Precarious budgeting promises painful future tradeoffs

As Iowa lawmakers start closing down the 2025 legislative session, uncertainties remain not only on what actions they may yet take this year, but on what may need to be revisited next year, the year after and the year after that.

The central issue is the precarious budgeting approach adopted by the Republican majority: cutting revenues without sufficient regard for essential public services or for the tenuous economy made shakier by the day due to actions and rhetoric in Washington.

First, the state budget. Legislative leaders and Governor Kim Reynolds reportedly have agreed on a $9.43 billion budget — higher than the governor proposed in January and resting more on one-time reserves. Revenue projections for Fiscal Year 2026 have fallen by $218 million from where they stood in January, to $8.51 billion. Notably, net receipts totaled $9.85 billion just three years ago, before most of the recent income-tax cuts had taken effect.

For FY 2026, the shortfall means lawmakers will cover nearly 10% of the state budget —$900 million — with one-time money. More than $400 million will come from the Taxpayer Relief Fund (TRF), the rest from surpluses built up and carried over in recent years by underfunding public schools and other priorities.

This kind of budgeting is only sustainable as long as one-time funds hold out. At $900 million a year, even $6 billion in reserves can be pulled out of the mattress faster than one might expect — especially if trouble emerges in a tariff- and DOGE-riddled economy. Governor Reynolds already was planning to use about $350 million from the TRF in each of the next four budget years to partially plug ongoing holes in the budget.

All of this is extraordinarily risky — and it assumes lawmakers place no other responsibilities on the state General Fund. But that's a poor assumption. Just a few years ago lawmakers switched mental health funding from counties to the state, and private-school vouchers they approved two years ago will drain more than $300 million from state coffers in FY 2026.

Yet another new draw on the state General Fund is still pending at the Legislature. A proposal to overhaul the property tax system would direct as much as $400 million in state General Fund dollars to replace local property taxes. As surpluses dwindle, this swap will force the same amount in other services to go away, because the state is required to balance its budget.

These are the kinds of tradeoffs we can expect in the coming years as lawmakers — and their constituents — deal with the short-sighted decisions of this decade.