From Rep. Dave Heaton

Written by Theresa Rose on March 14, 2017

UPFRONT

March 14, 2017

Title:  Tough Budget Decisions Have to be Made:

 

In many of my columns this session,, I have been writing about my concern about the amount of revenue that is being reported every month, and how it compares with the previous years.  Revenue was low enough that we had to provide a $117 million appropriation to take care of this year’s expenditures.  In plain language, there just wasn’t enough money coming in to take care of the budget we passed last year.  Many of these cuts were painful and there were thoughts that perhaps, in this next year’s budget, we might be able to backfill some of these de-appropriations, especially in Public Safety, Department of Corrections and the Courts that are now at risk.

 

The state’s revenue figures for the month of February provide a confusing and concerning view of how tax dollars are flowing into the state.  While the Legislative Services Agency revenue memo found the state ended the month with growth, it doesn’t tell the full story.

 

For the month, the memo states that February saw a revenue increase of seven percent over February 2016.  And for the first eight months of the fiscal year, revenue increased 1.9 percent.  This amounts to an increase of $88.3 million, which is $125 million below the REC forecast of 4.7 percent revenue growth.

 

For personal income tax, collections were down $20.2 million when compared to last February.  This number is somewhat misleading, because a substantial portion of revenue that was collected last year was instead received by the state on March 1 of this year.  For the fiscal year, the REC forecast was for 5.8 percent growth in personal income tax collections. Actual collections through February had grown by just 0.5 percent.

 

Sales tax collections were also down, showing a decline of 18.3 percent over last February.  Again, the calendar had an impact on this figure.  The January 2016 sales tax deposit did not occur until February, making this year’s figure look considerably worse than what it is. So far in Fiscal Year 2017, sales tax collections are down 1.1 percent.  The REC’s December forecast called for sales tax growth of 1.9 percent.

 

Corporate income tax for the month was down $1.4 million.  FY 2017 corporate tax collections are down one percent, just off the REC’s projection of 2.1 percent growth for the year.

 

Another area of confusion is the dramatic fall in the amount of tax refunds that have been paid out by the state.  For the month, refunds were down $122.6 million when compared to February 2016.  Why this amount is one-third the normal figure is hard to pin down.  Normally, the state would have started paying out personal income tax refunds in February.  But it appears that those refunds to early filers have yet to go out.  It is believed that the lack of timely refunds may be due to the Federal Government’s efforts to improve identity verification and prevent income tax identity theft.  Regardless of the cause, the lack of refund payments has also skewed the February revenue figure.

 

Earlier this week, LSA released the video version of the monthly revenue memo.  This provided additional data and context.  Personal income and sale tax collections were down for the month partially due to $45 million of revenue that normally would have been deposited in February.  Again, the way February’s calendar fell played a role.

 

When factoring this revenue into the February numbers and assuming that the refunds that have yet to be paid will actually go out, LSA made a troubling finding.  These factors would mean that state revenue for Fiscal Year 2017 has, so far, grown just $8 million.  That is significantly less than the $213 million growth that the state would expect to have received if revenue was meeting the REC projection of 4.7 percent.

 

So what does this mean going into the March Revenue Estimating Conference meeting today?  The results are yet to be known, but it is likely that the three-member panel will significantly reduce the expected revenue growth for 2017, and that will also lower the available new revenue for fiscal year 2018.   How much of a reduction?  We don’t know, but anyone holding better numbers or just maintaining the December forecast is likely to be disappointed.

In our preliminary target projections we thought there would be $195 million of new revenue to address the budget for 2018.  We know that the largest revenue months ahead are April and May when people pay their state income taxes.  I am sure the REC will, in their estimate, take that into consideration.  All I know is this; that I truly believe we are facing one of the worst budget situations since I have been in the Legislature.  Only one other time were we in this much trouble and that was after the Federal Government eliminated the stimulus money from the Great Recession and left us to deal with an $800 million cliff.

In the years following, our economy grew at a good rate and through responsible fiscal discipline, we were able to pull ourselves out of this dilemma by the bootstraps.  The choices that remain for us include continued budget reductions, which will be very difficult after our $117 million de-appropriation this year; the use of our Emergency Fund, which we would have to pay back the following year; or the repeal of some of the tax credits which will also prove to be politically difficult.

But something must be done.  We are in a critical situation and vital services must continue to be provided.  In the coming month, this Legislature will have to deal with these challenges.

 

Visitors to the capitol were: Dr. Michelle Burgmeier, Fairfield; Danny Steffensmeier, Pilot Grove;  Sarah Chaney, Winfield; Sarah Berndt, Mount Pleasant;  Jack Seward and Richard Young, Washington County Supervisors; Robin and Jill Daniels, Mount Pleasant; Denny Heaton and Judy McCuen of Mount Pleasant.

 

 

If you have any issues or concerns, please contact me. Be sure to include your name and address with any communication to my office.

 

 

Dave Heaton, State Representative,

State House, Des Moines, Iowa 50319

Phone: 515-281-7327~Fax: 515-281-6958

E-mail: dave.heaton@legis.state.ia.us

Web page: http://www.daveheaton.net