Decline of Iowa revenues due to COVID-19 could be unprecedented

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The Legislative Services Agency released its March 2020 video edition of the Iowa General Fund Revenue memo.

Jeff Robinson, senior fiscal analyst for LSA, said the State Revenue Estimating Conference met March 12 and made minor adjustments to Fiscal Year 2020. Expected revenue growth for the year is $246 million and 3.2 percent. Projected growth, including revenue estimates, is 3 percent.

“However, much has happened in the three weeks since the REC meeting,” Robinson said. “A public health epidemic accelerated in the U.S. in February and in Iowa in March. This Coronavirus epidemic has resulted in increasing hospitalizations and deaths with the situation expected to intensify over the next few weeks, or even months.”

Travel bans, school closures, group activity restrictions, cancellations of events and celebrations as well as closing of businesses not considered essential will result in reduced economic activity and revenues.

The Iowa Department of Revenue has postponed the tax return and payment due dates for individual income, corporate income, bank franchise tax and credit union tax.

The due date is moved to July 31.

“It is possible the due date delay could reduce net revenue by $300-$600 million over those months,” Robinson said.

Growth through the end of March was 4.6 percent. The growth is led by sales and use tax, corporate income tax and bank franchise tax.

Closing of casinos has limited the gambling tax, which generally funds infrastructure projects. Negative impacts will also hit road-use funding through reduced fuel tax revenue.

“To summarize, while net general fund revenue through the end of March is above current projections through the fiscal year, the facts of the accelerating COVID-19 epidemic and the resulting government response will result in tumbling tax liability for at least the next several months. The decline could be significant and unprecedented.”

Delays in the filing of final tax returns and tax payments due will obscure the real revenue impact until August.

Author: Jacob Hall