Iowa revenue ticks higher but budget panel sees slowdown; recommends spending caution

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DES MOINES, Iowa — State revenue continues to grow but at a slower pace than a few years ago, meaning lawmakers will need to show spending restraint when preparing next year's budget, Iowa budget experts said Friday.

Members of the Revenue Estimating Conference said state revenue is expected to hit $7.19 billion in the next fiscal year, a 4.9 percent increase over the current year.

State law requires that Gov. Terry Branstad and the Legislature use the REC's December estimate to draft the next fiscal year's budget, unless the following March estimate is lower, in which case lawmakers would have to use that lower estimate.

Department of Management director David Roederer, one of the three members of the panel, said the figure indicates that Iowa's economy is showing strength but there are signs of slowing down.

He cited the agriculture industry, where farmers are expected to harvest record corn and soybean crops but prices have been low and for many farmers below the cost of production. That likely means farmers will not spend money on equipment or expand operations in Iowa, the nation's leading corn producer and one of the top soybean growers.

"Things are going pretty well in Iowa. However, with the ag economy being what it is we need to be very cautious because we cannot continue to produce bushel after bushel of corn at a loss and not think that's going to have an impact on the rest of our economy," he said.

"I'm optimistic where Iowa is but I still think there are a lot of cautions out there and I think we should be very careful."

The REC also revised its estimate for the current fiscal year, which ends June 30, saying the state is expected to collect $6.86 billion in revenue, a 5.7 percent increase from last year.

Revenue is made up of personal and corporate income taxes, sales and use taxes and other sources. Friday's estimate is slightly higher than the $6.7 billion estimated in October.

Branstad will have to consider the possible slower economic growth when he drafts his budget, which likely means spending restraint. Some lawmakers have talked about proposals to spend at least 6 percent more for schools, but Roederer said that's unlikely when revenue growth is just over 4 percent.

Growth of 4.9 percent next year means about $343 million new dollars for the budget, though Roederer said next year's budget has about $400 million already committed in tax reform and school programs promised last year, and expected increases in the cost of the Medicaid program.

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