Iowa’s budget basics

According to the National Association of State Budget Officers (NASBO), Iowa’s total expenditures in fiscal year (FY) 2021 were $27.6 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2021 were $2.7 trillion, ranging from $4.7 billion in Wyoming to $512.8 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Iowa’s combined state and local direct general expenditures were $33.0 billion in FY 2019 (the most recent year census data were available), or $10,457 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $10,161.

Iowa’s largest spending areas per capita were elementary and secondary education ($2,238) and public welfare ($2,093). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Iowa’s combined state and local general revenues were $37.7 billion in FY 2019, or $11,917 per capita. National per capita general revenues were $10,563. Iowa uses all major state and local taxes. Iowa’s largest sources of per capita revenue were charges ($2,587), such as state university tuition and highway tolls, and federal transfers ($2,136).

Iowa’s politics

Governor Kim Reynolds, a Republican, was elected in 2018 with 50 percent of the vote. The next gubernatorial election is in 2022.

Republicans control both the House of Representatives (60 Republicans to 40 Democrats) and Senate (31 Republicans to 18 Democrats). Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in Iowa. All Iowa House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve four-year terms; roughly half the senatorial seats are on the ballot in 2022, and the other half will be up for election in 2024.

Iowa’s budget institutions, rules, and constraints

Iowa uses an annual budget. The legislature is not required to pass a balanced budget, but the governor is required to sign one. Deficits may be carried over into the following year. Iowa also has an appropriations formula that limits spending growth, but the limit may be overridden by a simple legislative majority. There are also limits on total authorized debt incurred by the state but not debt service.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Iowa’s current budget

Governor Reynolds released her FY 2023 budget proposaland gave her state of the state address in January 2022. In February 2022, Iowa passed a large tax cut that lowered the state’s top individual income tax rate from 6.5 percent to 3.9 percent (over multiple years, ultimately creating a flat tax rate) and reduced the state’s top corporate income tax rate from 9.8 percent to 5.5 percent (also over multiple years).

Iowa enacted its FY 2022 budget in June 2021. The enacted budget included $8.11 billion in general fund spending. As part of the budget, Iowa also passed a large tax cut that, among other changes, lowered the state’s top individual income tax rate from 8.53 percent to 6.5 percent.

Under the American Rescue Plan, Iowa will receive $1.5 billion in direct state fiscal aid and $952 million in local government aid from the federal government. As of January 2022, Iowa had spent part of its ARP funds on refilling its unemployment insurance trust fund, capital construction, and economic development.

According to NASBO, Iowa’s recent expenditure totals (general fund spending/total spending, including federal transfers) were:

• FY 2021: $7.8 billion/$27.6 billion

• FY 2020: $7.8 billion/$26.0 billion

• FY 2019: $7.6 billion/$23.4 billion

For more on Iowa’s budget, see

• the Iowa Department of Management and
  
• Iowa Legislative Services.

Iowa’s economic trends

Iowa’s per capita income (per the Bureau of Economic Analysis) was $56,973 in 2021, ranking 30th among the states. It was below both the national average of $63,444 and the Plains regional average of $60,113. The state’s median household income (five-year estimate) was $61,836 in 2020, ranking 27th among the states and below the national average of $64,994. Iowa’s poverty rate was 11.1 percent in 2020 (five-year estimate), below the national rate of 12.8 percent.

Although Iowa’s averages tell a story about the entire state, Iowa is composed of diverse localities. For example, the city of Ottumwa’s median household income was $42,418, and its poverty rate was 18.1 percent; the city of Urbandale’s median household income was $95,961, and its poverty rate was 5.4 percent.

Iowa’s unemployment rate has historically been below the national average, particularly following the Great Recession, and in recent years it has been among the lowest in the country. (See how COVID-19 is affecting state employment and earnings data.)

Unemployment rates (like other economic indicators) often vary significantly by race and ethnicity. In Iowa, the average unemployment rate in 2021 was 3.3 percent for white residents and 4.9 percent for Hispanic or Latino residents. (This is preliminary data. See the 2020 data for a more detailed breakdown of state unemployment rates by race and ethnicity.)