Government Relations Update - 12-15-22

The Revenue Estimating Conference (“REC”) comprised of a three-member panel (Kraig Paulsen, David Underwood, and Jennifer Acton) met Wednesday (12.14.22) as part of their 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, which contains more detailed revenue information. You can view a recording of the full meeting HERE. 

Important to Note: Today's REC number for FY23 is higher than the October estimate by $81.8 million (0.85%).  Recall, 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 fiscal year (“FY”) 2024 budgeting.  

Summary:  Fiscal year 2022 (FY22) revenues concluded the year higher than expected by $632.3 million (7%) and grew by over $1 billion as compared to FY21 actual revenues, which equates to 4.2% growth.  Importantly, Wednesday’s estimate also accounts for the future impact of the recent tax reform, which will reduce state revenues in future years due to lower tax rates - estimated to result in $188.2 million fewer dollars in FY23 as compared to FY22 (equating to a 1.9% decrease in revenue growth for FY23).  Despite an anticipated drop in revenues for FY23, the REC estimated a small increase in FY24 ($10.3 million, or 0.1%).   

Comments:

• Despite households being squeezed by high inflation and high interest rates, many economists believe there are signs that inflation may be moderating;
• The Bureau of Labor Statistics reported consumer price gains of 7.1% annually in November which is down from the June 2022 peak of 9.0;
• Consumer discretionary spending continues, job growth has remained steady, and unemployment is relatively low;
• Consumers have begun to see declining gas prices at the pump as well as recently lowered prices for used cars;
• While all of this is positive news, there is still some items for concern including the anticipated rate increase by the Federal Reserve;
• Globally, we continue to work our way through the supply and demand imbalance brought on by the pandemic;
• As supply chain challenges delayed equipment purchases for farmers, there is pent-up demand for newer farm equipment;
• The US labor market is holding up much better than expected as US seasonally adjusted, non-farming employment peaked in February 2020 with 152.5 million jobs. In August, the nation reached the pre-pandemic peak and is currently at 153.3 million jobs;
• The Iowa leading indicators increased in October with 5 of 8 components increasing month over month. This would not suggest an economy on the verge of a downturn in the near future;
• Iowa’s current unemployment rate is 2.9% which a total of 1.7 million residents in the workforce. This 67.7% participation rate outpaces the national rate of 62.2%;
• A continuing issue in Iowa is more jobs than workers and an aging workforce;
• Corn and soybean prices continue to hover around the highs of 2012;
• Iowa’s banking sector remains healthy;
• Housing demand has cooled since the start of the year, but supply remains tight;
• Single-family home sales have declined however, the medium home prices are still up;
• Given recent tax reductions, the state will see a slow in accumulation of general fund revenue; and
• The top rate for individual income tax is lowered from 8.53% to 6%, and the top rate for corporate income tax is lowered from 9.8% to 8.4%

FY23 Revenue Estimate Revised UP from October 2022 Estimate:

• As a reminder, FY23 began July 1, 2022.  The REC increased its FY23 estimate from the October REC meeting by $81.1 million (0.85%).  This increase equates to projected Net Receipts Plus Transfers of $9,615.2 million for the year, which reflects a 1.9% decrease in revenues as compared to FY22 (largely related to tax policy changes during the 2022 session).

FY24 Revenue Estimate Revised UP From October 2022 Estimate:

• As a reminder, FY24 begins on July 1, 2023, and ends June 30, 2024.  The REC increased its December FY24 estimate, as measured against the FY23 estimated revenues by $31.2 million (0.33%).  Consequently, today's revised estimate means total estimated revenues for FY24 are $9,625.5, an overall increase of $10.3 million from the estimated FY23 numbers, or 0.1% growth.