When it comes to property taxes in Iowa, the proverbial gorilla in the room is public education. School districts are the largest driver of local property tax bills in most Iowa communities, and they are also the largest line item within the state’s General Fund budget. In FY 2025, school districts consumed about $3 billion, or 40%, of property tax dollars collected statewide. Yet discussions about reforming school spending are often pushed aside, even though Iowa’s school finance system relies heavily on both state appropriations and local property taxes.
Despite broad agreement that Iowa’s property tax burden is too high, questioning education spending remains politically sensitive. Some argue that the school funding formula leaves little room to restrain costs, but the reality is that local government spending, including schools, is driving property taxes upward. If Iowa is serious about delivering meaningful property tax relief, school finance must be part of the conversation; school districts cannot be immune from spending discipline.
Iowa could learn from New Hampshire, which is considering reforms to limit education spending as a way to provide property tax relief. In New Hampshire, the legislature is considering a measure that would prevent school boards from proposing a budget larger than the previous year’s, except for an increase equal to the rate of inflation. To exceed that limit, voters would need to approve the increase by a two-thirds majority.
Currently, New Hampshire budget limits can be applied to school districts if voters approve them, but this proposal would make them a required policy. Legislators argue this is necessary because education spending is rising and property tax bills continue to climb, while taxpayers are demanding relief.
New Hampshire is unique in that most school funding originates at the local level rather than from the state General Fund, which means property taxes pay an even larger share than they do in Iowa.
“One of the biggest complaints from my constituents, and I’m assuming yours as well, is the accelerating rate of property taxes, most of which is the result of spending in schools,” said New Hampshire Rep. Dan McGuire in explaining the proposal.
Rep. McGuire further argues that a mandatory cap would force school districts to find savings and reduce administrative waste. It would also require districts to justify to voters why additional spending is needed. Taxpayers would then have an opportunity to approve or reject any increase with a supermajority vote.
New Hampshire is not alone. South Dakota is studying similar ideas for property tax reform. Jim Terwilliger, Commissioner of the Bureau of Finance and Management and a member of the School Finance Accountability Board, has recommended examining the cash balances of school districts as part of a reform package.
Terwilliger argues that the School Finance Accountability Board “should not condone excess school cash balances at a time when homeowners are complaining about high property taxes.” “When you start seeing a $600,000 excess balance, it begs the question—what are you doing?” he asked. In other words, schools should not maintain large reserves while demanding bigger budgets, especially when taxpayers are facing higher bills.
Other policymakers in South Dakota have echoed this, saying it is reasonable to examine school spending and savings as part of property tax reform. Previously, South Dakota lawmakers argued that “property tax reform should start with government spending cuts and include difficult discussions about public education funding.”
As Iowa lawmakers prepare to craft, and hopefully pass, property tax reforms of their own in 2026, they will need to remember that public education cannot be handed a blank check from taxpayers. Spending can be restrained either by limiting state appropriations or by applying a spending cap directly to school districts. For example, Iowa could apply a 2% property-tax cap to school district levies, similar to New York’s limit of 2% or the rate of inflation (whichever is lower). Other guardrails, such as tying growth to enrollment or requiring voter approval for increases, could also ensure school budgets don’t rise faster than taxpayers can afford.
Iowa doesn’t need to undermine public education to deliver property tax relief, but it does need to insist on responsible budgeting. By bringing school spending into the discussion, just as other states are doing, Iowa can protect classroom priorities while still demanding transparency, efficiency, and limits on how much local budgets grow each year. Real reform requires acknowledging where the pressure is coming from and putting taxpayers, not automatic spending increases, back at the center of school finance policy.
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