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State Panel Forecasts Slowing Revenue Growth

State Capitol Ceiling
John Pemble / IPR file
State revenue forecasters estimate Iowa revenue will grow 1.4 percent in this budget year compared to last year.

State revenue forecasters urged caution Monday as they estimated Iowa revenue growth to be much slower this budget year than in the previous one.

“While everything looks pretty good, there are still some warning signs out there,” said Department of Management Director David Roederer.

He said he was always expecting slower growth in the current fiscal year that started July 1, because state tax cuts are being implemented, reducing money going into state coffers. Roederer called this a “transition period,” and he expects to see more growth in two years.

But unfinished trade agreements, a slowdown in national economic growth, low unemployment and lower-than-expected wage growth are also contributing to lower growth estimates for this year.

State forecasters said the U.S. finalizing trade agreements with Mexico, Canada and China could turn that around.

“I’m disappointed that we at this point still have so much uncertainty hanging over us,” said panel member David Underwood. “Which makes it difficult for me to see the rosy side of it. And I guess looking at the numbers we’ve got before us today, I think we have to continue to be a little bit cautious.”

The panel estimated Iowa revenue will grow 1.4 percent compared to last year, which translates to about $107 million more in state coffers.

Last year, revenue grew 6.4 percent, resulting in a $475 million revenue increase compared to the year before that. Iowa experienced a revenue bump when federal tax cuts effectively caused a state income tax increase for some residents.

The panel estimates next fiscal year, which starts July 1, will see 2.7 percent revenue growth.

Despite the expected slowdown in growth, Roederer said he doesn’t think lawmakers will have to make mid-year budget cuts, as they did in 2017 and 2018. And last fiscal year ended with a $289 million surplus, providing a cushion if any state financial or economic issues arise over the next year.

“We do not anticipate a recession in the near term, and while there is uncertainty in the economic forecast, there are no dark storm clouds indicating that a recession is imminent,” said Holly Lyons, fiscal division director of the Legislative Services Agency.

Speaker-Select Pat Grassley, R-New Hartford, said in a statement that Iowa’s economy continues to grow.

“Our reserve accounts are full and the tax relief efforts supported by House Republicans are lowering the tax burden for families and small businesses,” Grassley said.

He added House Republicans will take a “cautious and conservative approach to spending” that “puts taxpayers first.”

Rep. Chris Hall, D-Sioux City, said the Trump administration’s ethanol and trade policies are a drag on Iowa’s economy, and accused state Republican lawmakers of prioritizing millionaires and corporations.

“Building the state budget next year will be challenging because the wealthy and corporations are scheduled to get [millions] in new tax breaks,” Hall said.

The forecasting panel will meet again in December. The estimate they make at that time will be used by the governor to propose a budget for fiscal year 2021.

Katarina Sostaric is IPR's State Government Reporter