Had the 24 cities and counties examined in this report followed a 2 percent cap over the last decade, Iowans in those communities alone would have $160 million more in their wallets to satisfy their desires, including investing in the future, saving for a rainy day, and attaining their American Dream.
Across the United States, property taxes are increasingly scrutinized as homeowners, renters, and businesses grapple with rising tax bills that outpace their ability to pay for them. This mounting frustration echoes the taxpayer revolt that led to the passage of California’s Proposition 13 in 1978, an initiative that significantly reshaped the property tax landscape by limiting how much property taxes could increase by and be as a share of the total property value. While this provided temporary improvements, this measure created a lock-in effect because if people moved, they would be forced to pay their neighbors’ new higher property tax bills, which drove up values that hurt new home buyers. This contributed to a generational wealth problem as younger people had difficulty getting homes while older people reaped greater rewards from higher valuations. Today, similar sentiments are emerging in states nationwide, including Iowa, where taxpayers demand relief from what many see as an unsustainable and inequitable tax burden.
Several states are pursuing property tax reforms through ballot measures and legislative actions. For instance, Michigan voters are considering AxMiTax, a proposal that would eliminate property taxes and require a two-thirds majority to approve new local taxes. Similarly, in North Dakota, voters will decide on the End the Unfair Property Tax measures, which aim to abolish property taxes, arguing they are unfair and should be replaced with other revenue sources. Other states are exploring more targeted reforms. Kentucky is considering a measure to exempt citizens 65 or older from property taxes, while Virginia, Colorado, and New Mexico are evaluating proposals to expand or fully exempt veterans. Colorado is also contemplating ballot measures to limit property taxes based on inflation and home values and cap property tax revenue growth at 4 percent. Other states, like Texas and Wyoming, are considering other reforms to reduce the burden of property taxes.
Iowa is at a critical juncture amid a nationwide wave of property tax reform. With property taxes skyrocketing by over 110% in the past two decades, action is urgently required. The solution being proposed by Iowans for Tax Relief Foundation, a 2 percent property tax cap, offers immediate relief to taxpayers and promotes more responsible fiscal management at the local government level. This cap is not just a suggestion but a necessary step to curb the unchecked growth in property taxes. A sample of 14 economically diverse cities and 10 counties in Iowa will demonstrate that not only will a 2 percent cap help provide tax relief, but it will not place undue constraints on local governments. Had these cities and counties followed this cap over the last decade, Iowans in those communities alone would have $160 million more in their wallets to satisfy their desires, including investing in the future, saving for a rainy day, and attaining their American Dream.
Property taxes have long been viewed as one of the most burdensome forms of taxation. Unlike other taxes, property taxes are highly visible, paid in large sums, and often create the perception that property owners are effectively renting their property from the government. This sentiment is powerful when taxpayers see their property taxes rise year after year, often at rates that far exceed their ability to pay for them.
Property taxes have surged over the past two decades in Iowa, increasing by over 110%. This growth has far outstripped both population growth and inflation, placing a heavy burden on taxpayers, particularly those on fixed incomes, such as retirees. The primary driver of this increase is not merely rising property values but unchecked local government spending. As local governments have increasingly relied on property taxes to fund their operations, the disconnect between revenue growth and taxpayers’ ability to pay has widened.
The rise in property taxes represents a fundamental failure to adhere to sound economic principles. Government spending should not grow faster than the private sector that funds it, and taxes should not be used to finance ever-increasing government spending. Taxpayers should be able to control the size and scope of government through mechanisms like tax and spending limitations, which directly tie government growth to taxpayers’ ability to pay for spending, as nothing is free. This unsustainable growth in property taxes has several adverse effects. High property taxes can price residents out of their homes, discourage investment in housing and commercial property, and stifle economic growth. Moreover, property taxes function as an unrealized capital gains tax, imposing a recurring financial burden on property owners regardless of their actual income or liquidity, more so than any other tax, as others are paid only once on the same asset.
Although differing in varying degrees, most states (34) have some form of levy limitation, which indirectly restrains some government spending. These examples offer valuable lessons for Iowa as it considers its property tax reform.
These examples demonstrate that property tax caps can help control tax growth but highlight the importance of coupling these caps with broader fiscal reforms. Without limits on government spending or alternative revenue sources, caps alone may not be sufficient to address the underlying issues driving property tax increases.
Given the lessons learned from other states, Iowa is well-positioned to implement a 2 percent property tax cap, which is a form of a levy limit, as a reasonable next step in its property tax reform efforts. Such a cap would provide much-needed relief to taxpayers while encouraging more disciplined and efficient spending by local governments.
As with any significant policy reform, the proposed 2 percent property tax cap will face criticism from various quarters. Some may argue that the cap would force cuts to essential services, particularly in rural areas with smaller tax bases and tight budgets. Others may worry that the cap could exacerbate inequalities between wealthier and poorer communities, as wealthier areas may be better able to absorb the impact of a revenue cap without sacrificing services. However, there is one important facet that could be included alongside the cap to mitigate those fears, and two additional benefits that should be considered.
The proposed 2 percent property tax cap represents a significant step forward for Iowa, offering a balanced approach to addressing the state’s property tax challenges. An overwhelming majority, close to 70 percent of Iowans, support the state legislature implementing this cap. By limiting the growth of property tax revenue, the cap would provide much-needed relief to taxpayers while encouraging local governments to adopt more disciplined and efficient spending practices. If implemented, this reform would protect Iowans from the burden of rising property taxes and contribute to the long-term fiscal health of the state’s local governments.
City Property Taxes Compared with 2 Percent Property Tax Cap
The chart below presents an overview of property tax growth across various cities in Iowa, comparing each city’s property tax burden relative to a 2 percent annual growth threshold from FY 2016 through FY 2025. Notably, most cities have experienced property tax growth well above the 2 percent benchmark for a 19.5 percent cumulative increase for the decade. Pella and LeClaire stood out with 94.7 and 97.9 percentage points, respectively, more than this cap over the decade, meaning property taxes are rising substantially faster than what is reasonable.
Conversely, a few cities, such as Albia (-11.8 percentage points) and Dubuque (-4.3 percentage points), have delivered a lighter burden relative to the 2 percent growth rate, indicating better management of spending and property taxes than the reasonable metric. The chart underscores the diverse economic trajectories within Iowa, with most cities significantly exceeding the conservative 2 percent growth rate while a minority were able to stay within this benchmark. Collectively, if these 14 cities had matched the 2 percent property tax cap annually, Iowans would have paid $80.3 million less in property taxes across these cities. This would mean more money in family budgets and more financial opportunities for businesses.
County Property Taxes Compared with 2 Percent Property Tax Cap
The next chart highlights the disparity in property tax growth across various counties in Iowa compared to a 2% annual growth benchmark over the decade from FY 2016 to FY 2025. Most counties have seen significant growth exceeding the 2% threshold, with Ida County at 95.8 percentage points above the benchmark, followed closely by Adams and Dickinson Counties with 48.3 and 47.6 percentage points, respectively, above it.
On the other hand, a few counties, such as Black Hawk (-15.4 percentage points) and Boone (-3.2 percentage points), stayed below the 2 percent growth cap, showing slower increases in property taxes than the cap would allow. Overall, this chart reflects the varying property tax growth across Iowa's counties, with the majority experiencing excessive growth well above the conservative 2 percent benchmark. If these 10 counties had limited their property tax revenue to the cap over the last decade, Iowans would have $79.6 million more in their pockets.
Time for Bold Action on Property Taxes
This cap is only part of Iowa's broader strategy for achieving long-term fiscal stability. In addition to the cap, policymakers should consider other measures such as reforming the property tax statement notices that were first sent out this past spring. These notices are part of a policy referred to as direct notification, but the design was confusing and some of the information led to inaccuracies. As an example, each notice used a generic $100,000 residential property as a comparison. This caused inaccuracies and confusion. The notice itself must be redesigned so taxpayers can easily understand. Utah and Minnesota both provide examples of quality property tax statements and those could serve as templates for Iowa. Further, the goal of the notice should be for taxpayers to understand how their bill will be impacted.
Finally, while a 2 percent property tax cap and strengthening the property tax statements are positive reforms, it will be essential for local governments to restrain spending. This is why past property tax reforms have failed to provide tax relief. Policymakers may want to consider a local government spending limitation, which applies to all revenue, that is the entire budget. Iowa’s General Fund is subject to a 99 percent spending limitation, which means the legislature can only spend 99 percent of estimated revenue. Local governments often protest property tax reform because they argue the demands on growing budgets, but the evidence is clear about the relationship between government spending and taxation. Growing government more and taxing more will only lead to further economic troubles, while reducing taxes will actually create more growth. Property tax relief is not just in the interest of the taxpayer, but it is also necessary for economic growth and for better local government in Iowa.
Now is the time for bold action on property taxes in Iowa. The 2 percent property tax cap offers a clear and achievable path forward that can help restore the balance between essential government services and taxpayers' ability to pay. Had the select cities and counties followed this cap over the last decade, Iowans in those communities would have $160 million more in their wallets today. Iowa should take this step without delay.
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