The Clinton Herald, Clinton, Iowa

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Opinion

February 8, 2014

A mixed message

Monday’s report from the Legislative Services Agency on General Fund revenue for the month of January may cause some concern among those looking for ways to dramatically increase state spending.

With state revenue being 1.2 percent below FY 13’s level through seven months, some policymakers are urging caution when considering state spending options and future funding commitments. While many are concerned about the lackluster growth in personal income tax revenue, sales and use tax have increased steadily. Corporate income tax, projected by the Revenue Estimating Conference last fall, has seen nearly double digit growth so far this year. And tax refund payments slowed dramatically in January, which is a significant shift from the previous six months. It is important to note that having a clear view on how state revenue came in during FY 2014 may not be possible until after the fiscal year has closed on June 30. The changes in how tobacco tax revenue and gaming receipts are accounted for will result in the General Fund being reduced in FY 2014. Other factors that impact overall revenue will be the increase in the Earned Income Tax Credit and the first year of the Taxpayers Trust Fund tax credit. These are a significant factor in why General Fund revenue is expected to be less in FY 2014. Last year’s federal tax changes also impact how state revenue figures appears each month.

With the expectation of the Bush-era tax cuts expiring, many Iowans paid certain taxes early to avoid higher rates. Once Congress came to an agreement on tax policy, other taxpayers (primarily farmers) were given a one-time extension on when they were required to file. All these situations created an unusual revenue flow for FY 13. This also makes it difficult to make comparisons with FY 2014. The net effect of all these factors is that it is difficult to forecast just how the fiscal year will end up. Such a blurry picture reinforces the need to keep FY 2015 spending below the projected ongoing revenue number, and it certainly serves as a warning against making major funding commitments in FY 2016 and beyond.

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