Explaining the taxpayer relief fund
By now, you have probably heard about the taxpayer relief fund. But what is happening may be a bit of a mystery. So let's dig into it.
By law, the governor and the legislature can budget only 99% of the general funds that are collected by state government. By law, the state government cannot go into debt in order to pay its bills. The state must have a balanced budget.
If the receipts coming into state government fall short, there are rainy day funds to fill in the gap. Think of this as money in a savings account that holds reserve funds. There are actually two reserve accounts -- one called the cash reserve fund which is used to support cash flow needs that occur day-in and day-out and the second one called the Iowa economic emergency fund to be used for emergencies, such as dealing with falling revenues. There is a third reserve fund called the taxpayer relief fund, which we will be discussing below.
For a number of years, the legislature and governor were setting budgets that used less than 99% of the collected general fund revenues. The difference between what was been collected and what was been budgeted had been deposited in the taxpayer relief fund. The amount of money in this fund has began growing to the point that the balance reached billions of dollars.
What this means is that the state is collecting revenues and not spending them on services, even though the public is asking for more money to be spent on things like improving water quality, nursing home inspections, public schools, support for public colleges and universities, and many other things. Instead this taxpayer relief fund grew year after year.
The plan was to build this fund to a point that it could back-fill shortages as the state moved on a path to a flat tax and much lower tax rates. The administration is gambling that the sales tax will grow as people spend more on taxable goods and less on income tax and that will offset the loss of income tax.
We have now reached the point where the revenues are not matching the expected costs that are being budgeted. In fiscal year 2026, the state was required to use the excess funds in the taxpayer relief fund to balance the budget. And the state will be required to tap into the taxpayer relief funds to support the fiscal year 2027 budget.
Eventually the money in the taxpayer relief fund will be hitting zero - perhaps in a couple of years.
But what if they don't balance each other out? At some point, if the revenues do not support the budget needs of the state, the budget will be cut, along with the services the budget provides and the staff doing the work. Or some tax will have to be increased - perhaps the sales tax. Iowans are currently seeing needed services going under funded or not funded at all - things could get worse, much worse.
The governor's taxing policies are in the process of decimating state government and drowning it in a bathtub. It is happening right before our eyes.
