A three-member panel today lowered its estimate of state tax revenue by about 50 million dollars over the next year and half. The governor’s staff says the decline is not large enough to trigger another across-the-board cut in the state budget.

Revenue forecasters now predict an 8.5 percent decline in state tax revenue this year compared to last year. In October, the governor ordered a ten percent across-the-board budget cut, creating enough of a cushion to cover the latest revenue decline.

Dick Oshlo, the governor’s budget director, says there are some signs that Iowa’s economy is entering recovery mode.

“We’re optimistic that some improvement is showing somewhere,” Oshlo says. “It’s still a tight budget in Fiscal Year ’11.”

David Underwood, the retired chief financial officer of a cement company in Mason City, sits on the state’s three-member Revenue Estimating Council. Underwood says consumers continue to be the weak link in the economy.  

“Everybody’s waiting for the deal…whether it’s the ‘cash for clunkers,’ whether it’s buy-a-house-and-get-a-federal-tax-credit,” Underwood says, “or waiting for the 70 percent mark-downs at the retail stores.”  Underwood says he’s “guardedly optimistic” about the future.

Governor Culver issued a written statement, saying the Revenue Estimating Conference report shows there are “tough decisions” ahead, but confirmed “previous reports from (his) Council of Economic Advisors that Iowa has likely seen the worst of the national recession.”

House Democratic Leader Kevin McCarthy of Des Moines says the legislature now will be able to balance next year’s state budget without a tax increase.  “And we’re going to institute an aggressive government reorganization plan, potentially of a few hundred million dollars and unlike almost every state in the country we have health cash reserves — almost $600 million dollars in our cash reserve,” McCarthy says.  “So the (Revenue Estimating Council) recommendation — a status quo recommendation in a sense — given what we could have been facing, is good news.”

The three members of the Revenue Estimating Conference stressed caution about the future, saying it’s extremely difficult to predict state tax revenue during a recession. 

 “I think it was good that the R.E.C. today was conservative in their estimate, fiscally conservative, because there are a lot of signs that the economy is getting better,” McCarthy says. “Housing starts are up 39 percent. Personal income looks to be slighly up. Holiday sales are slightly up, but they wanted to be conservative so we’re not in a situation in March where we have to make some unexpected cut (in the state budget), but before you can have a recovery in a state, you have to stabilize — and it looks like we have reached that stabilization phase.”

Republican legislative leaders were less optimistic.  House Republican Leader Kraig Paulsen of Hiawatha says the Democratic governor and Democrats in the legislature created a “real budget mess” that wasn’t fully remedied by the 10 percent across-the-board cut.