Property taxpayers in Iowa are frustrated. Taxpayers often blame assessors for high property tax bills, but it is government spending that results in high property taxes. Property taxes are also a form of wealth tax. For example, if the value of a home increased by 10 percent, it does not mean the property owner has a 10 percent increase in savings to cover their property tax.
If the goal is to ensure all Iowans receive property tax relief, then the best approach is to strengthen the 2019 property tax transparency and accountability law by requiring a Utah-style Truth-in-Taxation process. Utah’s Truth-in-Taxation law not only provides accountability in transparency, but it is also based on the revenue side.
As Howard Stephenson, President of the Utah Taxpayers Association explains: “Truth-in-Taxation is a revenue-driven system, not a rate-driven system. Generally, as valuations of existing property increase from county assessors’ annual adjustments of taxable property values to keep pace with market values, property tax rates decrease. This automatic reduction in property tax rates prevents local governments from getting a windfall simply because valuations of existing properties have increased.”
If a local government wants to exceed the certified tax rate, it then requires a Truth-in-Taxation hearing that is accompanied by an extensive public notification and hearing process. Truth-in-Taxation also forces local government officials to take recorded votes to approve an increase in tax collections. Through the Truth-in-Taxation process, local governments must justify why they want to increase taxes for additional spending, forcing them to be more transparent.
A crucial aspect of Utah’s law is a direct notification requirement, where notices are sent to taxpayers, providing information on the proposed tax increase. It also includes the date, time, location of the Truth-in-Taxation budget hearing. This extensive public notification and hearing process has been successful and taxpayers in Utah actively participate in Truth-in-Taxation hearings.
Iowa could implement a similar direct notification system to let property taxpayers know how much their property tax bill will increase. Iowa property taxpayers deserve greater transparency in understanding their total property tax bill. This will help prevent local governments from hiding windfalls from increased assessments.
Kansas recently passed a Utah-style Truth-in-Taxation law and Nebraska is currently considering a similar measure. “Truth in Taxation closes the property tax honesty gap. Local officials can no longer pretend to ‘hold the line’ on property taxes while taking in large increases from valuation changes. Now, they have to be honest about the entire tax increase they impose,” stated Dave Trabert, President of the Kansas Policy Institute.
Another solution for property tax relief is to strengthen the 2 percent “soft cap” placed on city and county budgets. Implementing a stronger spending limitation on all local governments, including school districts, would help control the growth of property taxes in Iowa. It would also require voters to approve a budget increase. Tax and spending limitations can be an effective means at controlling the growth of both government and taxes. Spending limitations also avoid the problem of interfering with the market to determine property valuations.
Local governments in Iowa will be receiving federal dollars from the $1.9 trillion American Rescue Plan Act. One possibility for using those dollars would be to provide property tax relief for taxpayers. Iowa Senate Republicans have passed a measure that would eliminate the county mental health property tax levy, which would generate property tax relief.
To achieve true property tax relief local government spending must be addressed. It would be a mistake to consider raising or creating new taxes to “buy down” property tax rates. In fact, Iowa has already tried this approach. In 1934, the income and sales tax were created to lower property taxes. Today, Iowa not only has high property taxes, but high income and sales taxes.
A Utah-style Truth-in-Taxation measure and a stronger spending limitation are two property tax reform ideas worth considering.