The Governor’s budget proposal

By Rep. Jon Dunwell

Governor Reynolds unveiled her proposal for next year’s state budget last week. The bulk of the increases goes to two items – schools and Medicaid. The Governor’s proposed Fiscal Year 2026 General Fund budget spends $9.4335 billion starting July 1, an increase of $486.1 million or 5.4 percent over the current budget year’s spending levels.

The largest increase goes to Medicaid. The budget provides an additional $223.3M, mostly for covering the state’s increased share of costs due to the end of the Covid-enhanced match funding from the federal government. The budget includes…

• $60.8M rate increases for the state’s Medicaid managed care providers.

• $25M in rate increases for nursing homes.

• $5.6M rate increases for other providers

• $2.4M increase for pharmacy dispensing fees

K-12 education comprises the other major recipient of increased funding. The Governor proposes a 2 percent increase in supplemental state aid, putting an additional $102M in Iowa schools and raising the overall total amount of K-12 funding to $3.89B. On a per-student basis, this would equate to $7,983.

Fiscal Year 2026 is the last year of the phase-in of Educational Savings Accounts. The program would receive an additional $99.2M, raising the overall cost of the program to $314.6M next year. Just like SSA, the ESA program would receive a per student increase of 2 percent.

The Governor also includes a new program to reward teachers who are helping their students improve. $10M from the state’s American Rescue Plan funding is used to create the Merit Teacher Incentive Fund. Funding for charter schools would be increased to $19.7 million, reflecting the number of students attending these schools. In higher education, Governor Reynolds is proposing 2 percent increases for the three state universities, the state assistance to community colleges, and the Iowa Tuition Grant program.

Governor Reynolds proposed major changes in the incentive programs to attract and retain healthcare providers. She proposed folding several existing programs into one, providing an additional $10M in funding. The proposed budget increases funding for child welfare services by increasing reimbursement rates for certain provider groups and having the state assume the full cost of juvenile shelter services. Under current law, counties pay a sizable portion of these costs.

The state’s judicial branch, corrections, and public safety agencies get an additional $15M. The courts receive an increase of $2.1M while the Department of Corrections gets a $9.1M boost. Funding to the Department of Public Safety would rise by $1.1M.

In addition to the General Fund budget, Governor Reynolds released her proposal for the Rebuild Iowa Infrastructure Fund. The proposal spends all the $275.4M available to be spent in Fiscal Year 2026 and would commit the state to several new multi-year building projects. This includes the construction of a driving training facility at Camp Dodge for the Iowa Law Enforcement Academy/ Iowa National Guard and the conversion of the Commons at the University of Northern Iowa into the Public Policy Center.

The release of the Governor’s proposal fires the starter’s pistol on the annual one-hundred day race to put together a state budget. The eight appropriations subcommittees will receive LSA’s detailed analysis for their subject areas at their first meeting next week, after which the work begins in earnest.