncertainties, a state forecasting panel said Thursday.
Members of the Revenue Estimating Conference scaled back their previous growth estimates by $18 million, but still expect tax collections to increase by 4.7 percent through June 30.
Then the estimate slows to 1.8 percent growth in fiscal 2020 — the budget year for which lawmakers will craft a new state spending plan in the upcoming legislative session.
Tax receipts are projected to growth by $344.7 million this fiscal year and another $139.8 million in fiscal 2020.
“In the eight weeks since we met last, little has changed economically,” said panel member Holly Lyons of the Legislative Services Agency. “The underlying fundamentals of the national and state economy remain sound. The economy continues to be in mid-expansion, with nothing on the immediate horizon that suggests a serious downturn or recession.”
Panel members Lyons, Clear Lake businessman David Underwood and David Roederer, director of the Department of Management, noted there remains international trade uncertainty that is hurting Iowa’s agriculture and manufacturing sectors, and Iowa’s economy is stymied by a shortage of qualified workers. At the same time, wage growth is gradually accelerating — but slower than the national average — and interest rates are manageable with inflation around 2.2 percent.
Iowa’s revenue picture also is clouded by federal and state tax policy changes that will affect — in an unsure way — the remaining six months of fiscal 2019 tax collections.
The governor and Legislature are required to use this December estimate in their upcoming budget deliberations. Roederer said the current year likely will end with a surplus of about $200 million, but with expectations that growth in revenue will slow due to a mix of economic and tax policy factors.
“There will never be enough money to fully fund everything that everyone comes into the door wanting. That won’t happen,” Roederer told reporters after the meeting. “We believe that there will be enough funding to do the essentials which government is supposed to do and the commitments that have been made.”
The panel members advised caution due to the uncertain conditions, with Underwood noting that “I believe our most prudent course of action is to remain patient and disciplined in what we do as well as conservative, watchful for the signs of the recession that will come someday.”
Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, called Thursday’s projections “good news for Iowa taxpayers” and expected Republicans to formulate a two-year budget next session that “invests in Iowans’ priorities in a responsible way.”
Democrats were less optimistic heading into a new year that begins with state income tax cuts Jan. 1 they say favor the wealthiest Iowans while slashing the amount of available revenue to fund vital state programs and services.
Sen. Joe Bolkcom, D-Iowa City, ranking member of the Iowa Senate Appropriations Committee, called the estimates “lackluster.” His Iowa House counterpart, Rep. Chris Hall, D-Sioux City, predicted lawmakers won’t be able to fund basic needs.
“The 2019 Legislature faces significant budget challenges and today’s lower estimate adds another layer of uncertainty,” Hall said in a statement. “The state budget will continue to limp along in the direction of Kansas as long as Republican leaders ignore the state’s economic needs — better wages and a better educated, trained workforce.”
The 88th Iowa General Assembly, made up of Republican majorities of 54-46 in the House and 32-18 in the Senate, is set to convene Jan. 14 for the 2019 session. One day later, Reynolds will deliver her Condition of the State address and her budget proposal.