Major Property Tax Bill Introduced

A majority of Iowans support property tax relief, despite opposition from many local government officials and special interests. A recent Iowans for Tax Relief Foundation poll found that over 66% of Iowans favor a 2% cap on city and county property tax collections.

Last week, Senate Ways & Means Chair Dan Dawson and House Ways & Means Chair Bobby Kaufmann introduced a joint property tax reform measure with such a 2% cap, calling it “the biggest property tax overhaul since the 1970s.” If enacted, the bill (HSB 313 and SSB 1208) would provide an estimated $400 million in property tax relief.

Key Provisions

2% Revenue Cap on Cities and Counties

• The measure establishes a 2% revenue cap on city and county property tax collections, applying to the county basic and rural levies, city general fund levy, and other capped levies.

• The cap is not absolute—exceptions include revenue from new growth (defined as new construction), improvements beyond normal repairs, boundary adjustments, annexation, and incorporation.

• Additional exemptions include uncapped levies for debt, insurance, salaries, and benefits, allowing local governments to increase collections beyond 2% under certain conditions.

Reducing the School Foundation Levy

• The measure gradually lowers the school foundation property tax levy from $5.40 per $1,000 taxable valuation to a target of $2.97 per $1,000.

• The state General Fund would assume a larger share of school funding, while the portion of school funding covered by property taxes is reduced.

• Funding would come from phasing out the Property Tax Levy Aid, Property Tax Equity and Relief Fund, and Property Tax Replacement Fund, as well as the Homestead Credit.

Elimination of the Assessment “Rollback”

• The proposal eliminates Iowa’s rollback system, which has limited taxable property values, transitioning all property classifications to 100% market value assessments by 2029 with accompanying cuts to levy rates.

• Supporters argue this change provides greater predictability for local governments and better budget planning.

Replacing the Homestead Credit with a Homestead Exemption

• The Homestead Credit, currently reimbursed by the state General Fund, would be replaced by a Homestead Exemption.

• Beginning in 2026, the exemption would start at $6,500 for seniors (65+) and $4,680 for other homeowners, increasing to $25,000 by 2029.

• Additional reforms to property tax credits and exemptions are included.

Limiting Local Government Windfalls

Senator Dawson describes the proposal as a “revenue-restricted system”, ensuring local governments do not receive excessive windfalls from rising property assessments. This approach is similar to Utah’s Truth-in-Taxation law, which adjusts tax rates downward as property valuations increase to prevent automatic tax hikes.

The Dawson-Kaufmann proposal is a comprehensive effort to provide property tax relief while addressing local government spending. While the measure will likely be revised as it moves through the legislature, it signals that lawmakers are responding to Iowans’ demand for meaningful tax reform. By capping tax growth, shifting school funding to the state, and simplifying property tax structures, this bill aims to create a more predictable and taxpayer-friendly system.