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What will Trump’s tariffs mean as Iowa lawmakers shift focus to state budget, taxes?
Pat Grassley: Iowa can 'absorb’ any budget uncertainty caused by Trump’s tariffs
Apr. 4, 2025 6:45 pm, Updated: Apr. 7, 2025 8:33 am
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DES MOINES — With the second legislative “funnel” deadline of the 2025 Iowa legislative session now behind them, and their workload lightened, Iowa lawmakers now shift their focus to the state budget, school funding and property taxes.
Republican leaders in the Iowa House and Senate said they are carefully monitoring the impact of sweeping tariffs on U.S. imports announced this week by President Donald Trump as they draft the state's budget.
Trump on Wednesday unveiled a 10 percent tariff on all imports, plus reciprocal tariffs on dozens of nations. The news triggered a global sell-off of stocks. U.S. stock markets tumbled Thursday, suffering their worst losses since the COVID-19 pandemic crashed the economy in 2020. They sank even further Friday after China responded with a reciprocal 34 percent tariff on all U.S. imports.
Iowa has a significant trading relationship with China, particularly in agricultural products like soybeans and corn, with China being a major importer of these goods from Iowa.
U.S. agricultural exports fell by more than $27 billion during Trump’s first term amid a trade war with China, prompting the USDA to send $23 billion to farmers to help offset losses. Iowa and U.S. soybean farmers were among the largest casualties of the 2018 trade war. Of the $27 billion loss, soybeans represented 71 percent of the drop.
The tariffs come as Iowa farmers are already struggling with the combined effects of falling commodity prices and higher production costs and interest rates.
Iowa House Speaker Pat Grassley, R-New Hartford, acknowledged “short-term bumps in the road” as retaliatory tariffs impact Iowa’s agriculture economy, but is hopeful the long-term impacts will outweigh any short-term losses.
Iowa Republicans, including Gov. Kim Reynolds, said the sweeping tariffs are negotiating tools to secure better trade agreements and address trade imbalances with other countries.
Reynolds, in a statement Wednesday, said Trump is “using tariffs as leverage” to level the playing field for American businesses and workers by confronting the unfair tariff disparities and trade barriers imposed by other countries.
“My job is to protect Iowans, and I’m working directly with the administration to ease the short-term impact, keep our ag economy strong, and open the door to new export opportunities,” the governor said.
Grassley: Iowa has $6B cushion to absorb possible downturn
Democratic leaders in the Iowa House and Senate said the tariffs will raise prices, amounting to a tax on working Iowans that will damage an already soft ag economy and struggling Iowa economy with poor personal income growth and frequent rounds of mass layoffs.
"I am frankly flabbergasted that Gov. Reynolds seems to be cheerleading what President Trump has done in terms of tariffs because this is really going to hit Iowa’s farmers, our ag economy and the rest of the state really hard," Iowa Senate Democratic Leader Janice Weiner, of Iowa City, told reporters Thursday.
Grassley told reporters that Republican majorities in Iowa have budgeted conservatively in recent years, and as a result can “absorb any uncertainty that may come from” an escalating trade war.
He pointed to a roughly $6 billion cushion the state has built up between its $2 billion budget surplus, $3.75 billion Taxpayer Relief Fund and reserve funds.
A state panel estimated last month that Iowa will take in $8.5 billion in projected revenue for the new budget year that begins July 1. That's $400 million less than the state's current fiscal year spending of $8.9 billion. Reynolds’ budget proposal, which she published in January, calls for a $9.4 billion state budget that would tap into the state’s surplus and Taxpayer Relief Fund.
Republicans, who have agenda-setting super majorities in both chambers of the Iowa Legislature, have not yet set spending targets for the coming budget year.
Grassley said budget subcommittee chairs met this week with their members to determine priorities. He said discussions on budget development are ongoing in both chambers, and there is no timeline for when the targets will be released.
House Minority Leader Jennifer Konfrst, D-Windsor Heights, said lawmakers must prepare for an economic downturn.
“We have to be realistic about the impact of the chaotic tariff policy that’s happening in Washington right now,” Konfrst said.
She suggested lawmakers cap the number of state-funded savings accounts for private school expenses. Lawmakers approved an unlimited appropriation, meaning all students who are approved under the program are eligible for funding. The program expands to universal eligibility for all Iowa students beginning next school year — allowing all Iowa K-12 students attending accredited non-public schools to participate, regardless of household income.
“We have to start looking at the real numbers and stop playing politics with Iowa's budget,” Konfrst told reporters Thursday.
Senate President Amy Sinclair, R-Allerton, said legislators need to be as conservative as possible when developing next year’s state budget due to potential impacts to state tax revenues from tariffs.
