Panel forecasts state revenue growth despite economic ‘headwinds’

Gov. Kim Reynolds has been told to repay $21 million in federal pandemic relief aid after an audit. (Photo by Iowa Capital Dispatch)

The state will see a slight drop in revenues in the current budget year before rebounding with a 4% gain in the 2021-22 fiscal year, the Revenue Estimating Conference predicted Tuesday. 

The state-appointed panel predicted Iowa state government will take in $7.9 billion in revenues in the current budget year, which ends June 30. That would be $18.9 million under the actual revenues in the 2019-20 fiscal year, a drop of 0.2%, panel members noted.

The revenue estimate for 2021-22 came in at $8.2 billion, which would be a gain of 4% from the estimate for this year. 

The panel is made up of the governor’s appointee, Iowa Department of Management Director David Roederer; Holly Lyons of the Legislative Services Agency; and David Underwood, retired chief financial officer and treasurer of AADG Inc. in Mason City. 

The panel meets in March, October and December, with special meetings as needed. 

The October meeting is considered more of a pulse check. The other two have legal ramifications.

The December estimate will set a lid for the governor’s budget. The Legislature has to use the lower of the December and March estimates in its budget decisions, Roederer noted. 

There have been questions over the years when the panel’s estimates for revenues turned out to be overly rosy. But the panel’s May estimate for last fiscal year, which ended June 30, was close, exceeding actual receipts by just $6.1 million, Lyons noted. (That included the lowering of the May estimate by $39.1 million after the Legislature’s post-May actions reduced some receipts.)

“We missed the mark by less than one-tenth of 1% on  a $7.9 billion budget, thanks largely to a huge federal assistance stimulus package that sent direct payments to many Iowans, provided increased unemployment benefits to those that lost jobs due to the pandemic and provided a payroll assistance program for businesses,” Lyons said. 

All three panel members said there is uncommon uncertainty in the projections now. 

Lyons said forecasting will be tougher this time around. 

“Now we need to face the nearly impossible, reevaluating our fiscal year ’21 and ’22 projections in light of several things, including a continuing pandemic with no definitive end in sight, drought in some areas of the state, an unusual and very damaging derecho storm last August, a highly contentious election season and current political gridlock in Washington that has reduced the chance of another much-talked-about federal stimulus package from happening anytime soon,” Lyons added. “How do you adjust to an ever-changing situation when the new normal seems to be indefinite uncertainty?”

Lyons said retail sales are down, but “nowhere near as much as during the last recession.” She noted that online sales are up, building materials sales are brisk, and many businesses and schools have reopened at least to some extent.

The federal aid from the CARES Act and other programs earlier in the year, combined with the state’s budget surplus and rainy day fund, have provided stability, Lyons said. 

Underwood said while Iowa’s typically low unemployment rate has risen, there are new “help wanted” signs around the state.

Roederer called the mix of headwinds “unprecedented.” But he also said the reopening of businesses and schools, with coronavirus precautions, is a good sign. 

“Jobs are coming back, but perhaps not at the pace we would like,” Roederer said. He noted the ethanol industry has fought reduced demand, and farmers have encountered drought, derecho damage and still-low grain prices. Federal aid has helped, he added.

It comes down to this, for Roederer: “I think the key is at what pace is the economy going to re-energize and rebound from a pandemic that refuses to leave us?”