Photo: Thanasis / Moment / Getty Images
(Des Moines, IA) -- As state budget talks heat up in Iowa, the Revenue Estimating Conference released its March report on Thursday. The numbers show that in Fiscal Year 2025, the state will end up with roughly $9.13 billion in tax receipts, which is 6.4% lower than the previous year. But political leaders say they were expecting these drops because of recently approved income tax cuts. As of January 1st of this year, a flat 3.8% income tax rate went into effect. Gov. Kim Reynolds says they're doing what they're supposed to.
"We cut taxes to let Iowans keep more of their hard-earned money and that's exactly what today's REC numbers reflect," Reynolds says in a statement.
The governor's proposed budget would spend $9.43 billion in fiscal year 2026, which begins in July. However, that's $900 million more than the estimated number from Thursday's report. To fill the gap, Iowa House Speaker Pat Grassley (R-New Hartford) says lawmakers may need to agree to dipping into the state's surplus funding.
"When we passed the tax cuts...there's a reason we built up a significant nearly $4 billion dollars within the taxpayer relief fund," Grassley says. "We also left ourselves with $2 billion roughly in the ending balance. Knowing that as you're reducing taxes you could see some short term loss of revenue...by no means are we in a position where we don't feel we can fund our priorities."
Some of those opposed say this is not what the state should be using these funds for. House Minority Leader Jennifer Konfrst (D-Windsor Heights) is one of them.
"We don't want that to happen," Konfrst says. "But if they're going to have to dip into one time funds--which is not the appropriate budget practice, which is not the appropriate way to handle this--then that is because they have not put together a budget that is sustainable over several years because of unsustainable tax cuts."
As part of the statement put out by Governor Reynolds' office, Iowa Department of Management Director Kraig Paulsen says it doesn't mean the state is in a bad spot.
"Unlike so many states, Iowa is in great financial position," Paulsen says. "And because of our strong fiscal health, Iowa has the flexibility to address the priorities of Iowans."
Fiscal Year 2025 closes June 30th with the new year beginning the following day.