Increasing an existing tax or creating new ones rarely provides tax relief. The government tends to benefit more than the taxpayer.
When cities sent local option sales tax (LOST) increases to the ballot, they told residents half of the new revenue would be directed toward property tax relief. To the contrary, as one frustrated Iowan in the Des Moines metro area declared to the Des Moines Register, “I have yet to see any relief in my property taxes.”
This outcome was predictable. Increasing existing taxes or creating new ones rarely provides relief from other taxes. Government tends to benefit more than the taxpayer. In 1934, for example, Iowa enacted both the sales and income taxes to provide property tax relief. The result was a gradual increase in all major tax categories. Even completely eliminating a tax levy can illustrate how difficult it is to ease the burden of property taxes. In 2021, the Iowa Legislature removed the entire county mental health property tax levy, yet 48 of the 99 Iowa counties failed to pass along the savings to taxpayers this year.
One reason property taxes are difficult to supplant is that voters can be distracted by changes in the rate without considering increases in property valuation (see here, here, and here). County assessors do not set budgets; local taxing authorities do, whether county, city, or school district. So, as property assessments balloon, local governments can make nominal cuts in their tax rates while still draining taxpayers of ever-more property tax dollars. Many taxpayers are left wondering why, if the rates are lower, their bills are increasing.
Property tax relief can only be achieved by addressing the root cause of the problem and reining in local government spending. Two policy ideas can accomplish that goal effectively. The first is to establish a property taxpayer bill of rights similar to other spending limitations, such as Colorado’s Taxpayer Bill of Rights (TABOR). A recent ITR Foundation poll found that 56.1 percent of Iowans support legislation creating such limits on local governments’ taxing and spending.
A key component of this policy would be a strict cap on each government’s entire budget. For example, a local government’s budget could grow by one percent each year, with any larger increase requiring direct approval by voters. The limit must apply to school districts, as well, because they are the leading drivers of property tax increases in most communities.
A second reform idea can be found in Utah and Kansas, whose laws are the gold standard for property tax reform and the most taxpayer-friendly in the nation. Taxpayers in both states have benefitted from strong truth-in-taxation laws that have slowed budget growth.
Truth-in-taxation policies provide aggressive transparency resting on two main pillars. The first pillar is a revenue-based, rather than rate-based, lens that focuses on the entire spending of each taxing authority. With spending in the spotlight, as assessments increase, lower tax rates are needed to cover the budget, in contrast with the ratchet effect when governments gather windfalls from increasing property values, but then raise rates when values stagnate or drop.
Utah’s truth-in-taxation law allows growth from new properties to be added to the budget, while Kansas’s does not. Either way, local governments are prevented from taking advantage of assessment windfalls; they cannot collect the extra money and pass the blame on to the assessor.
The other pillar of truth-in-taxation laws is an extensive direct-notification process. The taxing authority must send notices to all taxpayers explaining how a budget increase will affect their individual property tax bills and provide the date, time, and location for a budget hearing. Direct notifications and budget hearings force local governments to justify requested increases in spending to voters.
Truth-in-taxation laws force local governments to remember that the money they are spending belongs to the taxpayer, whose voice has too often been ignored. The blame game over high property taxes has gone on long enough.
At the state level, Governor Kim Reynolds and the legislature are following conservative budgeting and have made tough decisions regarding spending. As hard as it may be to say “no” to neighbors and special interests, local governments must be responsible stewards of taxpayer dollars. If the state legislature can show restraint, local officials can practice prudent budgeting, too.
To achieve property tax relief, however, taxpayers must not be distracted and LOST by gimmicks and complexities.