Iowa’s fiscal time bomb: The fuse is burning faster than expected

Last May, I warned state leaders that their irresponsible budgetary practices, like using one-time federal funds for recurring obligations, had created a fiscal time bomb. Five months later, two reports released by the non-partisan Legislative Services Agency mirror my concerns and show the fuse on this time bomb is burning faster than expected.

Let’s start with the numbers — not mine, but from LSA.

State revenues dropped $816.6 million, or 8.%, in fiscal year 2025 compared to FY24. We knew it would go down, but the decline is nearly $200 million more than anticipated by the Revenue Estimating Conference, the three-member panel responsible for projecting Iowa’s revenue. The numbers look even worse this fiscal year, which began July 1. So far, revenue is down 14.9% compared to the same three-month period last year. That means Iowa’s deficit for FY26 will be well over a billion dollars. That’s not a typo: billion.

All my predecessors as State Auditor also warned against using one-time money for ongoing expenses. This is obvious — it eventually runs out, and then what? But that’s what is happening. Iowa state government received billions of unexpected money from Uncle Sam during the pandemic, and is using that money to float out massive giveaways to the wealthiest Iowans, including through school vouchers, while claiming “responsible” budgeting.

They will tell you the economic growth that results will save us in time. But our economy ranks 49th in the country, according to data from the Federal Reserve Bank of Philadelphia, with personal income growth ranked nearly dead last as well. When the fuse made of Uncle Sam’s cash runs out, this fiscal time bomb will explode. Our public schools, law enforcement officials and healthcare will all still be in the blast.

But the ripple effects of the Reynolds administration’s flawed and reckless budget policies don’t stop there. The other report, from the state’s Medicaid Forecasting Group, projects Iowa’s Medicaid program will face a $76 million deficit this fiscal year. It’s expected to more than double, to $181 million, in FY27.

Again, state leaders relied on one-time Covid-19 funds to prop up a program that hundreds of thousands of Iowa’s most vulnerable citizens rely on — primarily the disabled, children, and the elderly. They are not numbers. They are people.

Nursing homes and hospitals, the economic lifeblood of many rural communities, also count on Medicaid to keep the doors open. An internationally recognized policy center estimates 19% of Iowa’s rural hospitals are currently on life support and at risk of closing. That’s on top of the 20% that, according to the same report, have slashed services. Recent changes amount to a bucket of water splashed on a burning building.

The last hospital to close was in Primghar, a small town in Northwest Iowa. When the hospital closed, 45 people had to find new jobs. That’s a little more than 10% of the town’s workforce. Again, those numbers represent real people — the nurse who must leave the town he grew up in, or the woman in labor who must drive an hour to give birth.

It’s time to hold state leaders who manufactured this fiscal time bomb and lit the fuse accountable. It’s also time to face the facts and disarm it, or at least cushion the blow, by rolling up our sleeves and working together. We owe that to the seniors who rely on Medicaid, to the families who want their rural communities to thrive, and to future generations counting on us to return Iowa to a place they want to call home, with a fiscal ship in responsible shape.

Rob Sand is State Auditor of Iowa.