Iowa REC trims FY2026 revenue forecast; sets FY2027 estimate at $8.394 billion

Eric Richardson, senior fiscal analyst for the Iowa Legislative Services Agency, said net general fund revenue for fiscal year 2026 is down 6.7% through Nov. 3, 2025, a decline he quantified as about $165 million. "Through November 3, net revenue on a fiscal year basis has decreased 6.7%," Richardson said.

Richardson attributed much of the near-term decline to state tax rate reductions that took effect for tax year 2025, most notably a reduction of the individual income tax to a flat 3.8% effective Jan. 1, 2025. He said individual income tax net revenue has fallen $180 million (14.6%) through Nov. 3. Corporate net receipts are down $43 million (23.4%), while sales tax net revenue has increased $64 million (7.4%). Sales tax transfers out for school infrastructure have declined by about 0.8% year to date.

At its Oct. 16 meeting, the Revenue Estimating Conference (REC) "subtracted $358,000,000 in expected net receipts," Richardson said, and set an initial estimate for fiscal year 2027 of $8,394,000,000, which he described as an increase of $260,000,000 (3.2%) compared with the REC's revised FY2026 estimate. Richardson said the REC's FY2026 projection now shows net revenue growth, including transfers, about 9% below actual FY2025 receipts, a projected decrease equal to $805,000,000.

Richardson also listed several specific state tax rate changes that contributed to the projected revenue decline: the top individual rate change to a flat 3.8% beginning Jan. 1, 2025; the inheritance tax top rate reduced from 2% to 0%; the insurance premium tax rate reduced from 0.975% to 0.95%; and the franchise tax rate lowered from 4.4% to 4.1%. He said conformity to recent federal changes in the "Big Beautiful Bill Act," enacted in July 2025, is also expected to reduce Iowa taxable revenue going forward as certain federal provisions take effect.

Richardson noted the REC will review the FY2026 and FY2027 general fund revenue estimates again at its December meeting, by which time two additional months of FY2026 actual collections will be available. He said those December estimates will be used by the governor and the Legislature to begin the FY2027 budgeting process.

Less-central details discussed in the memo included the distributional differences across tax categories to date and the expectation that refunds and conformity effects tied to tax year 2025 will further reduce FY2026 receipts as tax returns are processed. Richardson closed by thanking viewers and directing them to the next monthly video memo in early December.