Revenue estimating conference sets preliminary estimate for FY 2016

The revenue estimating conference (REC) met last Thursday to begin the budget process for fiscal year (FY) 2016. The three-person panel met to review and adjust the FY 2015 general fund revenue estimate and to make a preliminary estimate for revenue in fiscal year 2016.

All three members of the REC said that there were good signs in Iowa’s economy. Iowa’s economy is growing, but that growth is now not as strong as some other states. But there are also concerns, starting with the ag sector.

Lack of growth in Iowa’s labor force is another issue. Jobs are available, the issue is having enough qualified people to fill them. Much of the growth in personal income tax will come from wage growth, not expanding numbers in the work force.

In terms of current indicators, LSA said corporate tax revenue was up in the first quarter and revenue from personal income tax withholding is up 6 percent. The major economic surveys are showing confidence in Iowa’s and America’s economy. Economic performance here is believed to be stronger than that in Europe and in Asia, where China’s rate of growth is slowing down.

On the ag front, a major concern is commodity prices. When compared to one year ago, corn prices are 40 percent lower and soybeans are down 23 percent. The lack of a final decision by the EPA on the renewable fuel standard is also impacting corn prices. Many in the financial community are keeping a close eye on their clients who are involved in row crop agriculture. Rent for farmland is an area where future income is likely to be significantly lower.

Livestock producers are benefitting significantly from high demand, low supply, and lower feed costs. Ethanol producers are also benefiting from lower corn prices, but some are now having to raise what they are willing to pay for corn in order to maintain production.

FY 2014

The final revenue number for FY 2014 was established at 6.4888 billion. This is very close to the budget passed by the Legislature of $6.4922 billion. Agencies reverted $21 million in unspent funds back to the general fund, a number higher than the projected amount of $14.4 million. This means the FY 2014 budget actually spent $6.4712 billion.

FY 2015

The REC lowered the FY 2015 revenue estimate from $6.9832 billion to $6.8503 billion. This represents a revenue increase of 5.6 percent over FY 2014. Much of the change can be attributed to the end of year drop in FY 14 revenue.

Since FY 14 ended at a lower level than expected, part of the revenue growth in FY 15 is consumed by getting back to the budget’s starting line. Another adjustment is in corporate tax collections, which were reduced by $52 million. Lottery revenue to the state was also lowered.

FY 2016

The initial REC estimate for FY 2016 revenue is $7.1789 billion, or an increase of $328.2 million over the adjusted FY 15 numbers. That is growth of 4.8 percent over FY 2015.

Again, how the ag economy ends up over the next two months has the ability to move that number either way.

It is important to remember that the FY 2016 projection is a preliminary forecast. The December meeting of the revenue estimating conference will set the number which will be used to build the FY 2016 budget. The date for this meeting has yet to be set.