By Jon Dunwell
Every state has a rainy-day fund. A small number of states have funds that address property tax issues. Only Iowa has created a state fund that collects excess tax revenue with the sole purpose of providing on-going tax relief. This is the mission of Iowa’s Taxpayer Relief Fund.
What is Taxpayer Relief Fund? It is an account in the State Treasury that holds unanticipated state revenue. In order for funds to be deposited in the Taxpayer Relief Fund, actual state revenue has to exceed what had been projected for state tax collections by the three-member Revenue Estimating Conference. The difference between what was actually collected in tax revenue and what the REC had projected is deposited into the account once the fiscal year’s books have been closed.
When the Fund was created in 2011, the account was originally called the Taxpayer Trust Fund. The Fund had a simple origin – if the state collected more in taxes than what was expected, then at least a portion of the additional revenue should be returned to the taxpayers.
In its initial creation, the maximum amount of money that could deposited in one year was limited to no more than $60 million. If there were funds deposited into the account, they would be returned to taxpayers through a special income tax credit on Iowans’ state income tax return in the next tax year.
As part of the 2018 state tax reform law, the Fund’s name was changed to the Taxpayer Relief Fund. The limit on the amount of funds that could be deposited into the account was stripped from the law, as was the automatic return of the funds via the personal income tax credit. Instead, the Fund would be dedicated to tax relief which would be determined by the Legislature.
After the close of the Fiscal Year 2019, the Fund had a balance of $74.1 million. In spite of all the financial troubles caused by the onset of the pandemic, the state’s actual revenues exceeded the REC forecast and the Taxpayer Relief Fund balance rose to $90.4 million. Then came Fiscal Year 2021, when actual state revenue outpaced the REC forecast by almost one billion dollars. Thanks to Iowa’s resurgent economy, the Taxpayer Trust Fund balance at the end of FY 2021 had a balance of $1.0537 billion. And that amount will only grow in FY 2022, ahead of what the REC projected last spring.