(The Center Square) – Iowa saw an increase of $41.9 million in net general fund revenue during fiscal year 2023 despite a decrease in individual income tax collections, according to October’s quarterly revenue estimate report.
The Legislative Services Agency estimated general fund revenues remaining “essentially flat” for fiscal year 2024 and a “modest” net revenue decrease in 2025, said Fiscal Services Division Director Jennifer Acton during Thursday’s Revenue Estimating Conference meeting.
Individual income tax collections in 2023 went down by just over $180 million, a 3.1% decrease compared to 2022, Acton said. This was primarily due to income tax cuts that brought the top rate down from 8.53% to 6%, according to Acton. Another income tax decrease is set for January 2024, where the maximum rate will go from 6% to 5.7%. Similarly, the corporate income tax rate will be lowered from 8.4% to 7.1%, Acton said.
She told the committee that Iowa remains in a “solid financial position with full budget reserve funds.”
“Throughout this past year, the U.S. economy has continued to remain remarkably resilient despite elevated inflation, higher interest rates, and higher food and fuel prices. The biggest driver to the economy’s strong performance has been consumer discretionary spending,” Acton said. “Consumer spending accounts for approximately 70% of the U.S. economy. Real and nominal consumer spending has remained strong and retail ecommerce sales are reporting the highest growth since the onset of the pandemic in 2020.”
While some economic indicators have been strong, Iowa faces problems associated with an aging workforce and not enough workers for its open jobs.
Committee member David Underwood said businesses he’s spoken with expect about 20% of their workers to retire soon. With not enough new workers to replace them, businesses are looking toward automation to fix their problems.
“How do you find replacement people for all the people that are going to be retiring in the next few years?” said Underwood. “Those are the kind of things that I see as certainly continuing in Iowa.”
Nonfarm employment peaked in Iowa back in April of this year at 1.6 million jobs, according to Acton. Since then, employment within the state has decreased by approximately 8,600 jobs.
Other challenges plaguing Iowa include drought conditions that have persisted throughout the year. The majority of the state has experienced a severe to extreme drought, Acton said.
“Harvest has begun for both corn and soybeans. Crop yields are anticipated to vary across the state due to the drier weather conditions. But for now, the farm economy appears strong despite lower livestock and commodity prices and higher production costs,” said Acton.
She went on to say that increasing economic uncertainties make it difficult to predict economic activity. Areas of concern include elevated consumer price inflation, actions by the Federal Reserve, increased oil prices, higher fixed mortgage rates, and the impact of resuming student loan payments.
