The rising cost of property taxes are a concern for both individuals and businesses across Iowa. Often blame is placed on county assessors for high property taxes. A reason for this is the fact that taxpayers receive an assessment notice in the mail and are angry because of the increase in property values. Property is assessed upon market values; the source of high property taxes is government spending. Unless spending is controlled, any property tax relief will be limited.
The objective of property tax reform should not be to single out certain classes of property or to favor one class of taxpayer over another, but rather it should ensure all Iowans receive tax relief. How can Iowa provide property tax relief for all Iowans? The solution is to look to Utah’s Truth-in-Taxation law, which is considered the gold standard, because it successfully provides both transparency and limits the property tax burden for taxpayers.
During the 2019 Iowa legislative session, the legislature passed a property tax accountability and transparency law. This new law requires local governments such as counties and cities (school districts were not included) to hold a public hearing if the proposed budget increases more than two percent above the previous year, and a supermajority vote for the increase to be enacted. This new two percent “soft cap” is meant to control the growth of property taxes and requires local governments to provide more transparency within the local budget process.
The goal of this law is to not only require more accountability and transparency within local government spending but also prevent local governments from claiming windfalls from increased assessments. If assessments increase by 10 percent, it does not mean local governments should automatically receive a 10 percent budget increase.
Iowa’s property tax accountability and transparency law is partially based upon Utah’s Truth-in-Taxation law. Utah’s Truth-in-Taxation law is more extensive than Iowa’s law and it is considered the “most taxpayer-friendly law.” The thrust of Truth-in-Taxation is “notification, disclosure, and the elimination of automatic property tax increases.”
Truth-in-Taxation is revenue driven, which means as valuations increase property tax rates decrease. “This automatic reduction in property tax rates prevents local governments from getting a windfall simply because valuations of existing properties have increased,” wrote Howard Stephenson, President of the Utah Taxpayers Association.
Utah’s law “ensures taxing entities the same property taxes as the previous year plus new growth.” Stephenson notes that “while local governments receive increased revenues due to new growth, Truth-in-Taxation includes no automatic adjustment for inflation.” If a local government wishes to increase revenues it then triggers the Truth-in-Taxation process.
At the heart of Utah’s Truth-in-Taxation law is an extensive public notification and hearing process that is required if a local government wants to increase taxes. Through the Truth-in-Taxation process, local governments must justify why they want to increase taxes for additional spending, forcing them to be more transparent as to why they need additional tax revenue.
A crucial aspect of Utah’s law is a direct notification requirement, which is sent to taxpayers and provides information on the proposed tax increase such as the date, time, location, and potential cost of the tax increase. This extensive public notification and hearing process is successful and taxpayers in Utah actively participate in Truth-in-Taxation hearings.
“While Truth-in-Taxation does not technically limit property taxes, it makes local elected officials think twice about increasing property taxes rates because they know all citizens will be notified of the increase and its potential impact on their property,” stated Stephenson.
Iowa can learn from Utah’s law. Even though Iowa’s law has brought greater transparency, an unintended consequence is the budget notice is far too complicated for taxpayers to understand. In addition, the law does not require direct notification. Requiring direct public notification be sent to taxpayers is critical to improving Iowa’s property tax accountability and transparency law. Iowa could design a notification that is similar to Utah’s.
This would empower taxpayers by providing additional clarity on what can be a complicated budget process.
A direct notification to Iowa taxpayers must be transparent and straightforward. Property taxpayers need to know how much their property tax bill will increase. Too often local governments take advantage of informing taxpayers that they have reduced rates, but the taxpayer is left wondering why their property tax bill has increased.
Strengthening Iowa’s property tax accountability and transparency law will help taxpayers. However, if Iowans want to see property tax relief then they will need to become involved in the local government budget process. This will require a cultural shift for more Iowans to be engaged with the local government budget process. A stronger Truth-in-Taxation law will help bring clarity to Iowa’s complex property tax system. Utah has proven that Truth-in-Taxation is an effective law that controls the growth of property taxes and serves the interests of the taxpayer.