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DES MOINES, Iowa (AP) — A trio of Iowa state budget experts predicted Monday that state revenue will increase by about 3% for the current fiscal year and 1.7% next year, leaving billions of dollars in unspent money that Republican leaders say should be returned to Iowans in the form of tax cuts.

Iowa and many other states experienced a boost from federal COVID-19 aid, which fueled increased consumer spending through this year and is reflected in increased tax collections and more state revenue. The challenge is to determine what happens to state revenue when the impact of the federal funding wanes.

The three-person panel — made up of Iowa Department of Management Director Kraig Paulsen, Holly Lyons of the Legislative Services Agency, and business owner David Underwood — concluded that revenue growth will slow but continue trending upward.

It all means Iowa is likely to end the current year with an unspent balance of $1.3 billion. When added to the current taxpayer relief fund balance, that leaves more than $2 billion in excess revenue that the state has not committed to spending.

Gov. Kim Reynolds and lawmakers must use the Monday estimates to design a state budget. Reynolds said she plans to propose significant tax cuts.

“The December REC forecast again confirms a significant overcollection of Iowa taxpayer funds and we are going to give that money back,” Reynolds said in a statement. “Iowa’s economy continues to show very positive signs of growth. I will continue to fight to return these funds to the hands of hardworking Iowa taxpayers and explore significant tax cuts this legislative session that will make Iowa one of the most competitive states in the country. This overcollection of taxes is unethical and it must end.”   

Iowa House Speaker Pat Grassley said he plans to work on “finding the most effective way to lower taxes and return this money to Iowa taxpayers.”

Democrats insist any tax cuts should be targeted at middle- to lower-income Iowans and smaller businesses, and go toward programs to help working Iowans, including job training, paid family leave, childcare and housing.

“Contrary to what the governor and legislative Republicans are saying, more corporate tax giveaways and tax cuts for Des Moines millionaires will only make their workforce crisis worse, especially in rural Iowa,” said Democratic Sen. Joe Bolkcom, who is the leading Democrat on the Senate committee that drafts budgets.

The Iowa Legislature is scheduled to convene the 2022 session on Jan. 10.