Economic Indicators, Revenue Give Mixed Signals on Regional Economy

Vander Linden

In its latest release, the Department of Revenue’s Iowa Leading Indicators Index showed modest growth in December 2014. The Index rose to 109.4 for the month, a slight hike over November’s rating of 109.3. Six of the eight components making up the Index improved in December, including average weekly manufacturing hours, residential building permits, and the Iowa Stock Market Index. The Index had remained relatively stable for the last six months of 2014, with December’s figure being only one-tenth of a percent below July’s number.

Pointing in the negative direction is Creighton University’s Iowa Business Conditions Index. This monthly indicator fell in January to 52.2, down from the 53.4 figure reported for December. While any number above 50 is viewed as indicating economic growth, the Iowa index has fallen in six of the past nine months. Also raising concern are forecasts from USDA concerning farm income in 2015. USDA says that farm income will continue to fall from the 2012 highs, while input costs continue to creep up.

The conflicting economic forecasts are slow, but sustained revenue growth is not just isolated in Iowa. These conditions are also being experienced in a number of the neighboring states. In Missouri, lawmakers and Governor Jay Nixon are considering actions to take in light of slowing tax revenues. Nixon has stopped over $500 million of state spending in the current fiscal year and is proposing additional revenue streams to fund new spending for schools and health care.

In Wisconsin, legislators are faced with having to close a growing budget gap. Revenue in the Badger state is 2.7 percent below the previous year, and the tax collections are now projected to be $619 million below state appropriations. Governor Scott Walker is proposing a series of cost savings measures, including a $300 million cut to higher education.

To the west, Nebraska saw tax revenue fall in January. That state saw tax revenue fall 6 percent when compared to January 2014. For the fiscal year, Nebraska tax revenue was still growing by 1 percent.

The outlier of the group is Minnesota, as that state’s economy continues to exhibit solid growth. Revenue for November and December 2014 was 6.4 percent higher than what the state had projected at the start of November. For the first six months of the fiscal year, actual revenue had exceeded projections by 2.3 percent.

The economic forecast for all states in the region is complicated by factors that are benefiting other parts of the economy. The strength of the US dollar has made the price of imported products significantly cheaper. That strength creates headwinds for US exports, including agriculture products. The drop in exports has been a factor in falling commodity prices and layoffs at major regional manufacturers like Caterpillar and John Deere.

Zero-Based Budgeting Bill Passes House State Government

The House State Government committee voted earlier this week on HF 1; a bill requiring state agencies and departments, as well as the judicial branch to adopt a zero-based budgeting approach. The bill passed out on a party line vote 12-10.

Currently, state executive departments and agencies use estimates based on 75 percent of funding provided for the current fiscal year, and the form for budget submission is decided by the director. The judicial branch operates on the same procedure. With this bill, executive departments and the judicial branch will be required to use zero as their base approach when determining their budgets. Additionally, it requires the departments to prioritize requested expenditures, with support as to why every request is needed.

It is a useful tool to help the departments and agencies justify why they need the amounts they request, and also helps with the budgeting process by helping legislators identify the “low hanging fruit” should adjustments need to take place. It also prevents across the board cuts, and provides an open and transparent process throughout.

Opponents argue that this would place an undue hardship on departments and agencies, and it would take up a lot of time. Additionally, they argue this practice disrupts the legislative budgeting process, and the governor should have deference to decide what budgeting principles to use.

If signed, Iowa would join Georgia as the only two states following a true zero-based budget system; although both states are in good company as many other states use hybrids of several budgeting principles in their overall budget process.

Drone Rules Released and Under Review

The Federal Aviation Administration released proposed rules on Sunday that would govern commercial use of drones in the U.S. Aviation enthusiasts and engineers have wondered for years how drones might be designed and used to change peoples’ lives and the face of commerce across the country. Though the long-awaited proposed rules should pave the way for thousands of businesses to fly drones across a wide variety of industries, they limit potentially innovative uses like package delivery and make it potentially difficult for small businesses.

Sunday’s rules are a big step forward from the FAA’s virtual ban on commercial use of drones. They will now undergo a 60-day review and comment process before the FAA finalizes them. If the rules stay as they’re currently written, they’ll almost completely quash any possibility of using drones for deliveries in the U.S. Drone operators must remain within visual sight of the drone, which can operate only in daylight, and drones must weigh less than 55 pounds. Amazon made a highly publicized announcement last year that it was turning to drones to facilitate product shipments. It called on the FAA this week to change the rules to allow “Prime Air” to operate.

The proposal also presents challenges for small commercial drone operators who must undergo background checks and pass and retake an aeronautical exam every two years to operate a drone. Flights over people are also banned and air-traffic control must give prior approval before a drone can fly into an urban area despite a prohibition that they not exceed an altitude of 500 feet. Those restrictions could limit many commercial applications like monitoring crops, inspecting utility lines or making movies.

Until the FAA finalizes the rules in 2017, its effective ban on commercial drones will remain in place. The agency has approved just 26 companies to use drones under the current set of very restrictive rules.