{"id":9275,"date":"2020-05-19T13:35:34","date_gmt":"2020-05-19T18:35:34","guid":{"rendered":"https:\/\/itrfoundation.org\/?p=9275"},"modified":"2023-01-18T10:31:38","modified_gmt":"2023-01-18T16:31:38","slug":"methods-to-economic-recovery","status":"publish","type":"post","link":"https:\/\/itrfoundation.org\/methods-to-economic-recovery\/","title":{"rendered":"Methods to Economic Recovery"},"content":{"rendered":"
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Iowa\u2019s economy is in a recession<\/a> marked by high unemployment, not seen since the Great Depression of the 1930s. Iowa\u2019s economic crisis is a result of the coronavirus (COVID-19), which has\u00a0 forced an economic shutdown of the state. Low commodity prices are also having a detrimental impact<\/a> on the farming industry in our state. \u00a0Ernie Goss, PhD, \u00a0who serves as the Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business, recently described<\/a> the Midwest region as \u201csolidly in recession.\u201d Goss, who conducts the Business Conditions Index<\/a> said, \u201ca leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, plummeted for the month reaching its lowest level since September 2016.\u201d<\/p>\n

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Goss\u2019s Rural Main Street Index<\/a>, which surveys bank CEOS, reports \u201cnine of 10 bank CEOs expect rural recession.\u201d In March, Iowa\u2019s unemployment<\/a> rate was 3.7 percent. Today, the unemployment rate is estimated<\/a> to be anywhere from 13 to 16 percent. Since the beginning<\/a> of the COVID-19 shutdown in March \u201cnew unemployment claims in Iowa have totaled 299,098, representing almost 20 percent of the workforce eligible for the state's unemployment insurance program.\u201d Currently, Iowa\u2019s state unemployment trust fund<\/a> \u00a0has $1.05 billion.<\/p>\n

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As of now the unemployment<\/a> rate for the United States reached a historic high of 14.7 percent, which has not been seen since the Great Depression. Currently 36.5 million Americans have filed<\/a> for unemployment insurance. Kevin Hassett, Chair of President Donald Trump\u2019s Council of Economic Advisers, predicts<\/a> the unemployment rate could reach as high as 20 percent. Economists from Arizona State University are predicting<\/a> a recession which could last for three or nine months depending on consumer confidence and the impact of federal stimulus spending.<\/p>\n

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It is estimated<\/a> that from March 21 through April 11, 2020, Iowa\u2019s economy lost $1.6 billion as a result of the COVID-19 virus. During the same time period, state and local governments had lost approximately $112 million in tax revenues. The actual total loss in state and local tax revenues is still unknown, but recent revenue<\/a> projections demonstrate some decline. This also includes delays<\/a> in tax payments as a result of COVID-19.<\/p>\n

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Fortunately, prior to the COVID-19 recession, Iowa\u2019s economy and budget was in a strong position. Iowa had $800 million in budget reserves and a surplus of $200 million. Prudent budgeting by the Iowa legislature and Governor Kim Reynolds will help cushion the economic impact of the virus.<\/p>\n

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Iowa is also the recipient of federal stimulus funds which are just starting to have an impact on the economy. Under the $2 trillion federal<\/a> CARES Act, Iowa will receive $1.25 billion in aid. Federal stimulus dollars that are targeted toward individuals, businesses, and even schools. As an example, Iowa\u2019s K-12 schools<\/a> will receive $71.6 million in aid. The federal stimulus and relief measures will help lessen the economic damage of COVID-19. $563 million of Iowa\u2019s CARES Act funds are directed<\/a> toward local governments, but the legislation states the money can only be used for localities with 500,000 people or more. Iowa does not have any communities<\/a> who meet this population requirement, which means the funds will revert back to the state. At this time Iowa has received an estimated<\/a> $2.5 billion for all of the combined federal stimulus and relief assistance passed by Congress as a result of COVID-19. It is still too early to determine the full impact of the $2.5 billion in federal stimulus and relief on Iowa\u2019s economy.<\/p>\n

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On June 3, 2020, the Iowa legislature is expected to reconvene<\/a>. The main priority for legislators is to craft a $8 billion budget. This will not be an easy task with the uncertainty over state revenue loss. It has been estimated states could suffer anywhere from 5 percent to 15 percent in lost revenue. Governor Reynolds is already at work on a new budget proposal and the Governor along with legislative leaders have called<\/a> for a special Revenue Estimating Conference (REC) meeting to provide a new estimate on Iowa\u2019s revenues.<\/p>\n

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The other great uncertainty Iowa is confronted with is how long will it take for an economic recovery. Small businesses have been hit especially hard due to the economic shutdown. How many small businesses will survive? Questions also remain on how many workers will be called back to work? Will the fear factor of a COVID-19 flareup prevent Iowans from fully reintegrating back into the economy?<\/p>\n

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Countless other questions can be asked, but what can state policymakers do to ensure an economic recovery?<\/p>\n

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Priority-Based Budgeting<\/strong>: Iowa\u2019s budget is expected to be around<\/a> $8.3 billion. By law, the legislature can only spend 99 percent of the projected revenue. It would be prudent for policymakers to keep spending as low as possible. With revenue uncertainty, policymakers should only fund the priorities of state government, which means new spending should be avoided. This could potentially include a state hiring freeze except for essential employees. Keeping spending levels low will help avoid future budget cuts or painful austerity measures.<\/p>\n

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Priority-Based budgeting will help policymakers control the growth of spending. In forming the budget, policymakers must ask the following questions<\/a>:<\/p>\n

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