Iowa panel warns of ‘mixed’ economic picture, predicts slight revenue upturn
Members of the Revenue Estimating Conference, from left, Jeff Plagge, director of Northwest Bank in Spencer; Kraig Paulsen, the state budget director, and Jennifer Acton, director of the Fiscal Services division of the Legislative Services Agency, discussed projected state finances Dec. 11, 2025, at the State Capitol. (Photo by Robin Opsahl/Iowa Capital Dispatch)
by Robin Opsahl, Iowa Capital Dispatch
December 11, 2025
Economic uncertainty due to tariffs and the effects of the federal government shutdown are expected to continue to impact Iowa’s economy, members of the Revenue Estimating Conference said Thursday as they met to discuss Iowa’s finances heading into the 2026 legislative session.
Though the three-person panel expressed concerns about economic troubles shown through job losses, lower consumer confidence and the impacts of President Donald Trump’s tariff policies on both agriculture and small businesses, the body approved updated revenue estimates that were slightly above the 9% drop projected during its October meeting.
The governor and Iowa legislators, by law, may not budget more than 99% of general fund revenues projected by the REC’s December estimate for the coming fiscal year.
Jennifer Acton, the director of the Fiscal Services division of the nonpartisan Legislative Services Agency, said the “uncertainty we were experiencing in October in both Iowa and the nation has continued into December.” The REC was also now making projections with a lack of roughly two months of recent federal data due to the federal government shutdown, she said.
“The current economic picture for Iowa remains mixed,” Acton said. “With state and national economic indicators relaying conflicting signals and related federal data since October’s meeting, some caution is due. However, it is often noted that total gross receipts grow has marginally increased over the last eight weeks.”
The REC adopted the Iowa Department of Management’s estimates for fiscal year 2026 and 2027 that showed an estimated revenue decline of 8.8% in FY 2026, going to roughly $8.16 billion, before increasing by 4.2% to $8.5 billion in FY 2027. These estimates are slightly above the 9% decrease in 2026 and 3.2% growth in 2027 predicted in October.
Kraig Paulsen, director of the Iowa Department of Management and chair of the REC, said factors like the Trump administration’s $12 billion relief package for farmers alongside increased sales and use tax collections estimates led to the changed estimates. However, he said there are still many questions that could affect the economic outlook for the state in the coming months.
“I think the biggest wild card is just Washington, D.C., in general — the shutdown, the tariffs, you know, some of the policies,” Paulsen said. “And hopefully they’ll be able to land on some of those things they need to land on in short order, so rest of us can all make decisions.”
Republican leaders said the REC estimates show Iowa is in a strong position heading into 2026. Gov. Kim Reynolds said in a statement the projections “are a direct reflection of the fiscally conservative agenda we’ve put into practice—returning tax dollars to Iowans coupled with responsible spending centered on growth.”
“While some uncertainty remains in the international trade landscape, recent soybean purchases from China and USDA assistance for farmers will benefit Iowa’s agriculture economy,” Reynolds said. “As we prepare for this legislative session, my focus remains on working with the legislature to maintain fiscal discipline and reduce property taxes for Iowans.”
But Democrats say the expected drop-off in revenue will leave the state in a difficult position for budgeting in future years. In the 2025 legislative session, the Republican trifecta approved a $9.425 billion budget for FY 2026, drawing at least $917 million from the state’s reserves, Taxpayer Relief Fund and budget surplus as the state is expected to bring in roughly $8.1 billion in revenue for the year.
State Rep. Megan Srinivas, D-Des Moines, said in a statement that “after years of budget mismanagement by Iowa Republicans, the state is now facing an unprecedented deficit.”
“Families are struggling with higher costs and rising property taxes,” Srinivas said. “Yet Republicans have cut taxes for big corporations, removed income caps on private-school vouchers so they overwhelmingly benefit wealthy families, and supported failed trade policies that are dragging Iowa’s economy down. … Republican budget decisions risk pushing Iowa into a ‘fiscal death spiral.’ Iowans deserve a responsible budget that reflects their priorities, strengthens our economy, and delivers real relief for working Iowans.”
Paulsen said the state should close the gap between revenue and spending within the “next handful of years,” and unlike Democrats, he sees the state in an “incredibly strong financial position.”
“You can create whatever hypothetical you want for the outcome you want, that is true,” Paulsen said. “But, I mean, we’re sitting here … you don’t know what (will) happen, but sooner or later, the economy gets stronger again. Rebound numbers are always big numbers, and our projections (show) we think we’re in a great spot.”
Iowa Capital Dispatch is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: info@iowacapitaldispatch.com.
