Capitol Update: Week 10

Revenue Estimating Conference Revises FY 2017 Forecast, Sets Initial FY 2018 Forecast

Iowa’s economy is experiencing slow, but stable growth according to the three member panel charged with forecasting Iowa’s General Fund revenues. The Revenue Estimating Conference held their spring meeting on Wednesday to review and revise their projections for state revenue in FY 2016 and FY 2017, and set a preliminary estimate for FY 2018.

On the national level, while many economic measures are showing improvement over the last several months, that positive momentum has yet to reach lower and middle income families. Consumer spending, which has been a main driver of the national economic recovery, has shown signs of weakening.  Measures of consumer sentiment have hit a three-month low in recent weeks.

All three members of the committee noted that Iowa’s fiscal situation is better than other states who are already in recession or on the verge of falling into recession. The state’s economy has experienced slow growth despite the impact of a falling farm economy.  Sluggish export markets and the strength of the dollar are having a significant impact on the rural economy.  And the economic conditions in Europe and China will continue to weigh on this for some time.

While ag-related income has fallen, growth in the state’s financial services and insurance industry has been able to offset the decline. The state’s housing market is also experiencing growth, which is helping to keep the economy in positive territory.  Wage and salary figures for Iowa workers are also growing , helping to maintain growth in state tax collections while other components are lagging behind.

For FY 2016, the panel decided to keep the revenue estimate at the same level as they had forecast in December – $7.0456 billion.

For FY 2017, the panel decided to lower their forecast for state sales tax collections. In December, they had predicted that this category would experience 2.7% growth in FY 2017.  That figure was lowered to 1.5% growth.  The REC’s calculations did include the impact of the federal tax extenders bill which is projected to raise revenue by $76.4 million. The net effect of these changes is the Revenue Estimating Conference is a forecast of $7.3574 billion in General Fund revenue for FY 2017, $30 million higher than December’s figure.

The Tax Coupling Bill

Part of the agreement between House Republicans and Senate Democrats includes House Republican’s tax coupling bill which provides $95 million in tax relief to Iowans.

The tax coupling bill has an impact on the FY 2016 ending balance and the FY 2017 on-going revenue levels. Any agreement will impact discussions on school aid and budget targets.

The bill couples with everything except bonus depreciation in tax year 2015. It does not couple in tax year 2016 leaving that decision to the 2017 Legislature.  There is a $95.7 million impact on FY 2016 revenue/ending balance.  That money goes directly to taxpayers.  Additionally, $86.5 million is added to FY 2017 on-going revenue with roughly $55 million of that available for appropriation under the state’s expenditure limitation law.

Governor Branstad has stated the House GOP coupling plan is something that he will support.

Consumables

The other part of the agreement involves the so-called “consumables” issue. HF 2443 from 2014, which had broad bipartisan support, clarifies the definition of replacement parts, including the supplies consumed during the manufacturing process as exempt from sales and use tax. Advocates argue that Iowa’s manufacturers are doubled taxed under the current law and administrative rules.  The agreement ends this double taxation.  It also allows manufacturers who pay good wages and benefits to invest in equipment and employees.  Passage of this language also eliminates the ability of the Department of Revenue to reinterpret the administrative rules governing consumables and gives manufacturers certainty in regards to their tax liability.

News from District 96

Monday, I sat in on a presentation by EcoProducts of Lakeland, Florida. EcoProducts has a patent-pending water treatment process- focused on total phosphorus removal- that relies on chemical reaction and physical separation. Their process achieves less than 10 ppb total phosphorus – regardless of the influent phosphorus concentration. It utilizes aquatically safe, water treatment-approved chemicals that meet EPA guidelines, and it can remediate other impurities in addition to phosphorus- most notably, fluorine and arsenic. They have done a pilot demonstration in Storm Lake this past summer.

Tuesday, the Ag committee moved resolution 106 which recognized National Agriculture Day. Iowa has 88,500 farms.  We are number 1 in corn production, 2nd in soybeans, 7th in cattle, 8th in turkey and cheese production.  The Ag economy is the number one driver in our state’s economy.  I want to thank all the farmers and those involved in Ag production.

Also on Tuesday, I met with Ellen Krogmann. She represents Youth Mentoring at Helping Services.  They connect youth with caring adults who mentor each child.  If you are an adult in Delaware County with some free time, she is looking for more mentors.  They will be matched up with children in need of an adult in their life.

Wednesday, I met with Alan Beste, Executive Director Iowa High School Athletic Association, Mike Dick, Executive Director of the Iowa Girls High School Athletic Union, and Nicole Proesch from the Department of Education to learn more about the girls and boys athletic associations.  We discussed football scheduling, traveling times for athletes, and coach contact times to name a few.  It was a good discuss and I learned a lot.

As always if you have any comments, questions, or concerns please feel free to get in touch. My phone number is (319) 480-1997 and my email is lee.hein@legis.iowa.gov.

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