The Revenue Estimating Conference (“REC”) met Friday (3.15.24) as part of their standard schedule of meetings to estimate future state revenues. REC members Kraig Paulsen and Jennifer Acton welcomed Jeff Plagge to the panel as the new public representative. A summary of the information discussed during the meeting is below, along with the linked spreadsheet distributed at the meeting that contains more detailed revenue information.

Important to Note: The REC’s estimate for the 2024 fiscal year (“FY”) is slightly lower than the December estimate by $120 million (1.23%). The FY25 number is slightly higher than the December estimate by $60.8 million (0.64%). Recall, Governor Reynolds used the December 2023 estimate to prepare her budget, and the Legislature is required to use the lower of the December or March estimates for its FY25 budgeting. Accordingly, the Legislature will use the December estimate of $9.637 billion for FY25 budget development.

Summary: Friday’s REC estimate for FY24 decreased in comparison to the December 2023 REC estimate while the FY25 number slightly increased (lower by $120 million, or 1.23% for FY24 and higher by $60.8 million, or 0.64% in FY25). Due to the 2022 tax law changes (SF2417 and HF2317), overall revenues for FY24 are estimated to decrease – as compared to FY23 – by $218.8 million, or by 2.22%. However, FY25 numbers are estimated to increase over FY24 by $71.3 million, or by 0.74%.

For FY26, the Department of Management (DOM) and LSA were far apart in their initial estimates. DOM predicted a 3.5% increase compared to FY25, whereas LSA predicted a 5.4% decrease. Ultimately, after significant discussion, the panel agreed to an estimate of $9.6 billion, a decrease of 1.0%, which equates to $97 million less than FY25 forecasts.

General Comments from the REC Regarding Factors Impacting Estimates:

• The national economy has performed stronger than expected this past year with the national GDP at 3.2% for the 4^th Quarter of 2023.
• Consumers account for approximately 70% of the total national economy. Consumer confidence declined in February 2024 from 110.9 to 106.7. However, this measure had grown the prior three months in a row.
• Although inflation has continued to moderate, overall prices remain high. One factor that influences consumer confidence is gas prices. The oil supply continues to remain high, but refinery shutdowns have caused gas prices to increase in recent months.  Currently, the national average is $3.39 per gallon.
• On March 12^th, the Bureau of Labor Statistics reported consumer price gains at 3.2% annually in February. This is down from 3.7% last September and down compared to the peak of 9.1% in June of 2022.
• Core CPI, which represents inflation minus food and energy costs, was measured at 3.8% in February. This is the lowest since May of 2021 and is down from 4.7% in July of 2023.
• Nationally, the most recent jobs report showed a slight slowing of the national job market with unemployment increasing from 3.7% to 3.9%.
• In Iowa, non-farm employment through January of 2024 was reported at 1.6 million jobs, which is up 8,900 jobs since April of 2023. 
• Iowa’s unemployment rate is currently at 3.0%, and the labor force participation rate is 67.3%. The U.S. labor force participation rate is 62.5% for the same period.
• Corn and soybean prices are down, and drought conditions continue to persist across the state.
• In February 2024, the USDA reported that Iowa’s 2023 combined corn and soybean crop value decreased by 21.2% compared to 2022.
• Iowa’s housing sector continues to be in a downward trend due to the increased interest rates and the costs of building materials and labor.
• Iowa house prices have increased 5.9% over the most recent four quarters, and rental costs have also risen.
• Overall, Iowa continues to be in solid fiscal position with full budget reserve funds totaling $963.7 million. The Taxpayer Relief Fund has around $3.68 billion dollars.
• However, state tax reductions continue to slow the accumulation of general fund revenue in the short term. The top rate for the individual income tax was lowered from 6.0% to 5.7% while the top corporate rate was lowered from 8.4% to 7.1%.
• The introduction of the pass-through entity tax to Iowa in 2023 has affected the individual income and miscellaneous tax receipts beginning in 2024. However, these temporary increases will be offset during the refund process.

FY24 Revenue Estimate Revised DOWN from December 2023 Estimate: As a reminder, FY24 began on July 1, 2023, and ends on June 30, 2024. The REC decreased its FY24 estimate from the December REC meeting by $120 million, or 1.23%. This decrease equates to projected Net Receipts Plus Transfers of $9,626.5 million for the year, which reflects a 2.22% decrease in revenues as compared to FY23 actual revenues of $9,845.3 million (largely related to tax policy changes during the 2022 session).  

FY25 Revenue Estimate Revised UP From December 2023 Estimate: As a reminder, FY25 begins on July 1, 2024, and ends June 30, 2025. The REC increased its FY25 estimate, as compared to its December estimate, by $60.8 million, or 0.64%.  Consequently, Friday's revised estimate means total estimated revenues for FY25 are $9,697.8 million, an overall increase of $71.3 million from the estimated FY24 numbers, or a 0.74% gain.

FY26 Revenue Estimate Established: The REC also estimated revenues for FY26.  Recall, FY26 begins on July 1, 2025, and ends on June 30, 2026 - 835 days from today. The REC estimated revenues for the state would decrease $97 million in FY26 as compared to FY25 estimates, equating to a 1.0% reduction for a budget of $9.6 billion.