Differing Views on Revenue Estimates
The state’s economic forecasting panel (Revenue Estimating Conference, or REC for short) met today to finalize their estimates for the current fiscal year (FY 2026) and the upcoming budget year (FY 2027). The news is not great – revenues for the current year had to be reduced by another $46 million and next year’s estimates were reduced by another $27 million. The more than 9% drop in revenues over the previous year is the product of large state income tax cuts being fully phased in and the impact of various federal tax changes in the One Big Beautiful Bill. Tariffs, manufacturing and agricultural industry stress, and increasing gas prices are all factoring into the panel’s use of caution in its readjustments.
The truth is simple – the state is spending more money than it is collecting.
- The state’s total estimated revenues to be collected in FY 2027 is $8.472 billion.
- The Governor recommended spending $9.67 billion for Fiscal Year 2027 – this 2% increase overspends what the state will take in by $1.2 billion.
- To balance the budget, the Governor uses funds from the Taxpayer Relief Fund and ending fund balances to make up the difference.
- To balance Medicaid, legislators are actually contemplating a temporary, retroactive tax on Wellmark Blue Cross/Blue Shield in order to draw down additional federal dollars. Insurers say this retroactive tax will just mean increases in the cost of health insurance for working families.
Legislators are spinning this news in different ways. Iowa Department of Management Director Kraig Paulsen pointed to the state’s cash position, “The state has $5.6 billion cash on hand, the reserve funds are full, and the Taxpayer Relief Fund has a balance of $4 billion.” He said the reserves the state put aside when it cut taxes is doing its job and filling the gaps while the economy hits its new stride. Governor Kim Reynolds declared, “Despite some unease in the national economy, Iowa’s economy remains strong.”
On the other hand, House Minority Leader Brian Meyer said the use of reserves was intended to pay for priorities like property tax relief, not “covering their budget mess.” You can read the spreadsheets here.
What’s Next?
Senate Republican leaders will decide how much they want to spend in FY 2027, then divide that up amongst each budget area (Administration/Regulation, Agriculture/Natural Resources, Economic Development, Education, Health/Human Services, Judicial Branch, Judiciary, Transportation, Standings). The House Republican leaders will do the same. Then the negotiations begin.
Property tax reform is still on the table, along with increasing taxes for cigarettes, nicotine/vape products, consumable help, and sports gaming.