Iowa Capital Dispatch Article written by Robin Opsahl
(Des Moines) The state of Iowa’s general fund revenue for fiscal year 2025 is roughly $200 million less than predicted when state lawmakers were moving forward with the budget, according to a Legislative Services Agency report.
The nonpartisan LSA document found the state collected $8.8 billion in the fiscal year covering July 1, 2024, through June 30, 2025. This represents a $780 million drop in revenue compared to the state’s $9.6 billion in revenue for FY 2024 – an 8.1% decrease.
Part of this funding decrease was expected, as Gov. Kim Reynolds signed a law in 2024 speeding up previously approved income tax cuts. When state legislators reconvened for the 2025 legislative session, Republican leaders said they were expecting to draw from the $3.75 billion Taxpayer Relief Fund, as well as the state’s $2 billion budget surplus and $961 million in reserve accounts to make up for the expected shortfall caused by the tax cuts.
The Revenue Estimating Conference predicted in March that Iowa would see a revenue of $9.020 billion in FY 2025, excluding lottery and other transfers. The updated total from the LSA is $198 million below that prediction.
State Auditor Rob Sand, who is running for governor of Iowa, said in a statement on Monday that the LSA report shows that Iowa Republicans’ “irresponsible budgeting practices” have led to a predicted financial crisis.
“I warned of a fiscal time bomb back in May, and now we are seeing it detonate before our very eyes,” Sand said in a statement. “The decline in state revenues is even worse than anticipated, raising serious concerns about funding for services that Iowa’s families and communities depend on.”
He and other Democrats have criticized both the move to a single 3.8% income tax rate and the state’s Education Savings Account program, which awards public funding for private school tuition and associated costs.
Democrats have warned that these GOP-backed initiatives will cause significant problems as the state draws on its reserves. According to the LSA, the state’s Taxpayer Relief Fund contains $3.6 billion, and the state retains a $1.6 billion surplus as of July.
Sen. Janet Petersen, D-Des Moines, said in a statement earlier in October that the LSA’s report shows “the governor’s five-year projections are looking pretty rosy compared to the state’s fiscal reality.” Earlier in 2025, Petersen had made a Freedom of Information Act request to the Iowa Department of Management requesting the release of the administration’s five-year financial plan, which showed the intention to transfer money from the Taxpayer Relief Fund from FY 2026 through 2030.
“Republican lawmakers planned to spend more than we take in for at least the next five years,” Petersen said. “Our reserves won’t last forever. Just how much, or for how long, are they willing to deplete our reserves to cover their budget malpractice?”
In addition to the confirmed lower revenue in FY 2025, the state is expected to generate less revenue in future years. This is not only because of state tax law changes – Reynolds said in September some of the individual and corporate income tax law changes approved through the federal “One Big Beautiful Bill Act” will also result in a $437.5 million decrease for Iowa’s general fund revenues in fiscal year 2026, according to initial Iowa Department of Revenue projections. Struggles in the agricultural economy are also expected to have a negative impact on Iowa’s economy.
But in a social media post Thursday after the LSA report was released, Reynolds highlighted the U.S. Bureau of Economic Analysis report on GDP growth data, which found Iowa’s GDP grew by 3.7% in the second quarter of 2025, “ranking Iowa in the top 20” in the country.
“With $20B of new capital investment in the last 18 months, we’re continuing to drive growth and diversification for Iowa’s economy,” Reynolds wrote.
The REC is next scheduled to meet Oct. 16 at the Iowa State Capitol.
