10-18-2024 |
The Revenue Estimating Conference (“REC”) met Thursday (10.17.24) as part of their standard schedule of meetings to estimate future state revenues. REC members Kraig Paulsen (Gov.’s Appointee), Jennifer Acton (LSA), and Jeff Plagge (Public Member) serve on the three-member panel. A summary of the information discussed during the meeting is below, along with the linked spreadsheet distributed at the meeting that contains more granular revenue information.
Important to Note: Governor Reynolds will use the December 2024 estimate to prepare her budget, and the Legislature is required to use the lower of the December 2024 or March 2025 estimates for its Fiscal Year (“FY”) 26 budgeting.
Summary:
FY 2024 (ended June 30, 2024): The books closed a few weeks ago on FY24. As compared to FY23, the State saw a decrease in revenue of $89.5 million (-.9%), largely driven by income, corporate, and inheritance tax law changes. In total, FY24 net receipts were $9,755.8 billion as compared to $9,845.3 billion for FY23. Individual income and corporate income tax receipts saw 10.8% and 9.5% reductions respectively in FY24 as compared to FY23.
FY 2025 (began July 1, 2024): Yesterday's REC estimate for FY25 is lower than the March REC estimate by $458.9 million. The REC now estimates net receipts for FY25 will be $9,238.9 billion, which is $516.9 million (-5.3%) less than FY24 actual revenues.
FY 2026 (begins July 1, 2025): Yesterday's REC estimate for FY26 is lower than the March REC estimate by $942.1 million. The REC now estimates net receipts for FY26 will be $8,658.7, which is $580.2 million (-6.3%) less than the REC's FY25 estimated revenues.
General Comments from the REC Regarding Factors Impacting Estimates:
- Iowa GDP increased from 1.7% in Q1 2024, to 2.4% in Q2 2024;
- The State is in a very strong financial position; the State’s reserve funds are full at $961 million, the taxpayer relief fund holds over $3.75 billion, and the carry forward balance from FY24 is $1.9 billion;
- Inflation has begun to retreat closer to historic levels;
- Gas prices are now averaging $3.17 per gallon nationally, down from $3.81 per gallon one year ago;
- The Federal Reserve has started to decrease interest rates, most recently with a 50 basis point reduction;
- Consumer spending appears to be more restrained and consumer confidence is slowly eroding;
- The National unemployment rate has fallen to 4.1%;
- Iowa has begun to see some weakening in agriculture and manufacturing sectors, resulting in reduced jobs due in part to lower crop and commodity prices;
- Iowa’s unemployment rate in September 2024 was 3.0%, up from 2.9% in August, but down from 3.1% in September 2023;
- Iowa’s labor force participation was 66.3% in August 2024, down from 67.7% in August 2023;
- Major tax reductions began in January 2023 and have slowed general fund revenues as expected;
- PTET adjustment have made revenue calculations complex;
- Inflation remains sticky in many areas, including housing;
- Credit demand is slowing and interest rates are causing some projects to get delayed or cancelled;
- Today’s recommendations lower the estimates for FY25 and FY26, which was expected from the tax cuts passed over the last couple sessions;
- Tax cuts are having the intended effect and leaving more money in Iowans' pockets and with employers. The revenue reduction estimates recommended today are less than the sum of the tax rate reductions that have been adopted; and
- Uncertainty around the Tax Cut and Jobs Act (“TCJA”) makes it hard to estimate revenues for FY26. It is unclear what parts of the TCJA maybe continued in the future. The State of Iowa has rolling conformity with the internal revenue code; therefore, decisions around TCJA will directly impact revenue to the State.
