Total FY2023 net revenue exceeded the REC’s March estimates.
Iowa’s recently released revenue report for September revenue contains the final accounting for fiscal year 2023 (FY23). In early 2022, the Iowa Legislature enacted historic income tax reform reducing top rates and allowing taxpayers to keep more of their hard-earned income. The three-member Revenue Estimating Conference (REC) predicted Iowa would bring in less money in FY23 than the prior year because of the tax cuts, but revenue increased, contrary to the original expectations of both the REC and the Legislative Services Agency (LSA).
End of the Fiscal Year Results
The REC predicted on March 10, 2023, that revenue for FY23 would decrease by $52.4 million (-0.5% growth) compared with FY22. However, according to the LSA revenue statement:
“Net General Fund revenue for FY 2023, excluding transfers, totaled $9.721 billion, an increase of $47.9 million (0.5%) compared to FY 2022. The total for FY 2023 net revenue excluding transfers was $100.3 million above the March REC estimate. General Fund revenue including transfers was $41.9 million (0.4%) above FY 2022 and $94.9 million above the FY 2023 March REC estimate.“
This is good news for Iowa and is the basis for Governor Kim Reynolds’s announcement she wants more tax cuts for Iowans next year.
Current Fiscal Year Update
September’s revenue report also includes data for the first quarter of the current fiscal year. Historically, a year-over-year comparison of monthly and quarterly results provided a helpful measuring stick to judge Iowa’s financial position. However, this type of comparison does not provide an accurate picture now because of recent law changes and modifications to the state’s accounting processes over the last few years; a true apples-to-apples comparison is not possible. Acknowledging the shortcomings of analyzing year-over-year results at the moment , the following results are for July 1 through September 30, 2023 per the LSA revenue memo:
For the first quarter of the fiscal year, total net receipts were $172.2 million, or 7.3%, less than the corresponding period of FY23.
New REC Forecast
On October 12, the REC met to update the state’s revenue forecast for the current year. Total net revenues for FY2024 are anticipated to be -1.2% less than the last fiscal year, for a total of $9.6 billion. This is an increase in anticipated revenue because the previous projection had the state receiving -2.1% less income. While this forecast predicts a reduction in state revenues, this is expected given the high overcollection of taxes in recent years paired with the reduction of personal income taxes.
“Today's meeting confirmed that Iowa remains on solid financial ground," Representative Gary Mohr, chair of the House Appropriations Committee said in response to the updated REC figures. “While the Iowa economy is strong, we are still facing challenges. Inflation has Iowans struggling. Hardworking Iowans' paychecks aren't stretching as far as they used to. We need to get more money back into the pockets of Iowans by continuing to lower the tax burden on Iowans in a responsible manner."