While our economy is currently derailed, getting it back on the tracks and flipping the right switches can provide a smooth path forward, being mindful of the roadblocks and opportunities that lie ahead.
In less than two months, this pandemic has imposed an illness and economic hardship across the country. The impact on Iowans and the state's budget is hard to predict, but good or bad, today's legislative actions will be felt for years.
The Iowa legislative session was suspended on March 16th and is scheduled to resume on April 30th. Even if the date of their return is further delayed, lawmakers must do everything they can to help right the course of our economy in a thoughtful and cautious manner.
While our economy is currently derailed, getting it back on the tracks and flipping the right switches can provide a smooth path forward, being mindful of the roadblocks and opportunities that lie ahead. Legislators can serve a key role in this process.
Project New Revenue Estimates
Predicting revenues is not an easy task, but revenue projections should always be based on conservative estimates. Much has changed since the last meeting of the Revenue Estimating Conference and legislators should develop an updated revenue projection before setting Iowa’s next budget.
Speaking of that budget…when Iowa’s legislature reconvenes, the main priority will likely be setting a budget for the next fiscal year which begins on July 1. Caution will be needed in deciding how (and how much) Iowa will spend next year. Iowa’s projected revenue (prior to COVID-19) was expected to be $8.2 billion, and by law, the legislature can only spend 99 percent of that total. 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.
Continue Regulatory Relief
The COVID-19 emergency has resulted in the suspension of some Iowa regulations. In the aftermath of the emergency, policymakers should review every regulation that was suspended and evaluate whether regulation was truly needed in the first place. This emergency also demonstrates Iowa’s need to reform occupational licensing laws, especially by granting universal recognition of licenses from other states.
Use Federal Aid Responsibly
Iowa is expected to receive $1.25 billion under the first CARES Act. Although there is still a need for clarification on how Iowa can utilize this money, if policymakers have the flexibility, it should be used to support the state budget from revenue loss, help rebuild budget reserves, and provide support to local governments. Federal aid may be “one-time” funding, and Iowa should not expect future funds.
Avoid State and Local Tax Increases
Perhaps the most harmful fiscal policy tool to use in an economic downturn is increased taxes. Prior to the COVID-19 emergency, the legislature was considering tax reform, but now tax rate reduction may be on hold. Policymakers should work to control spending and not look to tap into Iowa’s citizens and businesses for additional tax revenue at a time when so many cannot afford it. Iowa lawmakers should also guarantee federal relief provided to individuals and businesses will not be subject to Iowa tax. Local governments should avoid raising property taxes.
Just as the virus can harm our physical health, bad policies can make the economic damage worse. Iowa needs to solve short-term problems without hampering long-term recovery.