2025 Legislative recap
Lawmakers moved more of the same: restrictions and punishment over efforts to expand opportunity
More Iowans will be harmed than helped by the actions of the 2025 session of the Iowa Legislature. Across a range of issues, lawmakers in power at the Capitol opted for restrictive and punitive policies that run counter to common-good and common-sense governing.
The bright spots were, for the most part, on issues where lawmakers considered action and ultimately took a pass. Top among those was a property tax overhaul, where uncertainty reigned on a bill produced in a closed-door process, ultimately put off to next year — though this opens the door to better legislation next year. Tiny wins, like a new policy giving one to four weeks of paid parental leave to state employees, paled compared to policies designed to make life more difficult for thousands of Iowans struggling to get by.
A common thread running through the session was one of denial: denying the well-established fact that big income-tax cuts skewed to the wealthy won’t magically increase tax revenue, denying the needs of low- and middle-income Iowans for health care or unemployment benefits in tough times, and denying the civil rights of Iowans whose lives do not conform to majority legislators’ narrow precepts.
Here are noteworthy outcomes:
State budget on unsustainable path
Lawmakers passed a $9.4 billion budget for Fiscal Year 2026, which starts on July 1, 2025. That’s an increase of about a half-billion dollars from this year, and $917 million higher than revenues projected by the Revenue Estimating Conference. The difference will come from one-time reserves, about half of it from the so-called “Taxpayer Relief Fund.”
This is not sustainable budgeting. Iowa built up $6 billion in surpluses in recent years by underfunding priorities and socking away the resulting “excess” revenue, even as they passed big income-tax cuts skewed to the wealthy. Then they diverted General Fund dollars to other pet projects, including private-school vouchers that will cost $315 million in FY 2026, with virtually no accountability to taxpayers.
Now we’re starting to pay the piper. The combined impact of lower revenue from the tax cuts and more demand from things like vouchers are squeezing the services Iowans depend on, among them public education, public safety and health care.
Property taxes need more time, hearings
Property tax increases caused by growing market-driven assessments have been a political hot potato in recent years and were the focus of 2024 campaigns for the Legislature. Tax-committee leaders worked the issue behind the scenes, not offering a bill publicly until March, then retreating and producing another version in April, and a third version, SF 651, in the final week.
The final bill passed through the Senate Ways and Means Committee but did not reach a floor vote. Lawmakers are likely to work on it through the summer. Common Good Iowa ultimately took the position that action should wait until next year, and in the interim lawmakers should hold public hearings throughout the state to better understand the impacts of a major property-tax overhaul.
The challenge of meaningful reform will be at least threefold: (1) assuring sufficient revenue for local officials to maintain the services their constituents want; (2) directing the benefits of property-tax cuts or growth limits to low- and moderate-income Iowans first, unlike recent property tax cuts targeting commercial and industrial property owners; and (3) protecting the state General Fund — already shrinking due to income-tax cuts — against further revenue diversions to backfill local property-tax cuts.
Medicaid reporting requirements will cut thousands off insurance
Tens of thousands of Iowans would lose their health insurance under a bill approved by the Legislature to institute work-reporting requirements within the Iowa’s Medicaid expansion for low-income adults. The Senate approved the bill in the final hours of session, even after Iowa HHS jumped ahead and submitted a proposal to the federal government to implement very similar provisions and as the U.S. Congress debates meanspirited new Medicaid restrictions that include them as well.
As we’ve reminded lawmakers for years, the only thing such paperwork requirements succeed in doing is setting up hurdles so complex that people are terminated from care whether or not they are working. There’s simply no evidence from similar experiments that they succeed in increasing employment. They just make people’s lives harder.
As bad as all that is, arguably the worst part of the bill is a provision that would have Iowa entirely drop expansion — which today covers over 180,000 people — if the federal government ever failed to approve Iowa’s work-reporting provisions. This gamble effectively sets up all expansion enrollees as a bargaining chip — and either way, Iowans lose.
Unemployment insurance tax breaks jeopardize workers’ security
Iowa lawmakers continued to diminish the state’s unemployment insurance system by passing SF 607, which granted Governor Reynolds’ wish for big cuts in unemployment insurance contributions. The state will send back nearly $1.2 billion over the next five years, mostly to the highest-layoff employers. The bill jeopardizes the stability of the Unemployment Insurance Trust Fund, which is projected to enter an immediate deficit that will worsen as the years go on. When the economy goes into a recession, whether this year or next decade, these unwise cuts set up Iowa’s UI system — traditionally managed responsibly — for insolvency.
