Iowa budget could see another $45 million to $90 million in spending cuts, officials say

When the Iowa Legislature returns in January, lawmakers will likely be faced with making $45 million to $90 million in budget cuts for the fiscal year that ends June 30, the state's chief budget officer said Monday.

The grim news came after a three-member Revenue Estimating Conference issued a forecast that calls for revenue of $7.237 billion in the current budget year, which represents a 2 percent increase over the previous fiscal year after reserve fund transfers are excluded. The increase amounts to less than was forecast earlier in the year, when the Legislature developed its budget for the current fiscal year.

For the 2019 state fiscal year, which begins July 1, 2018, revenues are estimated $7.527 billion, up 4 percent over the current year.

David Roederer, director of the Iowa Department of Management, said he anticipates Gov. Kim Reynolds will address a need for "some adjustments downward" in her budget proposal to the Iowa Legislature in early January. He estimated the potential spending cuts at $45 million to $90 million, but an exact figure hasn't been determined yet. A similar budget-reduction scenario faced lawmakers when they convened earlier this year for their 2017 session.

"The economy is in a very interesting situation," said Roederer, who chairs the Revenue Estimating Conference. "We are continuing to grow, and with low unemployment, we usually see personal incomes coming up — and it is starting to come up a little bit, but not just as rapidly as we had first projected. So we are trying to be cautious, but we are also trying to be realistic as to what we think will happen.”

David Underwood, a business consultant from Clear Lake who also serves on the revenue conference, said one of the biggest unknowns on state revenue is the impact of a federal tax bill pending in Congress. The sluggish farm economy and the fate of the North American Free Trade Agreement are also factors that could have significant effects on state revenue, he added.

"What we haven’t talked about happening yet is farmers in trouble," Underwood said. "Somehow, our farmers had enough reserves built up that they were able to survive a couple of years. But, recently, I have heard some of the bankers talking about farmers really in trouble now."

Revenue panel member Holly Lyons, director of the Fiscal Services Division of the Legislative Services Agency, described state revenues as growing, but "disappointing," for the past five months.

"At this point, we believe a slight downward revision in the forecast is appropriate," Lyons said.

Reaction among legislative leaders closely followed party lines.

"While revenue estimates can be unpredictable, House Republicans are not. We will continue to live within our means and pass a responsible budget that funds Iowans’ priorities," said Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee.

Because agriculture plays a major role in Iowa's economy, the state's budget will be affected when corn is selling for $3 per bushel, Grassley said. He noted that surrounding states are facing similar revenue problems.

Sen. Joe Bolkcom, D-Iowa City, the ranking member of the Senate Appropriations Committee, argued that economic prosperity and fiscal responsibility will only return to Iowa if Reynolds and Republican legislators start working in a bipartisan way to make smarter investments in Iowa workers and their families.

“With complete control of the Iowa Capitol, Statehouse Republicans adopted a my-way-or-the-highway approach to budget and policy decisions during the 2017 session," Bolkcom said. "This meant that they ignored the voices of working Iowans who were begging Statehouse Republicans to keep their two biggest campaign promises: raise family incomes by 25 percent and create 200,000 new Iowa jobs."

The Revenue Estimating Conference meets three times a year — typically in October, December and March — to reach a consensus on state revenue forecasts. Revenue estimates developed by the committee in December are used by the governor in preparing their budget recommendations to the Legislature and by the Legislature in establishing the state's budget.

If the March recommendations represent an increase in estimated revenues, the governor and Legislature must use the lower figures estimated in December. But if the March estimates are lower than December, the governor and Legislature must use the new, lower figure.