Dollar signs: Millions and billions – where to look first?

It’s easy to get buried in budget numbers and forget they translate to one thing: Services.  

We all count on public services to assure our health, safety, opportunity, and more. This is true not only for individuals and their families, but for businesses. Key numbers can help us understand whether we can sustain the education, health care, environmental quality and law enforcement we expect. 

Let’s look at those key numbers for the opening of the Iowa Legislature in a few weeks, and include important context for those numbers, which come from official state reports.[1] How much do we have? How much do we need? How do we reconcile a shortfall, and how do we address long-term sustainability for our commitments and expectations? 

We can expect less revenue this year than we did last year – $9.15 billion for FY 2025, down 6.2% from FY 2024. We also can expect even less revenue next year – $8.73 billion for FY 2026, down 4.7% from the FY 2025 estimate.  

The principal reason for the declines? The tax cuts passed in 2018, 2021, 2022 and 2024 many have only just started phasing in. The Revenue Estimating Conference estimates revenues will be down $650 million this year from FY 2022, the year the latest round of cuts passed. And next year, $1.08 billion – an 11% drop. 

So, how much do we need to pay for the services our state provides or supports? Using this year as a guide, we’ll fall short next year – in terms of net revenues to meet our current obligations. That $8.73 billion expected for net revenues next year is nearly $200 million short of our current-year budget of $8.92 billion. 

But we’ll need more. The Legislative Services Agency reports built-in increases for FY 2026 will add $357 million – mostly from a further expansion of private-school vouchers (an extra $129 million) and increased costs in Medicaid $123.8 million) – bringing the expected new budget to $9.27 billion, half a billion dollars higher than expected revenues. 

Short of current needs with current revenues, legislators have options. They can cut services – but they haven’t talked about that. They can raise revenues – but nobody talks about raising taxes, especially while boasting about cutting them. Or they can patch current holes temporarily by using surpluses that they’ve socked away by underfunding budgets over several years.  

But once they use those dollars, they’re gone. That reduces resources available for the next underfunded budget. At some point, all of those surplus dollars will be gone.  

Already, the surplus is getting smaller. Estimated for this year at $2.17 billion, it is expected to drop to $1.94 billion in FY 2026. That includes a transfer of $272 million from another reserve account, the Taxpayer Relief Fund, or the surplus would be smaller.  

Learning from the numbers

In conclusion: Iowa will have about a half-billion dollars less in net revenue in FY 2026 than will be needed for budget priorities established by the same legislative majorities and governor who have cut those revenues. Enhancing existing investments, or starting new ones, does not fit with existing revenues – let alone new tax cuts by lawmakers harboring visions of one day eliminating the state income tax. Iowans who want to protect or improve investments in the things that have made Iowa a good place to live, work and raise a family will need to speak up for what they consider most important. 

Mike Owen is deputy director of Common Good Iowa. Contact: mowen@commongoodiowa.org