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Mid-Year Budget Cuts Unlikely; Revenue Growth Expected To Slow Down

revenue estimating conference
John Pemble/IPR
The Revenue Estimating Conference discusses economic trends at the Iowa Capitol Thursday, Dec. 13, 2018.

A state panel estimated Thursday Iowa’s revenue will grow in the next fiscal year, but it will grow more slowly than it did this year.

Lawmakers use figures from the Revenue Estimating Conference to determine the state budget each year. In the past two years, lower-than-expected revenue led lawmakers to make mid-year budget cuts.

In the current fiscal year 2019, the REC estimates 4.7 percent growth compared to last year, which translates to an additional $345 million in a state budget that’s nearing $8 billion.

Department of Management Director David Roederer said he anticipates that’s enough to avoid mid-year budget cuts during the upcoming legislative session.

“We believe there will be enough funding to do the essentials what government is supposed to do and the commitments that have been made,” Roederer said.

He added state officials need to be cautious and watch how much money comes into state coffers after recent state and federal tax changes.

In Fiscal Year 2020, which starts in July, the REC predicts 1.8 percent revenue growth. The expected slow-down comes after a revenue spike fueled by federal tax law changes in 2017. Iowa tax cuts may also cut into state revenue.

This means Gov. Kim Reynolds will have an additional $140 million to work with as she crafts a budget proposal ahead of the legislative session that is scheduled to start January 14.

Republican Rep. Pat Grassley of New Hartford said the estimates are good news.

“Our economy is growing, and the budget remains balanced with a healthy surplus,” Grassley said.

Democratic leaders disagreed.

“The 2019 Legislature faces significant budget challenges and today’s lower estimate adds another layer of uncertainty,” said Rep. Chris Hall of Sioux City.

The December revenue estimates are slightly lower than October’s.

REC member Holly Lyons noted it’s especially difficult to estimate revenues this year without knowing the full impact of state and federal tax changes, as well as fast-moving world events that could shake up the economy.

“There’s just more noise, or variables, when looking at this particular December estimate, which is why this Legislative Services Agency estimate is a bit more on the cautious side of optimistic than the October estimate,” Lyons said.

The next revenue estimate will come in the spring.

Katarina Sostaric is IPR's State Government Reporter