Tax credit reforms need further work
Lawmakers took mixed steps on tax credits, reforming several business tax-credit programs including the Research Activities Credit (RAC), an unlimited, automatic subsidy long criticized by CGI and others for showering huge benefits to large corporations that pay no or few corporate income taxes to Iowa. SF 657 repeals the RAC and creates a new Research and Development Credit, putting on a $40 million annual cap and limiting the types of companies, and making it subject to state agency approval.
However, lawmakers failed to accept recommendations that could have tightened their reforms and provided greater transparency. As a result, the bill, which sailed through both houses with bipartisan support, may not only continue to support companies that don’t need help, but make those cases harder to see. The bill should have targeted the new R&D credit to assist small companies needing assistance, ending subsidies to large, multinational companies. It also should have expanded on public reporting that has been required for the RAC since 2009.
Continuum of care stalled in Legislature, moves forward administratively
Governor’ Reynolds’ Child Care Continuum of Care bill (SF 445) never made it to the House floor, thanks to members, supported by early-childhood advocates, who had concerns about the severe and hurried changes it would make to Early Childhood Iowa. Those changes included slashing local decision-making by cutting its current 34 areas to seven “regions.”
The bill would set up a competitive grant program open to partnerships of preschools and child-care providers to apply for three-year grants of up to $100,000 a year to create full-day preschool experiences. Problematically, the bill included no new money for this effort; it would take money from ECI as well as from the Shared Visions preschool and home-visiting program.
Just days after the Legislature adjourned, the Governor announced she would use executive power to move several provisions of SF 445 forward. One is the Child Care Continuum of Care grant initiative. In a big improvement from the legislation, she is using federal child-care dollars, not stealing from existing early-childhood programs, to fund it.
The Governor also included one of the most important parts of the bill — a top priority for early-learning advocates — the extension of the pilot program that allows eligible child care workers to qualify for Child Care Assistance, even if their income exceeds traditional limits. This option is an appreciable benefit to child care workers and a meaningful incentive to help them stay in what is one of the very lowest-paid professions in our economy.
Civil rights denied
In February, Iowa became the first state in the nation to remove a protected status from its civil rights laws against discrimination. Governor Reynolds signed SF 418, removing “gender identity” from the Iowa Civil Rights Act — it was added to the Act in 2007 along with “sexual orientation,” which remains. Transgender and gender non-conforming Iowans have borne the brunt of Republicans’ culture war attacks over the past several years, and with the signing of SF 418, Iowa provides fewer rights to those Iowans than it did in the 1900s.
Modest paid parental leave enacted
Iowa took a baby step forward on supporting new parents in the final hours of session. They approved providing four weeks of paid leave to state employees giving birth to a child and one week of paid leave to the parent not giving birth. The bill also provides four weeks of paid leave for state employees who adopt a child. Iowa now joins more than two-thirds of states that have mandatory paid public-employee family leave laws on the books, all acknowledging the value of allowing parents to spend meaningful time bonding with a new child. We hope this foot in the door will be followed quickly by moves in future legislative sessions to make the law better: increase leave beyond four weeks and establish parity for non-birthing parents.
Working people’s issues unaddressed
Unchanged since 2008 despite cumulative inflation of 52%, Iowa’s minimum wage of $7.25 is a poverty wage that does not provide full-time workers with a reasonable quality of life. Rather than introducing gimmicks like exempting tips and overtime from income taxes (two ideas that did not advance in the Legislature this session), Iowa legislators need to refocus on solutions that make meaningful improvements to the lives of working people, such as raising the minimum wage, reducing wage theft (which costs workers $900 million each year), and providing access to essential public services like schools, parks and libraries that keep Iowa an affordable, desirable place to live.
Per-pupil school spending falls short—again
Continuing a long trend in underfunding public schools, lawmakers approved increasing Supplemental State Aid (SSA), the per-pupil spending figure for local public schools, by just 2% for FY 2026. Iowa has now averaged 2% SSA growth for 15 years, compared with an average 3.1% increase during the previous decade. Persistent underfunding like this makes it increasingly difficult for schools to keep up with the cost of educating our future leaders.
Even as they continue to hold down public-school funding, lawmakers have diverted state dollars to private schools through a voucher program projected to cost well over $300 million in FY 2026. In addition, lawmakers this session continued their assault on longstanding initiatives to create welcoming, inclusive spaces in public institutions. HF 856 prohibits diversity, equity and inclusion policies, programming and activities by state entities including regents universities and community colleges.
Published May 29, 2025