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Iowa's revenue forecasters say the state is in a strong financial position

Iowa Capitol
Katarina Sostaric
IPR News
Iowa’s revenue forecasters said Friday the state is in a strong financial position.

Iowa’s revenue forecasters said Friday the state is in a strong financial position, and the interim state budget director believes the state is bringing in enough money to allow for more tax cuts.

The state ended the 2021 fiscal year withan extra $1.24 billion, the biggest surplus in Iowa history. State revenue increased by $870 million or 11 percentcompared to the previous year.

“This growth reflected positive consumer confidence in the form of pent-up demand for goods and services, an improving economy, and massive federal assistance in the form of stimulus payments, child tax credits, extended unemployment benefits, and the Paycheck Protection Program,” said Holly Lyons, fiscal division director of the nonpartisan Legislative Services Agency.

She said federal pandemic relief programs likely gave a “huge boost” to the money the state gets from Iowans paying personal income taxes and sales taxes.

“The question is, what happens as the impact of that stimulus money fades?” Lyons asked.

She said overall, Iowa is in a strong position with a budget surplus and full reserves, even with some headwinds facing the global economy.

The Revenue Estimating Conference is predicting state revenue will keep growing, but at a slower rate. Theyestimate state revenue will grow 1.5 percent in the current fiscal year, and 1.6 percent in the next fiscal year.

The estimates include a reduction in state revenue that will happen when tax cuts approved earlier this year take effect in 2023.

Kraig Paulsen was recently appointed by Republican Gov. Kim Reynolds to be the interim director of the Iowa Department of Management. He is also director of the Iowa Department of Revenue and is a former speaker of the Iowa House.

“There is much conflicting information to review at the macro level,” Paulsen said, pointing to wage growth, supply chain issues, questions around inflation, productivity gains and a lower workforce participation rate than the pre-pandemic levels. “But 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 revenues that it drives.”

Asked about the potential effect of a drop-off in federal assistance, Paulsen said the stimulus programs had “some impact,” but he said there’s also been economic growth “outside of that.”

“My confidence is pretty high that we will continue to have strong growth,” Paulsen said. “And again, I mean, it’s up to the elected leadership. But my recommendation would be there’s absolutely significant growth in the ongoing revenue, which presents an opportunity to reduce income taxes.”

Republican leaders credit their budgeting and pandemic response policies for the budget surplus.

“It also reaffirms the need to cut taxes and return the overcollection of taxpayer dollars,” Reynolds said in a statement. “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.”

Democrats highlighted Lyons’ statement that federal assistance programs were a major driver of Iowa’s economic recovery.

“The key questions is this—will Gov. Reynolds and Republican lawmakers address the root causes of our workforce shortage—talented workers leaving the state, elected leaders that project an unwelcome and divisive brand of politics, and an unwillingness to invest in the things that will attract and keep families here?” asked Rep. Chris Hall, D-Sioux City, the top Democrat on the House budgeting committee.

He said working families are seeing the impact of Democratic tax policies like the expansion of the child tax credit at the federal level.

“Any tax changes made next session must be targeted to middle class families, not just the wealthy and special interests,” Hall said.

Katarina Sostaric is IPR's State Government Reporter