With exceptional valuation growth over the years, it is time to force local governments to cut back and live within their means.
Property taxes are, without a doubt, the most hated tax in Iowa. Rightfully so, as the bill goes up year after year and the services Iowans receive do not equate to the increase. Iowa currently has the 10th highest property tax when measured on a national scale, resulting in $6.7 billion in collections.
However, given all this, many local government advocates still insist property tax collections must increase over time in response to inflation and population growth. That may be a fair point to consider, but the reality is the property tax system is already designed to accommodate both inflation and population growth. In a nutshell, property taxes are the product of the tax rate multiplied by the taxable value of each piece of real estate. This means as more properties are added to the tax base, or as those properties become more valuable (valuations are inevitably increased to reflect the impact of inflation), a tax rate that is held constant would generate more revenue for a local government.
Before we go into historical trends, let’s make it clear that the only property tax number you should really be concerned about is your final bill. Don’t get caught up in assessed value, taxable value, rollback, or rate. Simply focus on how the bill you received in August changed from last year. Now, if you don’t like how your bill changed since last year, there are a few items you can dig into further.
The Department of Management provides property tax data for each local government entity dating back to FY77. This makes it easy to observe long-term trends.
For the most part, taxable valuations in Iowa have increased almost every year since 1977, except in 1988, when personal property was removed; in 2000, when gas and electric utilities were excluded; and in 2004, after a national recession. In those three instances, consolidated levy rate increases made mathematical sense, given the reduction in valuations; governments still had expenses to pay. However, such unusual circumstances do not justify the average consolidated levy rate increase from $22.82 in 1977 to $32.18 in 2023. That’s a 41% increase on top of a taxable valuation increase of 380%. In other words, raising the levy rate at the same time that valuations are growing is doubling down on tax increases for property owners.
It's easy to see from historical data that local governments have not only collected the natural (and expected) growth in property tax revenue from inflation and population but have also increased the rate as a way to collect and spend more. In the most recent year, home values jumped an average of 22% statewide further illustrating that local governments can keep their levy rates the same while collecting more dollars. There is no reason to keep increasing the rate.
Let’s put that into perspective. When we compare the most recent tax years, 2023 to 2022, we find that 436 cities (roughly half of the 936 cities in the entire state) increased their levy rates. While some outliers increased their levy rate by more than $4.00, the average levy rate increase for cities last year was still 58 cents. Even for a number of cities that chose to reduce their tax rates, which is better than an increase, the small reduction in the rates still allows local governments to collect a substantial windfall from valuation increases.
When considering the last half-century of property tax collections in Iowa, the total amount of property tax dollars collected from citizens has increased 523%, while inflation has only increased 416% over the same period, meaning total collections are $1.1 billion more today than they would have been if property taxes had only increased in line with inflation.
Lawmakers are in the right place when they look to eliminate property tax levies or consolidate others. The state has been seeing exceptional valuation growth over the last few years, so now is the time to force local governments to cut back and live within their means. History tells us they will continue to tax and spend unless the state acts.