During the December meeting of the Revenue Estimating Conference (REC), Kraig Paulsen, Director of the Department of Management and chair of the REC, stated that Iowa “is in a strong fiscal position.” His assessment was recently affirmed by S&P Global, which maintained Iowa’s AAA credit rating and the AA rating on Iowa’s moral obligation debt issued for the I-JOBS program and prison infrastructure fund. “The outlook on all ratings is stable,” S&P noted.
S&P released its Iowa report on December 11, 2025, citing prudent fiscal policy as the primary reason for reaffirming the state’s credit status. “The stable outlook reflects our expectation that the state will commit to maintain balance, using available reserves in its taxpayer relief fund, while also maintaining reserve levels in its primary reserve accounts at statutory maximum amounts, and maintaining a low debt burden,” the report stated.
The report also identified risks facing Iowa. One concern involves environmental pressures:
Environmental risks are also credit neutral, but we recognize Iowa’s environmental risk is somewhat elevated due to the state’s exposure to occasional but significant widespread flooding events, especially within the Missouri River Valley in western Iowa. Significant weather events challenge agricultural output in the affected areas and create additional spending pressures for direct emergency response–although the state has previously received emergency federal assistance. While we believe this pressure also creates a greater need to maintain reserves at levels we view as very strong at the current rating, we expect Iowa’s historically strong management policies and practices will help manage the state’s environmental risk.
S&P also cautioned that a failure to align expenditures with projected revenues could jeopardize Iowa’s rating: “We could revise the outlook on Iowa or lower the ICR if the state is unable to align expenditures with projected revenues such that it is forced to draw on reserves without a timely plan for replenishment.”
Fitch Ratings also recently reaffirmed Iowa’s AAA rating, crediting stable economic and employment trends, solid near-term revenue prospects, and historically well-managed fiscal operations with low debt and pension burdens. Fitch echoed S&P’s caution on spending, noting that Iowa plans to draw on balances and the Taxpayer Relief Fund to transition to a lower revenue baseline while maintaining reserve levels.
Over the long term, Fitch warned that further budget adjustments may be necessary if natural revenue growth does not keep pace with spending pressures, especially in Medicaid and education. The agency also identified risks from slowing economic growth and potential repeated draws on reserves.
Fitch further highlighted uncertainty surrounding future federal support. Federal spending cuts, they warned, “could amplify pressures during periods of fiscal stress and increase state and local government credit risk,” particularly as states assume more responsibility for programs such as SNAP and Medicaid.
Director Paulsen echoed that concern, calling federal policy shifts the “biggest wild card” for Iowa’s budget outlook.
Iowa now faces a combination of national economic uncertainty, a continuing agricultural downturn, and shifting federal policy, all of which are influencing revenue forecasts. As the legislature prepares for the 2026 session, crafting the Fiscal Year 2027 budget will require careful navigation of these challenges.
Despite these pressures, Iowa’s fiscal foundation remains strong. The state closed Fiscal Year 2025 with a $1.8 billion surplus, while the Cash Reserve and Economic Emergency Funds hold a combined balance of $929.9 million. The Taxpayer Relief Fund stands at $4 billion, projected to remain strong even after expected reductions in FY 2026.
Given current economic and federal uncertainty, limiting spending growth remains the most prudent approach for the FY 2027 budget. Legislators faced a similar challenge during the COVID-19 pandemic, when caution and conservative budgeting allowed Iowa to emerge with one of the strongest fiscal positions in the nation.
Iowa’s strong fiscal footing did not happen by accident—it is the product of sustained conservative budgeting and careful financial management. Continuing that approach will help ensure the state remains resilient through uncertain economic conditions and continued federal volatility.
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