Capitol Letters: Gov. Reynolds completes work on FY 2027 budget

State Rep. Megan Jones

Gov. Kim Reynolds completed the work on the Fiscal Year 2027 state budget by signing the 10 appropriations bills into law, after a few alterations.

As she is allowed to do, the Governor struck several provisions from the budget bills by utilizing her item veto authority. Unlike some past governors, Gov. Reynolds is very selective when it comes to item vetoes. This year is no different, as she only vetoed seven provisions.

In the Health and Human Services budget - House File 2782 - the Governor struck out two pieces of the largest General Fund budget. She struck language that addressed the percentage of the federal mental health block grant funds going directly to community mental health centers. These facilities have received 70% of the grant funds through Fiscal Year 2026. Last year’s federal block grant bill was silent on the amount to be awarded in Fiscal Year 2027, as behavioral health system redesign was being implemented. House File 2782 had language that would have continued the 70% allocation to CMHC’s for FY 2027. The Governor vetoed that, to allow the funds to flow through the new behavioral health system.

The Governor also vetoed an allocation of $1 million from HHS’s opioid funds for a large substance abuse treatment facility in Black Hawk County that is beginning to operate. The Governor struck this piece of the bill because the facility was not recommended for a competitive grant through the department’s annual opioid grant process.

In House File 2783, the education budget, Gov. Reynolds vetoed one provision which dealt with schools subscribing to cyber security services. It is possible the language would have limited schools to one provider of these services, which may have been more expensive than several contracts the state has negotiated with similar providers. This veto reduces the Education budget by $500,000.

Gov. Reynolds also struck language in the Rebuild Iowa Infrastructure Fund appropriations bill (SF 2484) that would have limited what IT projects at the Department of Health and Human Services could go forward without legislative review. The House added language into the bill that required a review of projects or contracts costing over $5 million. In striking this, the Governor said the limitations imposed by these provisions would have prevented HHS from updating systems to comply with federal and state requirements and interfered with existing contracts.

As usual, the standing appropriations bill (House File 2800) had several items vetoed by the Governor. The Governor vetoed several provisions in the Standings bill. Gov. Reynolds struck language that would have transferred remaining federal Coronavirus Relief Funds (nearly $100 million) into a new fund to pay for several major IT projects within the Department of Health & Human Services. The Governor stated that such a transfer would violate federal rules on the use of the funds.  The Governor then vetoed appropriations for four IT projects that were to be funded with the money being transferred.

The Governor vetoed language that created a health care access and innovation tax credit, which would have provided tax relief to at least one insurance company offering HMO plans in Iowa. The Governor stated that this provision could put $120 million of additional federal funding in jeopardy.

The Governor also struck language creating a new cause of action for civil litigation abuse. This could have an unintended impact on the state’s liability exposure, according to her statement.

The Governor also vetoed one bill, which then impacted the final budget numbers. Senate File 2320 dealt with concurrent enrollment of high school students in community college classes. The bill would have would have required students to take in-person classes when an online option was also available. Gov. Reynolds vetoed the bill, stating that it would have created a one size fits all approach that does not work in many districts.

The veto of Senate File 2320 also reduces the education budget, as $626,000 was appropriated to cover additional costs from the implementation of SF 2320. Since that bill will not become law, the funding will not be expended.

After the Governor’s final actions, the Fiscal Year 2027 General Fund budget will spend $9.6441 billion starting July 1. This is a 1.42% increase over the current year’s expenditures. Above is a chart showing where all that money goes.

Contact Rep. Jones by email: megan.jones@legis.iowa.gov.