August is here and before you know it, school will be starting again. I hope you are able to get out and enjoy the last few weeks of summer vacation, warm weather, and, of course, the Iowa State Fair.
This month also marks the second month of the new Fiscal Year (FY 2018). As the books closed for FY 2017, Iowa’s actual revenue did not meet the Revenue Estimating Conference’s (REC) projections. While revenue was still up from the previous year, it did not grow as quickly as the REC projection, which is the number we use in crafting the state’s budget.
Weaker than expected collections for sales tax was a primary reason in not meeting the REC projection. Weakness in the agriculture economy as well as online shopping and people buying products that are available in digital format – like music and movies – are among the factors impacting sales tax revenue. Personal income tax collections also fell short of the forecasted amount. Much of this was due to Iowans anticipating federal tax policy changes delaying capital gains.
This phenomenon is happening not only across the Midwest, but across the country as many states face budget revisions to cope with the shortfall. For instance, the breakdown of Nebraska’s revenue streams shows a very similar pattern to what Iowa is experiencing. Both states saw actual collections for personal income tax and sales/use tax fail to meet the projected levels. Accounting for FY 2017 does not officially close until September 30, so we are continuing to work with the Department of Revenue (IDR) and the governor’s office to get a clearer picture of what the final numbers were for the year.
Our new fiscal year began on July 1 and we are taking a close look at how revenue performed in the first month. Although it is very early, initial tax payments have been strong and the Iowa economy continues to grow. The Legislative Services Agency (LSA) recently released their July revenue report which shows a substantial increase in state revenue collections over July of last year. One cause for the significantly higher number was a change in the collection schedule by IDR and Department of Administrative Services. Tax money that was deposited on August 1 in previous years was instead deposited on July 31 this year, which resulted in a significant bump in revenue at the end of the month. It may take a few weeks for this date change to cycle through and things to even out.
House Republicans are keeping a close eye on the state’s fiscal trends and are optimistic about the direction our economy is headed. We are focused on the future and how we can improve the revenue forecasting process and examining trends in sales tax payments. We will continue to work hard to ensure taxpayers’ money is spent wisely and we are funding the priority needs of Iowans.