Property Tax Reforms Remain Unfinished Business

The last major piece of legislation for 2024 included a technical correction to last year’s property tax law that comes with a lesson.

The Iowa Legislature has recently been trying to perfect a construct that is flawed at its core: property taxes. Iowans have one of the highest property tax burdens in the country, ranking the 10th highest among states.  While Iowa lawmakers ended the 2024 session on its 104th day, property taxes never took center stage. However, throughout the session lawmakers had left the option open for a technical correction to last year’s property tax bill, and one arrived, tucked into the income tax bill enacted on the final day before adjournment. SF 2442 includes a handful of divisions dedicated to property tax and local government changes.

Changes to Last Year’s Legislation

The most impactful change was modification of a property tax law passed last year, which limited how much city and county property tax revenue can grow. Under that law, if a city or county’s total assessed property value grows by more than 3%, some of the excess revenue must reduce the government’s general fund levy. However, different tiers specify how large the reduction must be, and the new legislation has changed those thresholds.

Impact of Legislation

The original legislation reduced property tax levies by requiring governments to apply new growth toward lowering tax rates. A city or county experiencing growth in property valuations/assessments can no longer (in theory) keep the entire windfall but must adjust its rates.

While the tax rate restrictions were intended to lower property taxes statewide, exactly how great an effect taxpayers see depends on several factors.  Any community experiencing a big increase in property values should enjoy a tax reduction from what their taxes would otherwise have been. The table below shows the reduced levy rate adjustments that are now written into statute and how they compare to last year’s legislation. According to the analysis provided by the Legislative Fiscal Office, this change will increase the ability of cities and counties to collect property tax dollars by $1.43 million in fiscal year 2025, which is an increase of 3% compared to last year.

Takeaways from the New Law

The 2023 legislation was a valiant attempt to rein in local government spending, but it still left too many avenues for property tax bills to increase. The fact that property values increased compared with the previous year did not mean every city and county in the state had to spend more money. History is clear that localities will not reduce the amount of money they spend unless forced to do so. 

The new legislation actually relaxed some of the spending limitations and potentially allowed more of Iowans’ tax dollars to be used by local governments. Until cities and counties are forced to live within their means, as Iowans must do year after year, they will continue to tax and spend at will.

This dynamic should remind Iowa lawmakers and their constituents of a warning from the late-economist Milton Friedman: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” State lawmakers had good intentions when they attempted to rein in local property tax burdens, but the bills that will be hitting mailboxes soon will show it was not successful.  Lawmakers should seek out a new property tax policy that truly cuts local government spending and gives Iowans the property tax reduction they deserve.  Iowa has figured out how to do this with income taxes at the state level, and now it’s time to apply that experience to property taxes.

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