This week, the Revenue Estimating Conference met to share its revised numbers for the current year’s fiscal estimate and preliminary estimate of tax revenue for the next budget year. For Fiscal Year 2026, the panel changed its March estimate from $8.5079 billion to $8.1341 billion. The reduction is primarily due to a series of tax changes implemented at the federal level in the One Big Beautiful Bill Act. Since Iowa automatically applies federal tax law changes to Iowa’s tax Code, provisions like no tax on tips and no tax on overtime have already gone into effect. Revenue was already projected to go down in FY 2026 due to the 2024 state income tax reforms being fully implemented. For Fiscal Year 2027, the REC set their preliminary estimate at $8.3939 billion. This would be revenue growth of 3.2 percent over the revised FY 2026 figure.
These numbers confirmed what we predicted and planned for. When we delivered much-needed tax relief to Iowans last year, we knew revenues would drop. That’s because Iowans are keeping more of their hard-earned money rather than it going to the government. Iowans were struggling with the impacts of former President Biden’s failed economic policies, and we knew we needed to deliver relief immediately.
We planned to use money from the Taxpayer Relief Fund to cover the revenue loss, because that’s exactly why we have such a fund. In 2018, Iowa reformed the Taxpayer Trust Fund into the Taxpayer Relief Fund. This fund represents an overcollection from the taxpayers and is there for the specific use of delivering tax relief. After the 2025 FY, we expect the state to transfer somewhere between $450 and $500 million from the TRF to the General Fund.
Despite a mixed economic picture locally and nationally, Iowa remains in a strong financial position. We have over $6 billion in cash on hand, which includes over $4 million in the Taxpayer Relief Fund. Fiscal Year 2025 closed with an ending balance of almost $1.9 billion, and our reserve funds are at their statutory maximums.
We know that things like rising Medicaid costs and a struggling agricultural economy are putting strain on state budgets. But Iowa is in a better position than most because of Republicans’ responsible budgeting for over a decade. As we approach the Fiscal Year 2027 budget, we will continue to implement our level-headed budgeting principles that Iowans have come to expect.
Mental Health Annual Spending Reaches $1.28 Billion in Iowa
In my time as Speaker of the Iowa House, our Republican caucus has put a big emphasis on mental health care. We’ve passed a number of bills to get Iowans access to the care they need – from increasing the workforce to investing in training for school employees. We have made investment in mental health care a priority when it comes to state spending as well. The chart below shows that the total amount spent in taxpayer dollars towards mental health services in Iowa in fiscal year 2024 (July 1, 2023 – June 30, 2024) was over $1.277 billion.
This does not include any of the following appropriations that the legislature has made over the last two years, amounting to an additional $67.5 million annually when combined with federal matching funds.
- Provided $9.65 million increase of funding and employees to specialize the Independence Mental Health Institute to behaviorally complex youth and the Cherokee MHI to acute and forensic adults.
- $4.8 million to establish 9 psychiatry residencies through the University of Iowa Hospitals and Clinics, with a focus on training at state facilities, including the mental health institutes, Eldora State Training School, and Woodward Resource Center.
- The FY 2025 HHS Budget (HF2698) provided $2.38 million in increased state funding towards mental health Medicaid rates.
- $750,000 for new ChildServe buildings to care for children with autism.
- $369,000 in state general fund for enhanced rates to Psychiatric Medical Institutions for Children to care for the most complex children in our state.
- HF2673 provided $3 million from the regional incentive fund for the 988 call line.
- $28.6 million from the Opioid Settlement fund
As you can see, this has been a big priority for our caucus, because we know it’s a big priority of Iowans. In the Iowa House, we will continue to stay diligent in looking for ways the state can help meet Iowans’ mental health needs.