Government Relations Update - 03-10-23

The Revenue Estimating Conference (“REC”), comprised of a three-member panel (Kraig Paulsen, David Underwood, and Jennifer Acton), met today (3/10/23) as part of its standard schedule of meetings to estimate future state revenues. A summary of the information discussed during the meeting is below, along with the attached spreadsheet distributed following the meeting that contains more detailed revenue information. You can also view a recording of the full meeting HERE. 

Important to Note: Governor Reynolds uses the December estimate to prepare her budget and the Legislature is required to use the lower of the December or March estimates for its upcoming fiscal year (“FY”) 2024 budgeting.  

Summary:  Fiscal year 2023 and 2024 estimated revenues grew more than estimated during the December 2022 REC meeting (higher by $135.2 million, or 1.4% for FY23 and $24.8 million, or .2% for FY24). Due to last year’s tax law changes, however, overall revenues for FY23 are estimated to decrease - as compared to FY22 actual numbers - by $53 million, or .5%.  Similarly, overall revenues for FY24 are estimated to decrease - as compared to FY23 estimates - by $100.1 million, or 1%.  Given the December numbers were lower, the legislature will be required to use the December estimate for its upcoming FY24 appropriation process, which is $9,625,500,000.

General REC Comments:

• Inflation remains unusually high at 6.4% and stronger than expected, which could mean higher interest rates than anticipated; 
• Strong national data continues to be released: 
• Consumer spending increased in January by 1.8%;
• New home sales picked up by 7.2% and pending home sales increased over 8%, while mortgage rates have declined somewhat from highs last fall;
• Supply chain issues have declined sharply and pent-up demand is being addressed;
• Iowa’s receipts are healthy and we continue to see strong growth in all major tax types; 
• Iowa is in a very strong revenue position, and year over year, we are roughly $365 million ahead of where we were last year; 
• E-Commerce sales are returning to a level more inline with a regular upward trend;
• Iowa non-farm employment peaked in Jan. 2020 at 1.6M jobs, through Dec. 2022, employment is down 4,200 jobs from that peak;
• According to Iowa Workforce Development, Iowa unemployment rate is 3.1%;
• A continuing issue for Iowa is that there are more jobs available than workers and we have an aging workforce; 
• Winter rains and snow have eliminated much of the drought conditions;
• Sales and use tax remain strong, 5.5% higher than 1 year ago;
• Recession risks continue to exist, but they appear to be moving beyond the existing fiscal year; 
• Continued federal reserve hikes remain a risk;
• Layoffs have been mainly focused in tech and financial sectors, but broadening could be a downside scenario;
• Lending continues to be strong even with tightening lending standards; and
• State of Iowa "is in a remarkably strong financial position."

FY23 Revenue Estimate Revised UP from December 2022 Estimate:

• As a reminder, FY23 began on July 1, 2022 and ends on June 30, 2023.  The REC increased its FY23 estimate from the December REC meeting by $135.2 million, or 1.4%. This increase equates to projected Net Receipts Plus Transfers of $9,750.4 million for the year, which reflects a .5% decrease in revenues as compared to FY22 actual revenues of $9,803.4 million (largely related to tax policy changes during the 2022 session).  If these numbers hold true, it is likely the State will have a budget surplus at the end of the current fiscal year.  

FY24 Revenue Estimate Revised UP From December 2022 Estimate:

• As a reminder, FY24 begins on July 1, 2023, and ends June 30, 2024. The REC increased its FY24 estimate, as compared to its December estimate, by $24.8 million, or 0.2%.  Consequently, today's revised estimate means total estimated revenues for FY24 are $9,650.3 million, an overall decrease of $100.1 million from the estimated FY23 numbers, or a 1% reduction (again largely related to tax policy changes during the 2022 session).

FY25 Revenue Estimate Established:

• The REC also estimated revenues for FY25.  Recall, FY25 begins on July 1, 2024 and ends on June 30, 2025 - 843 days from today.  The REC estimated revenues for the state would increase $91 million in FY25 as compared to FY24 estimates, equating to $9,741.3 million, or .4% growth.