Revenue Estimating Conference cuts Iowa FY2025 general fund estimate; raises FY2026 outlook

The Revenue Estimating Conference on Dec. 12, 2024 adjusted Iowa's general fund revenue outlook, lowering the FY2025 net-revenue estimate by $85 million and raising the FY2026 estimate by $67 million, Eric Richardson, senior fiscal analyst for the nonpartisan Iowa Legislative Services Agency, said in a December video memo.

Richardson said the adjustments follow data through Jan. 3, 2025 showing year-to-date net receipts down $200 million, or 4.8 percent, compared with the same point in FY2024. "The Revenue Estimating Conference or REC met on December 12th and reviewed existing revenue estimates for fiscal years 2025 and 2026," Richardson said in the memo.

Why it matters: The revised estimates lower the FY2025 outlook to a projected net decline of 6.2 percent (a $602 million drop compared with FY2024 actuals when including transfers) and project FY2026 net revenue to be $428 million lower than FY2025 and about 4.7 percent below the new FY2025 estimate.

Key data discussed

- Through Jan. 3 on a fiscal-year basis, net receipts were down $200,000,000 (-4.8%). - Pass-through entity tax (PTET) receipts fell $286,000,000 through Jan. 3 versus the same point in FY2024; Richardson said PTET reallocations from miscellaneous tax have driven a substantial portion of the year-to-date decline in "other taxes." (Transcript originally referred to "pass through energy tax;" Richardson clarified the acronym as PTET.) - Gross revenues through Jan. 3 were down 1.2 percent, but net revenues were further reduced by a 53 percent increase in regular tax refunds. - Individual income tax refunds rose by $78,000,000 through Jan. 3, in part from PTET-related tax-credit claims processed from prior years. - Sales-and-use tax transfers out of the general fund to the school infrastructure fund were down 6.7 percent through Jan. 3.

REC estimate changes

Compared with October estimates, the REC reduced projected FY2025 net revenue by $85,000,000 and increased the FY2026 projected net revenue by $67,000,000, Richardson said. The memo did not provide a meeting roll-call or vote tally for the action.

Tax changes cited

Richardson noted a suite of tax reductions that took effect Jan. 1, 2025 and that partially explain the weaker projected revenue path. He listed a reduction in Iowa's top individual income tax rate from 5.7 percent to a flat 3.8 percent, a decrease in the insurance-premium tax from 0.950 percent to 0.925 percent, and the elimination of the inheritance tax (from 2 percent to 0 percent). The transcript mentioned a change to the franchise tax but did not state a clear figure; the memo did not provide additional detail on that item.

Next steps and context

The REC is scheduled to meet again in March 2025 to re-evaluate general fund revenue for FY2025 and FY2026, Richardson said. He delivered the figures as part of the Iowa Legislative Services Agency's monthly general fund revenue memo for December 2024; the memo covered data processed through Jan. 3, 2025 and noted that accounting procedures delay some month-start updates until transactions are posted.

Ending

Richardson thanked viewers for their time and said the next monthly video memo would appear in early February.