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The last segment of the 2016 session is upon us. The policy bills that survived the second funnel are being considered, and the last important information needed to complete the budget is now in hand.

In March the Revenue Estimating Conference convened to provide their most recent assessment of Iowa tax income for Fiscal Years 16, 17, and 18. The REC meets three times a year to adjust the official revenue estimate we use to build the budget. In assembling the upcoming budget (FY 2017), by law we start with the December REC number as we go into session. If at the March meeting the REC raises the estimate, we still use the lower December number. If the March estimate is lower, we must use that more conservative number.

At its March meeting, the REC decreased its estimate by $46.4 million compared to the December estimate, forcing the Legislature to use the March estimate in assembling its upcoming budget.

The executive summary of the REC estimate:

FY 2016, the current year’s budget: The March estimate remains unchanged compared to the December estimate at $7,045.6 million. This estimate is an increase of 3.3% compared to actual FY 2015 revenues. While revenues have increased 3.3%, FY 2016 expenditures currently exceed ongoing revenues by $129 million. This deficit will grow even larger before the end of the fiscal year due to a necessary supplemental appropriation to keep Medicaid afloat and revenue adjustments agreed to by the Legislature. The deficit will be made up by further spending down our surplus.

FY 2017, the budget we are working on: The REC decreased the March estimate by $46.4 million compared to their December estimate. The new estimate for FY 2017 is $7,357.4 million, an increase of $311.8 million (4.4%) compared to the FY 2016 estimate. While revenues are up $311.8 million, the difference between our FY 2017 revenues of $7,357.4 million and our ongoing expenditures of $7,174.4 million in the current fiscal year is $183 million. This would mean only $183 million in new spending for our upcoming FY 2017 budget. This number decreases to $176 million in new spending for FY 2017 after applying the 99% expenditure limitation law to our ongoing revenues.

FY 2018: The REC estimate for FY 2018 is $7,659.1 million. This is an increase of $301.7 million (4.1%), compared to their newly revised FY 2017 estimate. While this estimate attempts to paint a longer term picture of state revenues, the farther out the estimate, the less reliable it is.

Over the next several weeks we will continue to focus on budget negotiations as we wrap up the 2016 Session. Currently, I believe leadership in the House and Senate has agreed to the overall size of the pie, agreeing to spend a total of $7,351 million for FY 2017. As mentioned above, this would be an increase of $176 million (2.5%) compared to the current FY 2016 budget. A large portion of this increase will be dedicated to funding the 2.25% increase in supplemental state aid for schools agreed to last week.

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