Near the Cliff’s Edge

One of the most, if not the most, important functions of the legislature is to pass a budget, and each year, the legislature uses information provided by the state’s Revenue Estimating Conference (REC) to help build that budget. 

REC meets three times per year – in March, October, and December – and lawmakers must use the lower estimates from either the December or March meeting when crafting the budget. Using the lower set of estimates is meant as a safeguard against overspending. For example, if the December estimates project $8 billion in revenue but the March estimates project $7 billion, it makes more sense to use the March numbers as a foundation so we don’t spend a billion dollars we don’t have.

At least, that’s how it works in theory.

Where the Budget Is Going Off Track

In the 2025 legislative session, Republican lawmakers passed a budget that spent significantly more money than the state took in, creating a $1.26 billion deficit hole. This happened despite REC estimates projecting a substantial drop in revenues.

The governor and Republican lawmakers are using one-time funds, like the Taxpayer Relief Fund (TRF) and surplus carryover, to cover the ongoing expenses and fill the budget hole. But those one-time reserve funds are draining much quicker than they anticipated because their original projections have been off by about $1.36 billion, meaning they’ve needed to transfer more money from the TRF than anticipated.

And the slope gets even more slippery because Republican lawmakers are planning another billion-dollar deficit this year. In fact, according to the governor’s five-year projections, the majority party plans on running budget deficits through at least 2030. This means more transfers from the reserves and fewer reserve funds to help cushion the lack of revenue growth.

What This Means for You

Beyond the dollars and cents of all of this, why should you care about the state’s budget situation or the information that comes from REC?

For starters, the Republican budget is not working for you. The main beneficiaries of their budget priorities are corporations and the very wealthy. Between Fiscal Year 2024 and the current projections for Fiscal Year 2027, the income tax paid by corporations will have dropped by nearly $200 million while, during the same period, sales tax collections will have increased by over $350 million.

That means you’re paying more for groceries and other household needs while big corporations are getting a tax break. 

How It Impacts Policy and Your Wallet

The budget situation also looms large over everything the legislature is doing this year, which has a direct impact on the issues Iowans care about. Take school funding, for example. The majority party is no stranger to underfunding our schools, but this year’s meager increase is almost certainly affected by budget constraints. Or take SF 2464, which would increase taxes on health insurance companies in an effort to drum up some of the majority party’s missing revenue growth – the tax hike would be passed along to Iowans in the form of higher monthly health insurance costs. So, Republican lawmakers get some money to start filling in their deficit hole, and you get more expensive health insurance premiums.

You should also care because this budget mess affects how the majority party plans to govern in the not-so-distant future. Senate Republicans introduced a bill that would let them take their ball and go home when they can’t pass a budget – like when negotiations get a little tougher under a divided government with a Democratic governor. 

If we’re not careful, the majority party will march us right off the fiscal cliff.