Somebody's going to pay the bill. In other words, the bill is a federal deficit that's increased now to three to four and probably up to five trillion dollars this year. Now ultimately, it's going to be paid for by higher inflation, higher interest rates, or higher taxes.
The budget is usually the last issue addressed before the legislative session ends, so legislators didn't address the state's budget issues this week. However, others were still talking about state revenue.
Last Friday, the Revenue Estimating Conference (REC) reduced its 2021 estimate from $8.24 billion to $7.88 billion. Legislators will use this new REC estimate to create next year’s budget. That amount is slightly more than last year's $7.6 billion budget.
During a TEF Iowa webinar, Dr. Ernie Goss, an economist from Creighton University, said Iowa's state and local governments are "going to have to pull back" spending. He warns that legislators will have to replace funds used from the state's reserves, and that will require spending cuts.
Goss gave insight into what he thinks will happen nationally by saying, "Somebody's going to pay the bill. In other words, the bill is a federal deficit that's increased now to three to four and probably up to five trillion dollars this year. Now ultimately, it's going to be paid for by higher inflation, higher interest rates, or higher taxes. Or a combination of all three of those. So, that's the warning, I think. I don't think we will see any one of those three until the middle of next year, 2021."
He explained how this is a very unusual recession. It was led by the consumer and happened in leisure and hospitality. Retail sales in the rural areas are "down to the nub" except for the big-box stores. Manufacturers have not been as hard-hit except a few industries that are very important Iowa -- ethanol and food processing. We are also seeing lower commodity prices in agriculture. The largest decline in consumer spending in terms of dollar value occurred in the medical professions. That's a big issue in rural hospitals and clinics.
Watch the recorded webinar for more insight into coronavirus's impact on Iowa's economy.