This article was published in The Gazette.
Spending drives taxation. A strict 2 percent property tax cap on the growth of property taxes would force local governments to restrain spending.
Iowa has been successful at income tax reform because it has balanced prudent budgeting with pro-growth tax rate reductions. In addition to commonsensical conservative budgeting, Gov. Kim Reynolds also has been proactive in reforming state government and making it more efficient. Limiting spending and reforming government has been a successful formula for Iowa’s historic income tax reforms. This is the same approach that can be used to address escalating property taxes. Property tax reform can be achieved with two specific ideas that provide real and long-lasting relief: limiting local government spending and improving the current Truth-in-Taxation process.
Property taxes have surged over the past two decades in Iowa, increasing by over 110 percent. This growth has far outstripped both population growth and inflation, placing a heavy burden on taxpayers, particularly those on fixed incomes. The primary driver of this increase is not merely rising property values but unchecked local government spending. As local governments have increasingly relied on property taxes to fund their operations, the disconnect between revenue growth and taxpayers’ ability to pay has widened.
In 2023, the Iowa Legislature passed a comprehensive property tax reform measure. The property tax law consisted of several provisions, which included levy consolidation, Truth-in-Taxation or direct notification, November-only bond elections, and adjusting levy rates as valuations rise through a “soft cap.”
Although the 2023 law made some important reforms to Iowa’s complex property tax system, it does not address the root cause of property tax burdens, local government spending. Spending, regardless of the type of tax, drives taxation.
Even the “soft cap,” which is sunset, does not fully address spending. Local governments in Iowa continue to increase their property tax collections, which means they increase their spending. From Fiscal Year 2024 to Fiscal Year 2025 Iowa’s counties are increasing their property tax collections by more than 7 percent, cities more than 6 percent, and school districts more than 5 percent. This means that taxpayers will pay more than $6 billion in property taxes to fund local governments.
One reason the 2023 reform and past measures have failed to provide long lasting tax relief is that they did not address local government spending. Going forward it will be imperative for the next property tax reform measure to address local government spending growth. One policy option that will force local governments to address spending and provide property tax relief would be to establish a levy limit. Most states have some form of property tax levy limit.
Applying a strict 2 percent property tax cap on the growth of property taxes would force local governments to restrain spending. If Iowa had a 2 percent property tax cap this year it would have saved taxpayers $250 million.
The Truth-in-Taxation process, which was a positive step for more transparency, must be strengthened. As part of the 2023 tax reform local governments were required to send to taxpayers’ property tax statements that contained not only property tax information, but also the date, time, and location of the local budget hearing.
This direct notification process is crucial for improving transparency in Iowa’s complex property tax system. It is at the local budget hearing that taxpayers have the responsibility to voice their concern about property taxes. Further, the Truth-in-Taxation process is meant to force local officials to take a public vote on the budget.
However, the notices were poorly designed, and many taxpayers were left confused and frustrated. To help clarify the notices, taxpayers were directed to the Department of Management website. Further, the statements were vague in describing how a potential increase would impact a taxpayer’s property tax bill.
The direct notification process must be improved. Iowa can look at other states that have Truth-in-Taxation laws and send similar taxpayer statements. As an example, both Utah and Minnesota send taxpayer statements that are transparent and easy to understand. The purpose of these taxpayer statements is to ensure that taxpayers know how their tax bill will be impacted.
Limiting local government spending and strengthening the Truth-in-Taxation process is the best solution to provide property tax relief for all taxpayers.
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