Iowa Gov. Reynolds proposes $9.7B budget, again drawing from state reserve funds

DES MOINES — Iowa would spend just less than $9.7 billion in the next state budget year, a roughly 3 percent increase over current spending, under Gov. Kim Reynolds’ budget proposal unveiled Tuesday.

Reynolds’ staff and administration presented her annual budget proposal in conjunction with her Condition of the State address to the Iowa Legislature on Tuesday night at the Iowa Capitol.

It is the final budget proposal Reynolds will make; she is not seeking re-election this fall.

Reynolds’ proposal for the 2027 state budget year, which starts July 1, would continue to use state reserve funds to cover a shortfall between state revenue and spending.

Iowa is currently operating in a budget deficit, created in large part by a series of reductions in state income tax levels that started in 2019. In the current state budget year, the state’s general fund budget spending level, $9.4 billion, is higher than the roughly $8.2 billion in state revenue for the same year.

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The state is projected to have just less than $8.5 billion available in the next state budget year, which is roughly $1.2 billion less than Reynolds has proposed spending. Her plan would, as has been the case in recent years, draw from the state’s general fund budget surplus and the state’s Taxpayer Relief Fund.

Statehouse Republicans, expecting the state revenue dip from the income tax cuts, planned to cover state budget shortfalls with unspent state tax revenue, stockpiled over multiple years in multiple accounts, including the Taxpayer Relief Fund they created.

Reynolds’ proposal would leave $2.7 billion remaining in the Taxpayer Relief Fund and $880 million in the general fund surplus.

In March of 2024, before the state income tax cuts were fully implemented, Iowa’s nonpartisan Legislative Services Agency projected for the 2025 state budget year there would be $3.7 billion in the Taxpayer Relief Fund plus a $3 billion general fund budget surplus.

Republicans have maintained that eventually state revenues will rebound and surpass spending levels, eliminating the need for surplus funds to cover shortfalls.

Reynolds’ plan is merely a proposed budget. The final state budget must be agreed upon by both chambers of the Iowa Legislature, as well as the governor. The 2026 session of the Iowa Legislature began this week, and budget work typically begins later in the roughly four-month session.

Reynolds proposed a 2-percent increase in state general funding for K-12 public schools in the fiscal 2027 budget, and a 1.5 percent state funding increase to the state’s public universities and community colleges.

Reynolds’ proposal spends 97.9 percent of the nearly $9.9 billion available to the state under Iowa’s spending limitation law.

Reserve fund transfer needed due to federal changes

Iowa’s current fiscal year budget has been updated as a result of changes made by federal Republicans’ tax policy and spending bill passed last year.

Iowa’s conforming to the federal tax law changes resulted in the need for a $296 million transfer from the Taxpayer Relief Fund to the state general fund, Reynolds’ administration said.

Comments: (515) 355-1300, erin.murphy@thegazette.com

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