“I think the legislature needs to be mindful in our budgeting and in the work that we do,” Sinclair told reporters this week. “... I think all Iowans want us to take care of what we know and what we don't know, and try and plan for those contingencies. We don't know what it's going to do with us yet. But I think we have to be mindful of it as we plan our budgets and move forward.”
Sinclair noted commodity prices are down already as trade war fears grip markets.
“We need to cautious in our spending based on that,” she said. “I think we have to be as conservative as possible, because those costs are going to be compounding year over year. And we have to know that impacts what our revenues will be in the coming years.”
School funding stalled
In addition to releasing budget targets, House and Senate Republican lawmakers also have yet to agree on school funding levels, as districts face a looming April 15 deadline to certify and adopt their budgets for the upcoming school year.
The legislature failed to meet a self-imposed deadline of passing the State Supplemental Aid (SSA) rate, providing per-pupil funding for Iowa public K-12 schools, within 30 days of the governor’s budget being released.
Senate Republicans passed a 2 percent general school funding increase that matches Reynolds’ budget proposal. House Republicans amended the bill to provide a 2.25 percent increase in per-pupil funding costs for public schools, along with other funding components like transportation equity payments, a one-time $22.6 million boost to help districts cover inflationary costs and changes to schools' operational sharing budgets.
The House sent the amended bill back to the Senate in February with its higher funding goals, but the bill has since stalled.
Sinclair said she believed that an agreement would be reached on school funding soon, potentially next week. She said one of the reasons for the delay was waiting to receive updated revenue estimates for the upcoming fiscal year.
“We’ll get something passed out this coming week,” she said. “It’s important that we waited for the Revenue Estimating Conference for March. We know that the commodity prices are down, and it impacts our overall revenues for the state — so we needed to see where that was, to see the number that’s going out for school funding.”
Grassley added House and Senate leadership “are making some progress” on reaching an agreement.
Democrats argued the proposal is insufficient to help public school districts cover all their costs.
From 1973, when the current public school funding formula was created, until 2010, general state funding to K-12 public schools increased by an annual average of 5 percent. Since Republicans regained at least partial control of the state lawmaking process in 2011, that annual increase has averaged 2 percent.
Rep. Skyler Wheeler, a Republican from Hull and chair of the House Education Committee, said House Republicans are still trying to secure additional funding for items passed in their bill, but he has encouraged school districts to move forward and budget for a 2 percent increase.
“Whatever else we can get on top of that is what the House can deliver for a win, but that's where they're at with it,” Wheeler told The Gazette.
Lawmakers working on revamp to proposed property tax ‘reboot’
A top legislative priority of Iowa Statehouse Republicans may also turn into a continuing conversation that gets pushed to 2026.
Republicans have proposed eliminating the state's property tax rollback system, which limits property tax increases, and enacting a 2 percent cap on most revenue growth. The proposal would also shift about $400 million in funding for K-12 schools from local property taxes to the state.
House Democrats want to give a $1,000 property tax rebate to Iowa homeowners, a $500 rebate to renters and freeze property taxes for seniors. The program would be paid for using Iowa’s $3.75 billion Taxpayer Relief Fund.
Local governments and school districts have voiced concerns about the GOP proposal's potential impact on city, county and school budgets and services. Business and taxpayer advocacy groups support the proposed overhaul, citing rising property taxes as a burden on businesses and homeowners.
Statehouse Republicans said rising property tax costs were a top concern brought up by voters while they campaigned ahead of the November 2024 general election. And while they aim to move on property taxes this session, GOP leaders said the legislation remains a work in progress.
Rep. Bobby Kaufmann, R-Wilton, and Sen. Dan Dawson, R-Council Bluffs, who chair the tax policy House and Senate Ways and Means Committees, said they are working on rolling out a new, revamped version of their proposal that incorporates feedback they gathered from local tax entities, business groups and others.
Sinclair said she would “like to see it get done this year, but we want it done right, rather than fast.”
Grassley said the intention was never to rush the bill; rather, they want to ensure it is thoroughly considered. While some parts of the bill may need further refinement as the session continues, Grassley said the goal remains to find a solution. If not everything can be completed this session, discussions can continue next year, but efforts will persist to improve the existing system for property taxpayers, he said.
Other proposals include:
- HSB 304: Limits property tax increases to 3 percent per parcel for taxpayer certainty
- HSB 303: Uses taxpayer relief fund interest to cut property taxes
- HF 600: Caps the average tax levy increase at 2 percent per $1,000, with voter approval to exceed it
- HF 418: Adjusts residential property valuations and levy limits
“I think it is going to take time,” Grassley said. “… I think as of right now, we're going to continue to try to push forward and see what we can do to provide certainty for the property taxpayer, within the current or changing the current system that we have.”
Comments: (319) 398-8499; tom.barton@thegazette.com
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