The Revenue Estimating Conference met March 19 for its required meeting during the legislative session.
The three-member committee reduced the amount of new dollars the general fund will have to spend in FY 2016.
For FY 2015, the general fund estimate was lowered by $89.7 million to $6.7671 billion. The REC made adjustments by lowering their projections for personal income tax collections by $40.3 million and corporate income tax collections by $20.5 million.
The REC also increased their forecast for tax refunds by $33.4 million. These adjustments are the result of the passage of the IRC update bill, which was projected to reduce revenue by $99 million. Removing the impact of the IRC update bill, the net impact would be a slight increase in FY 2015 revenue by $9.3 million.
For FY 2016, the REC lowered the general fund revenue projections to $7.1755 billion. The group raised their forecast for personal income tax revenue by $56.4 million, but that was nearly offset by a reduction in the corporate income tax projection of $49.6 million. The REC also increased their projection for tax refunds by $36.4 million.
While IRC update bill had lowered FY 2015 revenue, it was expected to raise FY 16 revenue by $19.2 million to $7.2138 billion. The REC estimate eliminates the boost from the bill and further lowers the FY 2016 number by an additional $19.1 million to the new level of $7.1755 billion.
The amount of new revenue available to be spent is the difference between the FY 2016 revenue forecast ($7.175 billion) and the FY 2015 budget ($6.9946 billion). The revised estimate means the state has $180.9 million of new money to spend in FY 2016.
Prior to today’s meeting, we had been working under the assumption that the state would have $200 million of new money in FY 2016. All three members of the REC said there had been little change in the economic factors since their last meeting in December. Economic growth in the US and Iowa remains solid, if at a modest pace.
Iowa’s collections from income tax withholding remain strong. The average work week is now at 42 hours and wage growth is beginning to pick up in-state, even though it has yet to reach the level seen before the 2008 recession.
There is concern over Iowa’s ag economy. The state saw a loss of manufacturing and ag machinery jobs in the last few months and the Rural Main Street Index fell below neutral levels. The strong dollar is having an impact on export markets, which are a key part of Iowa’s ag economy. Average corn prices are still 43 percent below their 2013 highs with significant supplies still in the bins.
Even with these caution signs, Iowa’s farm economy is not in trouble. Income tax returns are showing farmers are holding their own or posting small profits from the last year. Ag debt levels are at a manageable level, since many of the purchases made during the last few years were with cash. Livestock producers continue to have solid prices. Input costs should begin to decline if lower oil prices remain during calendar year 2015, and the over-supply of corn should be reduced in the next two to three years.
Thank you for attending this year’s legislative forums. While they have come to a close for this year, I continue to look forward to your calls and emails regarding anything you would like to discuss regarding the coming months. It is an honor to serve House District 27!