While economic indicators are showing mixed results nationwide, Iowa appears to be faring slightly better than expected, prompting a state board to adjust its revenue predictions.

On Thursday, Revenue Estimating Conference revised its budget prediction upward slightly. The REC determines state revenue estimates and evaluates fiscal and policy impacts of programs and budget proposals. Lawmakers use the reports when making policy decisions during the Legislative session, which in 2026 starts on Jan. 12. 

REC members include Kraig Paulsen, director of the Iowa Department of Management; Jennifer Acton, fiscal division director of the Legislative Services Agency and Jeff Plagge, who serves as the public member on the board and is a former director of the Iowa Division of Banking and a decades-long banking executive with Federal Reserve board experience.   

In its meeting in October, the REC predicted a 9.1% drop in revenue for fiscal year 2026 from the previous year.

On Thursday, the REC revised its revenue estimate for the fiscal 2026, estimating a smaller decrease of 8.9%. It also estimated that in fiscal 2027, revenue would increase 4.2%.

For the fiscal year that ends June 30, 2026, the Iowa Legislature budgeted expenses of $9.4 billion. The December REC estimates revenue will be $8.03 billion in fiscal 2026, an improvement from the $8.018 billion it estimated in October.

Paulsen said the new numbers show that the state has the revenue necessary to meet fiscal year 2026 appropriations between reserve and other funds. 

“Today’s work essentially does two things. First, it confirms the state has the necessary revenue to meet the fiscal year 2026 appropriations made last legislative session,” he said. “And second, it narrows in on the spending thresholds for fiscal year 2027. Today’s executive branch and legislative branch recommendations are remarkably close.”

Relative to the October estimates, the executive branch estimates for fiscal years 2026 and 2027 have modest increases in revenue, which Paulsen said is being driven primarily from increased estimates for sales and use tax collections. To date, he said, sales and use taxes have outperformed the October REC projected increase of 2.8% with net receipts above 5%.

The state is in good financial condition, he said. 

“The state has roughly $5.9 billion in cash on hand. Fiscal year 2025 closed with an ending balance of $1.9 billion. The reserve funds are full, and the Taxpayer Relief Fund has a balance of just over $4 billion,” Paulsen said. “With these projections, the fiscal year 2026 enacted budget continues to meet all the statutory requirements and leaves money in the ending balance, as well as the reserve funds being fully funded.”

Mixed economic signals

In explaining the REC’s new numbers, Acton described the economic changes since October, including the government shutdown and Federal Reserve’s decision to cut rates again on Wednesday. 

“The economic uncertainty we were experiencing in October in both Iowa and the nation has continued into December,” Acton said. “In addition, due to the recent federal government shutdown, there is a lack of approximately two months of recent federal data, which creates additional challenges. The data we do have continues to point to a slowdown in U.S. jobs and a softening in the labor market.”

“The U.S. unemployment rate had risen from 4.1% in June 2025, to 4.4% in September 2025, while Iowa’s September unemployment rate dropped to 3.7%. The latest U.S. jobs report in September 2025 shows Jobs had increased by 119,000 after a revised loss of 4,000 jobs in August 2025. Growth over the past six months through September 2025 averaged 69,000 jobs per month after a six month average gain of 179,000 jobs through April 2025. Recently, there have been more reports of private sector layoffs.” 

Acton said that private employers nationwide have shed jobs in four of the past six months and that Moody’s expects job growth in Iowa to be flat in fiscal 2026 with a slight uptick the following year. 

Tariffs have added another layer of complexity for forecasting state revenue, Acton said, and have continued to create difficulties for businesses.

Moody’s reported that through August 2025, American consumers were paying 39% of tariff costs with U.S. businesses and companies paying 43% and foreign exporters paying 18% of tariff related costs

“Recent reports indicate businesses, especially small businesses, are struggling with increased expenses and smaller margins,” she said. “Some of the tariff impacts have been delayed due to businesses stocking up on inventory before the tariffs took effect, and trying to hold the line on price increases through the holiday shopping season. However, Moody’s anticipates seeing more tariff-related costs being passed on to consumers in 2026.” 

Despite these price increases, consumers have increased holiday spending. 

“Consumers continue to send mixed signals on the economy, as the holiday shopping season begins,” Acton said. “In November, the Conference Board Consumer Confidence Index decreased 6.8 points to 88.7, down from 95.5 in October, and is the lowest level since April 2025. In addition, the Gallup Economic Confidence Index also fell to its lowest reading since July 2024, and in a recent Gallup poll, consumers reported plans to spend less this holiday season compared to past years. However, the National Retail Federation reported a record number of holiday shopping, with anticipation that full holiday season sales for Nov. 1 through Dec. 31 may pass the $1 trillion mark for the first time.”

Inflation is another factor to consider in revenue determination, she said. 

“Meanwhile, persistent inflation continues to present challenges for families and businesses. The Bureau of Labor Statistics reported consumer price growth hit 3% in September on an annual basis, which was slightly higher than August, and is the most recent data we have,” Acton said. 

There have also been recent bright spots for Iowa’s economy. 

“China has begun purchasing American soybeans again after a pause, although exports are still not at the level of prior years,” Acton said. “In addition, the price of soybeans has risen by over $1 per bushel since mid-October, and corn prices have also increased since mid October, as well.”

Acton said the current economic picture for Iowa remains mixed with state and national economic indicators presenting conflicting signals and limited federal data since October’s meeting.

“Some caution is due,” she said. “However, it is also noted that total gross receipts growth has marginally increased over the last eight weeks as a result of these factors, the LSA estimate for fiscal year 2026 and fiscal year 2027 is a slight increase compared to the October REC.”

Reynolds’ reaction

Plagge added some color to the agricultural industry situation. “It’s a little early in the ag season for [loan] renewal season yet, so we don’t really know where the outcome of that is, but the recently announced $12 billion in support payments for ag that certainly will help fill in the gap until some of these tariff and trade issues get figured out.”

Gov. Kim Reynolds responded to the new REC forecast in a press release: “The December REC projections, a slight increase from the October 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. The state of Iowa ended fiscal year 2025 with a $1.9 billion ending balance and reserve funds full. As of this year, Iowans are pocketing more of their hard-earned money by paying a low 3.8% flat tax on their income. This has resulted in less tax revenue, just as we anticipated and prepared for by building the state’s Taxpayer Relief Fund to more than $4 billion.”

The new numbers will guide Reynolds’ policymaking for the upcoming session, her office reported.  “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,” she stated. “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.”