June 23, 2025

Key Findings

• FY26 will mark the first deficit since FY16 and the largest since at least FY00. This year’s expected $917 million shortfall will reduce total state surpluses and reserve funds from about $7 billion in FY2025 to just over $6.1 billion in FY26. Rather than indicating risk to the state’s fiscal situation, the shortfall reflects a decade of fiscal restraint by state budgeters, which allowed policymakers to return surpluses to Iowans via recent tax cuts. 
• In FY26, Iowa’s total appropriations budget amounted to $11.06 billion. The General Fund composed 85.2% of total appropriations, at $9.42 billion. Other remaining funds amounted to $1.63 billion. Together this is a $581 million, or 5.6%, increase from FY25.
• State spending has outpaced inflation and population growth since 2000. Inflation-adjusted appropriations per Iowan has increased 15.9% from $2,920 in FY00 to $3,386 in FY26. Over the last fiscal year, per Iowan appropriations grew 3.5% from $3,272 in FY25.
• Health and Human Services accounted for over half, 53%, of new general fund appropriations in FY26. This is a stark increase from FY25, of which the category only received 25% of new appropriations. In FY25 and FY26, Education received 66% and 44% of new appropriations, respectively. This will be the first fiscal year since FY22 HHS received more new funding than Education.
• Education and Health Services will compose 77.4% of all general fund appropriations in FY26. This is up from 76.3% (+1.1%) in FY25, 69% (+8.4%) in FY10, and 56.1% (+21.3%) in FY00.

Methodology

The findings of this report are generated using data from the Iowa Department of Management and annual appropriations reports compiled by Iowa’s Legislative Services Agency. These reports draw from the state’s budget packages, which are drafted by the Governor’s office then revised and approved during each year’s legislative session. They include appropriations to each of the state government’s departments from all funds including the General Fund, Cash Funds, Federal Funds, and other miscellaneous Funds. This report categorizes various government agencies into general subject areas to give readers a broad view of the state’s budget priorities.

General Funds: General purpose revenue is deposited into the General Fund and used for the state’s core programs such as education, health care, human services, corrections, and general government (e.g., the legislature and Governor’s office). General Fund revenue is typically sourced through various taxes and fees.

Appropriated Funds  are funds subject to legislative appropriation. The general fund is the largest appropriated fund, however the legislature also appropriates money from various other funds for specific purposes such as transportation and the environment.

Federal Funds  are moneys received from the federal government to support specific purposes and programs. Though the state spends this money, Congress rather than the state legislature appropriates the funds; the state legislature has little or no control over them. However, Congress delegates authority to the legislature to allocate some federal funds, particularly federal grant dollars, at legislators’ discretion in the annual state budget. This report does not address these funds due to data limitations at the time of release.

The Cash Reserve Fund and Economic Emergency Fund are special-purpose funds funded from general fund surpluses. The cash fund acts similarly to a rainy-day fund, providing financial assistance in times of revenue shortfall or budgetary pressures. The emergency fund addresses more extreme financial crises, such as natural disasters, economic recessions, etc. State statute allows the legislature to allocate only 7.5% of the total surplus to the state’s cash fund and 2.5% to its emergency funds.

The Taxpayer Relief Fund exists to offset revenue losses from tax cuts if necessary to prevent state budget shortfalls. See CSI’s June 2024 report, Iowa’s 2024 Income Tax Cuts, for more.

Departments by Spending Category in this Report

State Government Appropriations: Flow of Tax Revenue from the Taxable Source to Categories

The image above illustrates the flow of state appropriations from tax revenue sources to the state departments that the legislature authorizes to spend state revenue. General Fund expenditures are limited to 99% of the adjusted appropriable revenue estimate determined by the Revenue Estimating Conference.