While the 2025 Iowa legislative session saw wins for social conservatives and limited business tax reforms, the core economic promise to Iowans of lowering the property tax burden, remains unfulfilled.
Here’s what you need to know:
The State Budget:
Lawmakers approved a $9.4 billion budget for Fiscal Year 2026, a 5.3 percent increase over the previous year. Iowa will spend more than it collects in revenue. That shortfall will be covered by an automatic $464 million transfer from the Taxpayer Relief Fund. This drawdown was put into place when income tax cuts were passed, with the understanding that revenue collections would decline. Even after the transfer, the fund is expected to retain a $3.6 billion balance, and Iowa’s reserve accounts remain full. A $1.6 billion surplus is still projected for FY26.
Education and Medicaid remain the two largest drivers of the state budget. Lawmakers approved a 2 percent increase in public school funding, including $96 million to fully implement the state’s Education Savings Account program. Medicaid spending also climbed to about $2 billion. While these increases were expected, they added pressure to the FY26 budget and contributed to the state outspending its ongoing revenue.
Despite strong balances today, the current level of spending is not sustainable. The long-term success of Iowa’s income tax reforms depends on lawmakers holding the line on spending.
You can’t promise tax cuts and increase spending forever—eventually, the math won’t work.
Property Tax Relief: Still Waiting
Despite strong public demand and repeated discussion throughout the legislative session, lawmakers failed to pass any form of property tax reform. No relief for taxpayers made it across the finish line, and even basic improvements such as fixing the confusing and ineffective budget notices were left undone.
These notices are supposed to help taxpayers understand how local budget decisions affect their property tax bills, but they remain unclear and unhelpful. Legislators had the chance to address this with a straightforward fix, but it never happened.
Looking ahead, any serious property tax reform must start with controlling the cost of government. Shifting formulas, changing assessment methods, or reworking credits and exemptions will not deliver lasting relief if state and local spending continues to rise unchecked. We can blow up the system and put it back together, but if the total cost of government is unchecked, the taxpayer will continue to see unsustainable property tax increases. The path forward may involve structural reform, but it must include meaningful spending limits.
Constutional Amendment Requiring a Two-Thirds Majority to Increase Income Taxes:
One key taxpayer protection proposal that stalled this session was an amendment to the Iowa Constitution, which would require a two-thirds majority vote in both the Iowa House and Senate to approve any future income tax increase.
After completing the first step last year, the Senate passed the amendment again, but the House failed to take action before the session ended this year. Because constitutional amendments must pass in two consecutive General Assemblies before being placed on the ballot for a public vote, the House now must pass it next year.
If approved by the House, there will a statewide campaign to build support before the November 2026 General Election. Now, supporters of this amendment will be a year late starting that campaign.
