Diminished Growth in Iowa Economy; Tax Receipts Fall Short

Oct 19, 2017

The Iowa economy is still growing, but not as robustly as predicted, and tax receipts for this budget year are off to a slow start.    

That’s the conclusion of members of the Iowa Revenue Estimating Conference,  who say unless things pick up, this year’s state budget of $7.3 billion will have to be trimmed by roughly $130 million.

Department of Management Director Dave Roederer says there are several drags on the economy.

You're better off making adjustments starting now. -Dept. of Management Dir. Dave Roederer

“Wages are going up but not necessarily as great as we had projected,” Roederer said.   “Bottom line for most of this is we are still tied to a weak agricultural economy right now.”  

State tax receipts have grown since July by 2.4 percent but the budget is based on anticipated growth of 4.3 percent.

Roederer says state agencies are being advised to look for ways to trim their budgets now rather than wait for later updates in revenue estimates.     

“When you know you're going to need to make adjustments, you’re better off making adjustments starting now rather than three months from now,” Roederer said.

Members of the conference cited other factors behind the shortfall in tax receipts.

While that is not ideal, it is reality. -Rep. Pat Grassley

For example, sales tax receipts fell short of projections.

“This is partly attributed to online marketplace sales,” said Fiscal Services Director Holly Lyons.   “Some sources also partially attribute it to declining disposable income…or changing consumer habits such buying Netflix services versus buying DVD’s or visiting movie theaters.”

“Lack of employees is a drag on growth,” said Mason City business consultant David Underwood, referring to the state’s labor shortage.    

If revenues do not improve, the legislature will be required to cut this year’s budget when they reconvene in January.

“Slow revenue growth is a trend being experienced nationwide, particularly in Midwestern states,” said Rep. Pat Grassley (R-New Hartford), who chairs the House Appropriations Committee.   “While that is not ideal, it is reality.”

"Despite historically low unemployment, the economists' projection of flat revenue growth poses big challenges for the Legislature next session,” said Rep. Chris Hall (D-Sioux City), ranking Democrat on the House Appropriations Committee.