Schools, Medicaid receive bulk of increases in proposed budget

The 2026 legislative session began with a flurry of activity.

The Gov., Chief Justice, and Adjutant General of the National Guard all gave their annual speeches in the House. The Governor released her budget proposal, House members filed lots of bills and we even passed a bill out of the House Judiciary Committee to protect property owners from unconstitutional eminent domain. That bill could reach the floor and pass out of the House as early as next week.

FY 2027 budget proposal

While her speech focused on reforming Iowa’s property tax system and the use of new federal health funding, Tuesday night’s condition of the state address culminated with the release of Gov. Reynolds’ proposed fiscal year 2027 budget.

The bulk of the increases goes to two items — schools and Medicaid. The Governor’s FY 2027 General Fund budget proposes state expenditures of $9.6713 billion starting July 1, 2026. This is an increase of $180 million or 1.9% over the current budget year’s spending levels.

The starting point for the new budget is slightly higher than what was passed last spring, as Medicaid costs are running higher than projected last May.

The largest increase in the Governor’s proposed budget goes to state aid to public schools. For the 2026-2027 school year, the Governor is proposing that supplemental state aid increase by 2.0% This would put an additional $31.7 million into the school finance formula and raise the per pupil amount to $8,148 per student.

With the continued decline in enrollment, the Governor is proposing that the state pick up the cost of the 101% budget guarantee for the schools experiencing declining enrollment, which is $42.2 million.

The Transportation Equity Fund would also increase by 2% under the Governor’s budget. Notably, the Governor includes $14 million in the General Fund for the paraeducator pay supplement.

  Buy Photo

Funding for public Charter Schools and Educational Savings Accounts would also increase. Charter schools are expected to get an additional $8.1 million, and the ESA appropriation would increase by $21.8 million based on the number of kids being served in those schools and a 2% increase.

In higher education, Gov. Reynolds is proposing to provide 1.5% increases to the three state universities, state assistance to community colleges and the Iowa Tuition Grant program for students attending the Iowa’s numerous private colleges.

Iowa’s health care programs see a smaller than expected increase under the Governor’s spending plan. Her budget calls for a $37.3 million increase to the line item that funds Medicaid and HAWK-i. This is smaller than expected, thanks to a proposed cost containment package which reduces the FY 27 increase by $51.4 million.

The proposed budget also assumes a significant bump in funding from the Health Care Trust Fund, which is the revenue generated by taxes on cigarettes and tobacco. While this amount has been declining for years, the FY 27 budget assumes an increase of $63.5 million in revenue going to Medicaid.

The state’s corrections and public safety agencies get an additional $11 million in the new fiscal year under the Governor’s plan. The Department of Corrections gets a $5 million boost.

Funding to the Department of Public Safety would rise by $3.4 million in FY 2027. The State Public Defender’s office would receive a $3.1 million increase while funding for indigent defense would fall by $1.5 million. The judicial branch would receive no additional funds in the Governor’s plan.

As part of her proposal for changing Iowa’s property tax system, the Governor provides an additional $11.6 million for the Homestead property tax credit line item.

In addition to the proposed General Fund budget, the Governor is also recommending some significant changes in the use of some other funds. The Governor is proposing that Iowa Workforce Development receive $48.8 million of sports wagering tax revenue for the Workforce Opportunity Fund, which was created in 2024. She also proposed changes in the uses of the Skilled Worker and Job Creation Fund, with money moving from community colleges and to IWD and IEDA.

  Buy Photo

The Governor also released her proposal for the Rebuild Iowa Infrastructure Fund. The plan spends over $274 million on a variety of projects.

The biggest increase is the appropriation of RIIF funds to the Technology Reinvestment Fund. While the Code says this program is to get $17.5 million from the General Fund, the Governor has continued to use RIIF to fund these expenditures. For FY 2027, she is recommending the transfer of $39.9 million to TRF, with half the money going for modernizing the Department of Health and Human Services’ IT system for SNAP and welfare benefits.

The Iowa Economic Development Authority would be another big winner in the Governor’s RIIF budget, receiving $30 million of new money for four new programs ranging from funding for local libraries to grants to encourage local government collaboration.

The Board of Regents would have two projects funded in the Governor’s RIIF request. The University of Northern Iowa would receive $6 million for the Public Policy Center at the Commons. This received $1 million last year from RIIF. The second project would be the Nursing Simulation Laboratory at the University of Iowa, which would get $7 million for the first year of a 3-year, $20 million commitment to expand the School of Nursing’s facilities.

The Department of Corrections receives $8.1 million to put air conditioning into the Anamosa and Mount Pleasant prisons. The Law Enforcement Academy would get $3.7 million for the construction of a firearms range training facility at Camp Dodge. One million dollars is set aside for maintenance projects at Terrace Hill.

Now that the public and the Legislature have received the Governor’s recommendations for spending in the next budget, the review and evaluation of these proposals by budget subcommittees will begin. The first meetings will be held on Monday, January 26.

The Senate and House will produce their own proposed budgets, and negotiations will proceed from there. As I explained in my previous letter, Iowa has such significant reserves of taxpayer money that we are not in danger of an imminent financial crunch. In fact, I read this week that the debt rating agencies renewed their Triple-A rating of Iowa’s finances.

That being said, the rating agencies identified a factor that would put pressure on Iowa’s finances — recklessly increasing spending. I completely agree. Because our state economy has been struggling, particularly in agriculture and manufacturing, now is not the time to start spending recklessly.

So my goal is to continue to advocate for spending discipline and look for cost savings wherever we can find them. I am confident that our leadership will continue to spend conservatively.

I view my role on the House Appropriations Committee as the guy who asks lots of questions about the necessity of specific expenditures. I will continue to do so on your behalf.