Category: Fixing the Problem

The Solution to Iowa’s Property Tax Problem

Posted on by John Hendrickson and Tom Sands
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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.

Iowa Poised to Revolutionize Property Tax Reform Among States

Iowa Poised to Revolutionize Property Tax Reform Among States

Posted on by John Hendrickson and Pete Sepp
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This article was published in the Telegraph Herald and The Gazette.

Paring back unnecessary local expenditures and then capping property tax growth at 2% would save taxpayers $250 million a year.

Governing magazine crowned Gov. Kim Reynolds among 2024’s leading public officials, lauding conservative reforms that slashed Iowa’s punishing 9% income tax to a lean 3.8% flat rate by 2025.

Now she’s targeting an even thornier challenge: overhauling Iowa’s tangled property tax system.

If she succeeds, it will be a new roadmap for other states to tackle their own pro-growth reforms.

Iowa’s property tax burden ranks a disappointing 44th nationwide, according to the Tax Foundation’s state tax climate index. Only Illinois fares worse among neighboring states, while Nebraska is scrambling to improve its 40th-place standing.

The crush of these levies leave many Iowans feeling like tenants, perpetually paying rent to government landlords.

Property taxes also act as a wealth tax, punishing homeowners for paper valuations that ignore their actual bank balances. It’s easy to blame assessment methods. While this matters, it is not the cause of high property tax bills and too much focus on assessment leads to not only poor reform, but also failure to provide meaningful tax relief.

Since 2004, Iowa property taxes have skyrocketed 110%, dwarfing combined population and inflation growth. Cities and counties gorge on 6-7% annual spending increases while most Iowans’ wages stagnate amid inflation. Local governments will swallow over $6 billion in property taxes this fiscal year alone.

The root cause is runaway local spending.

To avoid any discussion on that thorny subject, policymakers often look at alternative property tax reform solutions. Some of these include tax shifts, which result in increasing one tax to lower another or creating a new tax to “buy down” the rates of another. New or increased sales tax is often a favorite tool.

It’s not a new idea. In 1934, Iowa lawmakers introduced the state’s first sales and income taxes with the stated purpose of providing property tax relief.

The plan backfired spectacularly. Instead of relief, Iowans found themselves trapped in a triple tax bind, high property taxes with the addition of new sales and income levies.

Another poor fiscal policy solution is to have the state budget assume more responsibilities from local governments. This approach may also include having the state “subsidize” local government aid. In the past, the Legislature has provided “backfill” payments to cities and counties, and more recently the Legislature eliminated the county mental health levy and took responsibility for mental health funding, a $152 million annual commitment.

Instead of providing property tax relief, many counties pocketed the windfall and continued hiking property tax rates.

The solution for Gov. Reynolds and the Iowa Legislature is simple, and it’s the same formula that powered Iowa’s income tax transformation: address the government spending that drives taxation first, then cut rates. Pare back unnecessary local expenditures, then cap property tax growth at 2%, saving taxpayers $250 million a year. Other states can find the right math for their own circumstances, but overall, this two-step process is how it can be done just about anywhere.

Gov. Reynolds has proven that lean budgets, government reform, and lower taxes can coexist through disciplined leadership. If Iowa keeps focused and determined to fix the property tax issue, it will cement its position as a leader among states pioneering pro-growth economic reforms.

Pete Sepp is President of National Taxpayers Union.

Iowans Demand Property Tax Relief: 2% Cap Gains Support

Iowans Demand Property Tax Relief: 2% Cap Gains Support

Posted on by Chris Ingstad
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This article was published in The Gazette.

This cap would not only curb the excessive growth in property taxes but also align local government budgets more closely with the financial realities of Iowa’s families and businesses.

Iowans have long despised property taxes, and they aren’t going to develop any warm and fuzzy feelings about them any time soon. Local governments are collectively cranking up their property tax collections by more than six percent as cities (+6.6%), counties (+7.6%), and school districts (+5.4%) across Iowa began a new fiscal year in July. Since most Iowans probably cannot look forward to a 6 percent raise next year, that means elected officials have decided to grow local government budgets faster than the budgets of the families and businesses who will be footing the bill. Government spending is clearly driving higher property tax bills.

It doesn’t have to be this way for taxpayers. Iowa’s legislature should implement a strict 2 percent cap on the annual growth of local government property tax collections. In contrast to other solutions that have been discussed in recent years, this approach would avoid disrupting the market’s role in determining property values or giving benefits to one group of taxpayers at the expense of another. Local governments in Iowa need to be fiscally disciplined. Both New York and Texas, despite their political differences, have successfully instituted hard caps on the growth of local property taxes.

ITR Foundation has published research that outlines the growth of property taxes year-over-year for every city, county, and school district in the state. A 2 percent cap would have saved Iowans $250 million this year alone. Not only would a 2 percent cap deliver real savings, but it is a solution Iowans of all political stripes can get behind. Polling released last month demonstrates that 70% of Iowa voters support this taxpayer protection, including strong majorities of Republicans, Democrats, and Independents.

One of the dynamics that has led Iowa to this situation is some local officials pointing to “growth” as the reason their spending has gone up so quickly. In order to examine the growth argument, our foundation’s research also measured property tax increases in light of population (and enrollment) changes and calculated a per capita change for each jurisdiction. Dallas County in Central Iowa, for instance, is increasing their property tax collections by 27% in this new budget year. Even for Iowa’s fastest growing county, that still equates to a property tax increase of 23% for every resident; growth alone does not seem to justify tax hikes for so many Iowans.

A 2 percent cap would still allow for reasonable budget increases. If additional spending is necessary, the cap could be exceeded, but only with voter approval. This requirement ensures that any proposed spending hikes are thoroughly justified to the public, fostering transparency and accountability. By instituting such a cap, Iowa can ensure a balanced approach to property tax growth, promote fiscal responsibility, and maintain fair and predictable taxation for all residents.

Local governments should not rely on Iowa’s legislators to subsidize their spending. Utilizing state revenue for property tax relief has consistently failed. Iowa introduced income and sales taxes in 1934 to provide property tax relief, yet 90 years later, Iowa’s property tax system remains one of the worst in the nation.

The rapid increase in property taxes across Iowa is unsustainable. A 2 percent cap on the annual growth of local government property tax collections is a practical solution that resonates with voters. This cap would not only curb the excessive growth in property taxes but also align local government budgets more closely with the financial realities of Iowa’s families and businesses. