State Cautious About 8.7 Rise in Tax Collections

DES MOINES, Iowa (AP)-- Despite a strong start in tax collections, state officials are warning that a tight state budget could be looming because of previous spending commitments.

Tax collections in the first quarter of fiscal year 2008 were 8.7 percent ahead of the same period a year ago, according to a report issued by the Legislative Services Agency.

Tax receipts grew by $126.4 million over first-quarter collections in 2007, and the increase was more than double projections set by the state's Revenue Estimating Conference. The group estimated a 4.2 increase.

Dennis Prouty, the legislative agency's director and a member of the Revenue Estimating Conference, said state revenues traditionally begin the fiscal year higher than expected and moderate to lower levels throughout the year.

"There's nothing to indicate to me that it's not going to come back down or settle into something that's a lot closer to our estimate,'' Prouty said.

He said the state should wait and see what impact financial problems in the housing industry and other economic sluggishness will have on the state.

Personal income tax receipts had the largest impact on the first-quarter rise, jumping 8.9 percent--or $57.3 million dollars--over the same quarter last year.

The $1-a-pack increase in the cigarette/tobacco tax resulted in a $38.8 million jump in tax collections in the first quarter of 2008.

Gross quarterly corporate income tax collections were up $17 million over a year ago and sale/use tax receipts were up $9.6 million.

The only declines in collections occurred in the categories of inheritance and insurance premiums taxes.

So far, the state has collected $1.58 billion in fiscal 2008, compared to about $1.46 billion in the same period last year. If the Revenue Estimating Conference projection proves correct, Iowa will take in about $6.4 billion in fiscal year 2008, up $260.3 million from 2007.

Prouty said the state already has about $625 million in previous spending commitments as lawmakers begin preparing a budget for fiscal year 2009.

Those commitments include $170 million in property tax relief to local governments; a $90 million increase for K-12 education; $75 million for teacher pay increases; $55 million for Medicaid; $25 million for the Iowa Power Fund; and $14.3 million for expanded preschool.

"We have made significant promises in the 2007 session. We need to honor those commitments,'' Culver said.

Culver said he's encouraging his department heads put together status-quo budgets.

"I think it's very important to be fiscally conservative,'' he said.