Iowa general fund down $761 million through June 3 as income tax cuts and refunds weigh, analyst says

Eric Richardson, senior fiscal analyst at the nonpartisan Iowa Legislative Services Agency, reported that Iowa’s net general fund revenue through June 3 is down $761 million on a fiscal‑year basis, or 10.2% year‑to‑date. “Revenue has decreased $761 million on a fiscal year basis or minus 10.2% year‑to‑date,” Richardson said in the agency’s May 2026 monthly video memo.

Richardson said the decline reflects multiple factors. The memo attributes about $68 million of the decrease to lower individual income tax revenue tied to tax‑year 2025 rate changes, and it cites enactment of the OBA in July 2025 as a contributor to higher after‑tax income for some taxpayers. The analyst also said net sales and use tax receipts rose by about $250 million (7.6%) for FY2026, partially offsetting losses from income taxes.

The memo referenced the most recent Revenue Estimating Conference projection and noted that the conference’s estimate for total net receipt growth excluding transfers for FY2026 is negative 9.5%. “The most recent Revenue Estimating Conference estimate for total net receipt growth excluding transfer revenue for FY 2026 is negative 9.5%,” Richardson said, adding that year‑to‑date growth remains slightly below that projection.

Breaking receipts into components, Richardson said gross revenues through June 3 are down about 9.1%, while overall tax refunds issued during the fiscal year have moved differently across categories. He highlighted that, since May 1, a large amount of individual income tax refunds were processed: individual income tax refunds increased by $176 million in that interval, even as other measures of refunds and gross receipts showed year‑over‑year declines. The memo quantifies that since early February, the combination of payments with filed returns and refunds account for roughly $220 million of the $761 million FY reduction.

Richardson walked viewers through several charts showing multi‑year comparisons. He said FY2026 (displayed as the black line in the memo charts) looks lower than recent years, including FY2025 and the pandemic‑era high of FY2022. He attributed the pattern to reduced income tax liability after the state moved to a flat 3.8% individual income tax rate beginning Jan. 1, 2025, and to provisions in the OBA that affect after‑tax income for individuals and corporations.

On specific payment patterns, Richardson noted that withholding rose by $21 million while estimated individual income tax payments fell by $71 million—reflecting lower expected tax liability for some filers. He also said insurance premium taxes decreased by about $63 million since May 1. School infrastructure transfers increased by about 5.4% and, Richardson said, have lagged growth in sales and use tax receipts for the fiscal year, which affects net versus gross revenue measures.

Looking ahead, Richardson said income tax revenue should stabilize beginning in FY2027 absent major policy or economic shifts. The memo closes by reiterating that net revenue excluding transfers through June 3 remains slightly below the Revenue Estimating Conference projection for FY2026 and directs viewers to the next monthly memo in early July.

The figures and characterizations above come from the Iowa Legislative Services Agency’s May 2026 monthly video memo presented by Eric Richardson; the memo is based on transactions processed through June 3.