Iowa General Fund reports $461M revenue drop for fiscal year 2025

Iowa's General Fund revenue for fiscal year 2025 has shown a concerning decline, with a decrease of $461 million, or 7.9%, reported through March 3. This drop is primarily attributed to significant reductions in corporate income tax and pass-through entity tax (PTET) revenues, which have plummeted by 20.9% and 75.5%, respectively.

Despite these setbacks, two of the three main sources of revenue—individual income tax and sales and use tax—have seen modest increases of 2.7% and 1.9%. However, the overall financial picture remains bleak, as total receipts have been negatively impacted by a substantial rise in regular refunds, which surged by 41.3%.

The PTET, introduced in FY 2024, has complicated revenue projections, as its revenue was primarily realized in the previous fiscal year. This has led to a reallocation of funds that has temporarily boosted individual income tax figures, but experts warn that the recent reduction in the top income tax rate from 5.7% to a flat 3.8% may slow future revenue growth.

As Iowa prepares for the next Revenue Estimating Conference on March 13, stakeholders are eager for updated projections that will clarify the fiscal outlook for the remainder of FY 2025 and beyond. The anticipated discussions will be crucial for understanding how previously enacted tax rate reductions will continue to affect the state's financial health.