The Taxpayer Relief Fund reflects years of disciplined budgeting. However, as legislators craft the FY 2026 budget, it is important to preserve the fund’s intended purpose—providing income tax relief, not financing additional spending.
As the legislative session progresses, attention will soon turn to appropriations and tax policy. A key factor shaping these discussions will be determined on Thursday, March 13, when the Revenue Estimating Conference (REC) updates Iowa’s revenue forecast. By law, the legislature must use the lower of the March or December estimates as the basis for the Fiscal Year 2026 budget.
Conservative budgeting is fundamental to sound public policy, but it is often difficult to achieve. “Sustainable budgeting is based on the idea that government spending should not grow faster than the average taxpayer’s ability to pay for it,” explains economist Vance Ginn, a contributing scholar with ITR Foundation.
The December REC projected Iowa’s revenues at $9.1 billion for FY 2025, sufficient to meet the state’s $8.9 billion budget. For FY 2026, revenue is expected to decline to $8.7 billion due to the full implementation of tax cuts. While spending growth has been restrained in recent years, the General Fund budget has doubled since 2003, when it was $4.47 billion, with annualized spending growth averaging slightly more than 3%.
Despite the revenue decline, Iowa maintains a strong financial position. According to the Legislative Services Agency, the state will have $6.7 billion in unspent tax revenue across reserve funds, the Taxpayer Relief Fund, and the General Fund ending balance. Additionally, Iowa’s cumulative surplus is projected at $2.1 billion for FY 2025 and $1.9 billion for FY 2026, while the Taxpayer Relief Fund is expected to reach $3.9 billion by FY 2025.
Governor Reynolds’ proposed $9.4 billion FY 2026 budget represents a $486 million (5.4%) increase over the FY 2025 budget. To support this increase, $700 million from reserves would be needed. Some argue that recent tax cuts are reducing state revenues too aggressively, but in reality, these reductions allow Iowans to keep more of their earnings, reflecting a fundamental goal of conservative tax policy.
The Role of the Taxpayer Relief Fund
The Taxpayer Relief Fund was designed to ensure that excess revenue benefits taxpayers, rather than fueling additional government spending. Originally established as the Taxpayer Trust Fund in 2011, it was capped at $60 million, with taxpayers receiving credits on their state tax returns when surplus funds were available. In 2018, the fund was renamed, the cap was removed, and the legislature was tasked with returning these dollars through tax relief measures.
Today, the $3.9 billion balance in the Taxpayer Relief Fund reflects years of disciplined budgeting. However, as legislators craft the FY 2026 budget, it is important to preserve the fund’s intended purpose—providing income tax relief, not financing additional spending.
Iowa’s strong financial reserves, including the Taxpayer Relief Fund, underscore the benefits of prudent fiscal management. However, having a surplus does not mean the state should spend it down. Instead, policymakers should prioritize long-term tax relief that benefits Iowa’s economy and taxpayers over expanded government expenditures. As budget discussions continue, maintaining fiscal discipline will be key to ensuring Iowa remains on a path toward sustainable economic growth.
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