Sorry to bring you down on a Friday afternoon, but the Iowa Revenue Estimating Conference released new estimates today, and it ain’t pretty:

The conference estimated that the current year’s revenues will sink by $129.7 million compared to its December estimate. Revenue for the budget year that begins July 1 will drop by $269.9 million.

The drop is in addition to December’s estimates, which cut $99.5 million in the current year and $132.6 million in the fiscal year that begins July 1.

Charlie Krogmeier, Gov. Chet Culver’s chief of staff and a member of the conference, said federal stimulus money may help offset the blow but that the dramatically lower estimates will leave lawmakers with tough options.

It would be difficult to find enough job cuts and furloughs in the current fiscal year to fill the gap. The fiscal year ends June 30, in roughly 10 weeks. […]

House Majority Leader Kevin McCarthy […] and other Democratic leaders noted on Thursday that they were already planning a budget that was $130 million less than Culver’s in the upcoming fiscal year. It’s unclear how they will make up the additional $270 million loss for the current and upcoming year.

Clearly difficult choices lie ahead. I urge Iowa leaders not to implement spending cuts alone, because cutting government spending too much during a recession can make things worse.

I was encouraged to read recently that legislators are looking carefully at all of the tax incentives Iowa provides. The combined effect of all these tax incentives is larger than all state spending:

There are at least 191 tax breaks for income and sales taxes that cost or prevent Iowa from collecting almost $7.2 billion, according to a 2005 review by the Iowa Department of Revenue and Finance.

That’s more than total state spending, which is projected to be $7.1 billion next year.

Not all of these tax breaks provide good value for the lost revenue, and not all of them can be preserved with the budget shortfall we’re facing.

In other unpleasant news this Friday, the Principal Financial Group, one of Iowa’s largest employers, announced pay cuts between 2 and 10 percent, which will affect all employees, management and the board of directors. Some benefits will also be reduced.

Principal already imposed a large layoff in December, and I think they are doing the right thing by reducing pay rather than cutting more jobs now. Labor market specialists differ on whether it’s better for companies to cut pay or lay off more workers in lean times. Click here to read some arguments for reducing pay, or click here for the pro-layoff argument.

The Principal Financial Group lowered the boom on 300 workers in central Iowa yesterday:

Principal Financial Group laid off 550 employees Tuesday, including 300 in its Des Moines headquarters, the company said.

Principal, one of the area’s largest employers, has approximately 16,400 employees worldwide and 8,000 in the Des Moines area. […]

The Des Moines-based insurance and financial services company said the cuts are due to continued deterioration of U.S. and global markets.

Principal reported a net income of $90.1 million for the third quarter, a 61 percent decrease from $232.3 million in the same period a year ago. Principal also told a state development agency last month that it is no longer interested in receiving tax incentives in exchange for creating 900 jobs in Iowa.

The last day for most affected employees will be Dec. 31, and all affected employees will receive severance and career assistance, the company said.

It’s great that people will receive severance pay and career assistance, but they will be entering a very tough job market. Other local employers, including Wells Fargo Home Mortgage, have already laid off workers this fall. Finding a job with pay and benefits comparable to what Principal offered won’t be easy.

This isn’t just an issue for central Iowa. As nyceve writes in her latest diary, rising unemployment is expected to greatly increase the number of Americans lacking coverage for basic health care. Add that to the list of problems with our costly and inefficient employer-based health insurance system.