State Revenues Revised Upward Amid Economic Optimism

By Rod Boshart, Reporter

DES MOINES, Iowa - Optimistic state revenue estimators Friday bumped their growth projections for Iowa's tax collections upward by $250.7 million over the next 15 months.

Members of the state Revenue Estimating Conference expect the state treasury to finish the current fiscal year on June 30 with overall growth in revenues of 5.2 percent – a $6.637 billion influx that would outpace fiscal 2012 by $325.9 million. They also revised their fiscal 2014 estimate higher by $130.8 million from December with expectations the state will collect nearly $6.871 billion in taxes – a growth rate of 3.5 percent, or $233.6 million.

"It's clear the economy has outperformed our estimates," said David Roederer, director of the state Department of Management who also is REC chairman and Gov. Terry Branstad's chief budget architect. At the same time, he sounded a cautionary tone that the current recovery is "very fragile" with areas of weakness that prevent Iowa's economy from busting loose.

REC member Holly Lyons of the Legislative Services Agency said uncertainty over federal government finances, fluctuating gas prices and Iowa's drought outlook heading into this year's growing season are among the factors causing "a real drag" on the economy.

"The economy is chugging along at a very modest pace despite some pretty serious head winds," she said, pointing to a number of positive indicators. "While none of them could be considered to be strong, there's nothing to suggest an impending downturn."

By law, the governor and split-control Legislature are required to use the December revenue estimates in negotiating a fiscal 2014 budget plan. But the $119.9 million increase for this fiscal year and the $130.8 million boost over the panel's December report will feed into surplus projections of $822 million for fiscal 2013 and $874.2 million for fiscal 2014 that were included in the governor's proposed budget plan released in January.

Republicans and Democrats in the split-control Iowa Legislature will have to close a $484 million gap in their spending targets to hammer out a fiscal 2014 budget to take effect July 1.

Majority House Republicans unveiled a budget proposal that seeks to spend $6.414 billion while Democrats who control the Senate proposed a fiscal spending plan slightly below $6.9 billion. Gov. Terry Branstad lands in the middle with the $6.538 billion plan he unveiled last January.

Friday's projections are the final puzzle pieces that Republicans and Democrats in the split-control Iowa Legislature needed to proceed with budget talks that likely will focus on Republicans' desire to return the excess collections to Iowa taxpayers and Democratic plans to divide some of the surplus funds between providing middle-class tax relief and bolstering spending in priority areas that suffered during recessionary cuts.

"I think we have to resist the temptation to spend more than our ongoing revenue," said Rep. Chuck Soderberg, R-LeMars, chairman of the House Appropriations Committee. "We do not want to get into the situation that we were a few years ago when we had overcommitted and we didn't have the revenue to pay the bills of the state of Iowa. So we have to be very cautious."

Currently, Republicans who control the Iowa House 53-47 and Democrats who hold a 26-24 edge in the Iowa Senate face a $484 million gap between their fiscal 2014 spending targets. House Republicans have proposed to spend $6.414 billion during the fiscal year that begins July 1, while Senate Democrats proposed a fiscal spending plan slightly below $6.9 billion and Branstad lands in the middle with a $6.538 billion budget proposal that would use surplus state dollars as a multi-year "bridge" to reduce commercial property tax rates and tax cap increases on residential and agricultural property classes.

"Iowa's rising state revenues are another sign that our responses to the national recession are working," said Sen. Bob Dvorsky, Chairman of the Senate Appropriations Committee. "As Senate Democrats work to fund the key priorities of Iowans, we invite Gov. Branstad and Republican legislators to help us balance the budget without raising taxes while expanding educational opportunities, increasing access to affordable health care, and closing the Iowa worker skills gap."

Republicans countered that lawmakers have to remain disciplined in spending less than the state collects, not using use one-time money for ongoing expenses, not purposefully underfunding government commitments and returning "over-collected" tax dollars to taxpayers.

"It is great news that revenue estimates are up and that Iowa's fiscal house remains in order. However, this should not be a green light for Senate Democrats to increase the footprint of government," said Senate GOP Leader Bill Dix of Shell Rock.
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