State Revenues Fall Short; Budget Cuts Needed

Dec 13, 2016

State lawmakers will have the tough job of cutting this year’s state budget when they convene in January, after new projections Monday from the Iowa Revenue Estimating Conference. 

The REC predicts that tax receipts will grow by 4.2 percent in the current fiscal year that ends June 30.

That’s $96 million less than earlier estimates.    

Keep in mind that the economy is growing

Department of Management Director Dave Roederer says to accommodate the shortfall, the governor will be recommending how to cut this year’s budget by roughly $100 million.

Roederer would not say whether that would be accomplished by keeping state positions open, or by state employees voluntarily leaving their jobs.

“I think it's premature to say quite yet what we will be doing but we're exploring various options,” Roederer said.   “The governor will be making a recommendation in January as to what we should be doing.”

Roederer said the cuts would be selective rather than across-the-board.  He said basic state school aid would not be cut.

REC members point out that even though revenues have fallen short of expectations, there will still be more than four percent growth in tax receipts this year.

"Keep in mind that the economy is growing and the revenues projected to come into the state are growing,” Roederer said. “They are just not growing at the rate that the budget was based on.”

Roederer says it appears losses in the farm sector are stabilizing, but weakness in farm-related income continues to limit overall growth in state tax receipts.

I think we will start seeing much more positive news out of the farm sector

"I think we will start seeing much more positive news out of the farm sector," Roederer said.

Mason City management consultant David Underwood is a member of the REC.   He says Iowa’s industrial sales and manufacturing sectors are sluggish.  

“Industrial sales which is a big part of Iowa's economy continue to be weak in particular as they relate to exports," Underwood said.  “Iowa has many exporting industries.”

REC member Holly Lyons says declines in manufacturing are directly related to weakness in the agriculture sector.

“The two are pretty well coupled,” said Lyons, who heads the fiscal services division at the Legislative Services Agency.

The REC concludes wages and employment are up slightly, but sales taxes are lagging.  

The panel also reduced its estimate for tax receipts in fiscal year 2018 by over $60 million. 

Tax receipts next year are estimated to be over $7.5 billion, or 4.6 percent growth.  The governor and the legislature will be bound by that estimate as they craft next year’s budget.

For this year, Roederer stresses that the $100 million cut will be a small percentage of the total budget.

“But I don't want in any way to underestimate what the challenge will be when you cut $100 million out of the existing budget,” Roederer said.  “That will be a real challenge.”