Simplifying the tax code and forcing cities to live within the general fund levy rate will result in tax relief for property taxpayers.
Over the course of Iowa’s history, the legislature has approved multiple property tax levies dedicated to specific uses in municipalities. Many of these special levies came into existence decades ago and no longer serve a purpose. Iowa cities can choose from among more than 30 available property taxes to supplement their regular general levies of $8.10 per $1,000 of property value.
Senate Ways and Means Chairman Dan Dawson of Council Bluffs has introduced Senate Study Bill 1124 to consolidate many of these levies. His objective is to update and simplify the tax code while also reining in spending and forcing cities to live within the $8.10 general fund levy rate. Long term, these changes will result in tax relief for property taxpayers. In fact, ITR Foundation suggested this exact type of reform within our Property Tax Toolkit.
The current property tax system in Iowa is nothing short of confusing. Taxpayers often have no idea which specific property tax levies are utilized or how much is collected for each purpose because their tax bills only give the consolidated rate. By removing these additional property tax levies, it helps taxpayers have a better understanding how much cities are spending. In addition, some of the levies available to cities are uncapped, meaning they can tax as much as they desire to fulfil their spending needs. By consolidating the property tax levies, it makes it easier for the taxpayer to understand their tax bill while also removing various avenues for cities to increase property tax collections.
Property tax is the primary source of funding for cities’ operations, and while they have a certain level of autonomy to run local government as they see fit, no municipality in the State of Iowa may levy a tax unless it is specifically authorized in state law. Any changes to the list of available property tax levies must therefore be approved by the legislature. To that end, the Senate’s legislation proposes to remove 15 of the dedicated levies, including six that are not currently being used by a single municipality.
Allowing a variety of levies has driven up the overall cost of government. Because cities can collect property taxes beyond just their regular general levy — with some of these not subject to any cap — their existence creates huge distortions across Iowa. State law outlines a general levy of $8.10 for municipal functions; however, these supplemental levies add up to widely different levy rates for cities.
Removal of the six entirely unused levies will obviously cause no immediate change; most of these taxes were created over a century ago, and they are no longer relevant, such as the one for bridge construction over the Missouri or Mississippi River. The remaining 11 levies mentioned in the bill are not used by many cities and generate relatively small amounts of revenue. Seven cities, for instance, use the instrumental and vocal music group levy to generate approximately $268,000, while only one city uses the symphony orchestra levy to collect around $48,000. Even the League of Cities (which tends to favor more money for its members) acknowledges that many of the maximum rates on these individual levies are “relatively small and for most cities will not generate a large amount of revenue.”
The extremely high growth many cities have experienced over the last few years can absorb the cost of these activities, which are quite small in context of the current regular general ($8.10) levy revenue. The levies to be removed by SSB1124 equate to just 1.34% of the regular general levy pie. Cities will still have at their disposal levies for law enforcement, police and fire, employee benefits, employee retirement, insurance, and much more which are not included in the legislation.
While the impact on municipal budgets will be small, consolidation of these levies would be meaningful for taxpayers. In addition to revenue savings and reducing future taxing options, repealing outdated and unnecessary taxes is good governance and fiscally responsible.
Most importantly, this proposal can generate a healthy debate about the consolidation of property tax levies statewide. If it becomes law, Iowa’s cities and towns will have reason to discuss what funds are truly needed in a community. At all levels of government, such reforms can act as catalysts for a more-informed population, structural change, and permanent tax relief.
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