Iowa House, Senate release competing budget targets for next fiscal year

Republican leadership in the Iowa House and Senate released their budget targets Thursday, beginning negotiations on government spending for the upcoming fiscal year.

The budget releases come less than three weeks before the scheduled end of the session on April 16. They also come a day after Gov. Kim Reynolds signed into law one of her key priorities for the session — a measure making changes to Iowa’s Area Education Agencies, increasing minimum teacher salaries, as well as setting the state supplemental aid rate for per-pupil school funding for the upcoming year.

Education funding makes up a majority of the state’s spending each year. House Appropriations Committee Chair Rep. Gary Mohr told reporters it was important to “know what those big expenditure items are before we finalize any budgets.” With the public K-12 spending components in place, the House released a state budget target of $8.955 billion for Fiscal Year 2025.

The House budget proposes 4.71% — $402.8 million — in increased spending from the $8.552 billion appropriated the current fiscal year. The House proposal is about $35 million higher than Reynolds’ budget plan released at the beginning of the 2024 legislative session, which included $8.919 billion in total appropriations.

Mohr, R-Bettendorf, said the difference between Reynolds’ and House Republicans’ targets came from specific requests made by House lawmakers on appropriations for programs and services impacting their communities.

“It comes basically from our members who say, ‘My constituents feel a need for this or that program,'” Mohr said. “… But again, with our available resources, we feel very comfortable that the state can afford to do that.”

In the Revenue Estimating Conference meeting earlier in March, the three-person panel projected a 2.2% revenue decrease in FY 2023. But Iowa Department of Management director Kraig Paulsen said that with a $1.83 billion general fund surplus, $2.74 billion in the state’s Taxpayer Relief Fund and $902 million in reserve funds, the Iowa state government is in a strong financial position.

Senate Republicans also released their budget target Thursday, aiming for $8.872 billion for FY 2025 — roughly $82 million lower than the House Republicans’ target and $47 million lower than Reynolds’ proposal.

In a news release, Senate Republicans said their budget target includes an increase of $172 million for public K-12 schools through the AEA, teacher pay and school funding law. The budget also includes an additional $51.25 million in new funding for Education Savings Accounts, the private school scholarship program that began in the current school year.

While other details on the Senate budget proposal have not yet been released, Senate Majority Leader Jack Whitver said the state government is in a good position, and he hopes to take further action on taxes before the end of session.

“Next year’s budget is projected to have an ongoing surplus of more than a billion of dollars, the Taxpayer Relief Fund balance is expected to be about $3.8 billion, and tax rates will continue to decline,” Whitver said in the news release. “Iowa is in great fiscal shape and the economy is strong despite the headwinds of the Biden economy. I am optimistic we can do more for the taxpayer before this legislature adjourns.”

The governor, as well as Republicans in both chambers, have said they plan to take action on further decreasing Iowa’s income tax rates this session, building off of a 2022 law that started Iowa on a path toward a flat income tax rate of 3.9% by 2026. Reynolds proposed cutting the current highest individual income tax rate of 5.7% to 3.65% retroactively for 2024, with another drop to 3.5% in 2025.

Rep. Bobby Kaufmann, R-Wilton, and Sen. Dan Dawson, R-Council Bluffs, who chair the tax-writing Ways and Means committees introduced legislation to cut the individual income tax rate to 3.775% in 2026, and then to 3.65% in 2027. The bill also sets up a system to fund future income tax reductions until the tax reaches 0% through the creation of a “Iowa Taxpayer Relief Trust.” The trust would take an initial $2.6 billion from the Taxpayer Relief Fund, and 5% of the fund’s money would be put toward reducing the income tax rate each year until the tax is eliminated.

Reynolds’ bill, Senate File 2398, was approved by the Senate Ways and Means Committee in February. Dawson said at the time that the other tax proposal is still in the running for consideration. But his and Kaufmann’s legislation, Senate Study Bill 3141 and its House companion have not yet received subcommittee meetings.

Mohr said the House is considering “several options” on income tax cuts, but that regardless of the route, the state has the capacity to make these reductions.

“We have sufficient dollars to build the $8.95 billion budget for the people of Iowa’s government for next year, and there’s still available resources that we want to look at options for giving that back to the taxpayers of Iowa,” he said.

Rep. Timi Brown-Powers of Waterloo, ranking Democrat on the House Appropriations Committee, released a statement Thursday criticizing Republicans for the lack of information and public discussion on the budgeting process for the upcoming year.

“Once again, Iowans are being left in the dark while Republican insiders and special interests work together behind closed doors to spend our money,” Brown-Powers said. “With just 20 days left in session and $9 billion on the line, Iowans certainly deserve more information than what they’ve received so far.”