Revenue Estimating Conference Summary - May 29, 2020

The REC (a three member panel comprised of Dave Roederer, Holly Lyons, and David Underwood) met yesterday afternoon (5/29/20) at the request of legislative leadership and Governor Reynolds to reconsider the REC’s March 2020 revenue estimate given the impact of COVID-19 on state revenues.  A short summary of the information discussed during the meeting is below, along with the attached spreadsheet distributed before the meeting, which contains more detailed information.  In short, yesterday's report shows that revenues for the existing fiscal year (FY20) are $150 million lower than the March 12, 2020 estimate; resulting in $82.4 million "new dollars" in FY20, as compared to FY19, equating to 1.0% growth over the last fiscal year.  Revenues projected for the upcoming fiscal year (FY21) are $360.1 million lower than the March 12, 2020 estimate, equating to a forecasted $64.6 million reduction for FY21 as compared to FY20, or -.08% growth for next year.

Important to Note: 

Yesterday's REC number is purely an estimate and is used by the legislature to develop the upcoming fiscal year’s budget.  Recall, the Governor uses the December 2019 estimate to prepare her budget, which was introduced on January 14, 2020 and found here, but has publicly stated she will be submitting a revised budget based upon this REC meeting.  The Legislature is required to use the lower of the December 2019, March 2020, and May 2020 estimates for its upcoming fiscal year (“FY”) 2021 budgeting.  As explained in detail below, because the May estimate is $360.1 million lower than the March 2020 estimate for FY21, the legislature is required to use yesterday's estimate.  

General Comments From the REC Regarding Factors Impacting State Revenues:

• The virus exacted a tremendous toll in terms of both loss of life and economic impact in Iowa;
• A considerable portion of the Iowa economy was shutdown for 2 months - a “self induced coma;”
• We went from nearly full employment, to just the opposite, in a matter of weeks and unemployment is now at its all time high since the Great Recession;
• The 11 year economic expansion is over as a result of the COVID-19 pandemic and the resulting government actions to stem it’s spread;
• Yesterday's projections are based upon "no significant return of the virus;"
• The REC is looking at relatively limited data on the impact of the virus (approx. 8 weeks) given how reporting occurs for certain revenues on a monthly basis, but other revenues on a quarterly basis;
• In an ordinary year, April is when the State receives the most taxpayer money, but this year it is not because of the delay of income tax and other payments to July 31st.  This changes makes it difficult to predict revenues for FY20 until late August;
• Federal relief of $2.2 billion has flowed into the state in various forms (e.g. unemployment benefits, loans, loan guarantees, grants, and the payment protection program);
• Another $300 million from the federal government is expected and another $2.6 billion has been paid to Iowans in other forms;  
• Iowa’s financial reserves are strong and in a better position than most states; 
• Economic fundamentals were strong going into the pandemic, and while bruised and battered, Iowa's fundamentals are still strong;
• Agriculture was being challenged prior to the pandemic, but there have been more obstacles thrown towards agriculture as a result of the pandemic;  
• Land prices are still strong;
• China is still going forward with the treaty; USMCA is still working; and the trade agreement with Japan is still in place;
• Financial institutions, banking, credit, and insurance institutions are all strong;
• The manufacturing sector has experienced a temporary slow down and reducing some of their plant output to accommodate appropriate distancing;
• DOM is more optimistic, Director Roederer stated: "Economically, I believe we are on the upswing.”

FY20 Revenue Estimate Revised DOWN from March 2020 Estimate:

• As a reminder, FY20 ends June 30, 2020.  The REC DECREASED its March 2020 estimate for FY20 by $150 million.  This decrease equates to projected Net Receipts of $7,941.2 billion, which reflects 1% growth in FY20 as compared to FY19.  In terms of “new" dollars, as compared to FY19, these numbers reflect a projected increase of $82.4 million in revenues for FY20 as compared to actual FY19 revenues.

FY21 Revenue Estimate Revised DOWN From March 2020 Estimate:

• As a reminder, FY21 begins on July 1, 2020 and ends June 30, 2021.  The REC revised DOWN its FY21 estimate, as measured against the FY20 estimated revenues, by $64.6 million.  Consequently, yesterday's revised estimate means total estimated revenues are $7,876.6 for FY21, an overall DECREASE of $360.1 million from the FY21 numbers estimated during the March 2020 meeting.  For budgeting, and as mentioned above, the legislature is required to use the lower of the March 2020 and May 2020 estimates, which means the legislature is required to budget off of yesterday's estimate of $7,876.6 million for its upcoming FY21 appropriations and budgeting process.

FY22 Revenues Estimate:

• The REC also estimated revenues for FY22.  Recall, FY22 begins on July 1, 2021 and ends on June 30, 2022 - 762 days from today.  The REC maintained the same estimated 4.1% growth for FY22 over the current FY21 estimate, which equates to revenues of $8,199.5 billion, or a $322.9 million dollar increase over yesterday's revised FY21 estimates.  Note, yesterday's estimate for FY22 is $374.9 million lower than the REC’s March 2020 estimate for FY22.