This article was published in Governing.
Iowa has helped prompt other states to adopt flat income tax rates. To bring down property taxes, the state has to address local government spending.
Iowa’s emergence as the beacon of pro-growth income tax reform is no accident. It’s the result of disciplined budgeting and bold leadership under Gov. Kim Reynolds and forward-thinking lawmakers. The state has paired prudent fiscal management with proactive government reforms, making Iowa a trailblazer in the flat tax revolution.
That same winning formula—curbing spending and embracing transparency—can be applied to soaring property taxes. By limiting local government spending and enhancing the Truth-in-Taxation process, Iowa has the tools to deliver meaningful and enduring property tax relief for its residents.
All over the country, lawmakers are looking for ways to reduce the property tax burden, which is being exacerbated by rising home prices. In Iowa, property taxes have surged by more than 110 percent over the past two decades. This increase has far outstripped both population growth and inflation, thus placing a heavy burden on taxpayers, particularly those on fixed incomes.
The primary driver of this increase is not rising property values, but unchecked local government spending. As local governments have increasingly relied on property taxes to fund their operations, the gap between the appetite for local spending and taxpayers’ ability to pay has widened.
In 2023, the Iowa Legislature passed a comprehensive property tax reform measure. The law consisted of several provisions, including levy consolidation; Truth-in-Taxation (or direct notification of ratepayers when taxes are going up); November-only bond elections; and adjusting levy rates as valuations rise through a “soft cap.”
Although the 2023 law made some important changes to Iowa’s complex property tax system, it does not address the root cause of property tax burdens, local government spending. Spending, regardless of the type of tax, drives taxation.
Even the “soft cap” does not fully address spending. Local governments in Iowa continue to increase their property tax collections, which means they increase their spending. Between fiscal 2024 and fiscal 2025, Iowa’s counties are increasing their property tax collections by an average of more than 7 percent, cities more than 6 percent, and school districts more than 5 percent. This means that taxpayers will pay more than $6 billion in property taxes to fund local governments.
Going forward it will be imperative for the next property tax reform measure to address local government spending growth in a meaningful way. One policy option that will force local governments to address spending and provide property tax relief would be to establish a levy limit. Most states have some form of property tax levy limit.
Applying a strict 2 percent cap on the growth of property taxes would force local governments to restrain spending. If Iowa had a 2 percent property tax cap in place this year, it would have saved taxpayers $250 million.
The Truth-in-Taxation process, which was a positive step for more transparency, must be strengthened. As part of the 2023 law, local governments are required to send taxpayers property tax statements that contain not only property tax information, but also the date, time, and location of the local budget hearing.
This direct notification process is crucial for improving transparency in Iowa’s complex property tax system. It is at the local budget hearing that taxpayers have the responsibility to voice their concern about property taxes. Further, the Truth-in-Taxation process is meant to force local officials to take a public vote on the budget.
However, the notices were poorly designed, and many taxpayers were left confused and frustrated. (To help clarify the notices, taxpayers were directed to the Department of Management website.) Furthermore, the statements were vague in describing how a potential increase would impact a taxpayers’ property tax bill.
The direct notification process must be improved. Iowa can look at other states that have Truth-in-Taxation laws and send similar taxpayer statements. For example, both Utah and Minnesota send taxpayer statements that are transparent and easy to understand.
Iowa has been a national leader in pro-growth income tax reforms. Limiting local government spending and strengthening the Truth-in-Taxation process would be an incredible next step that would make Iowa even more competitive for job creation and growth.
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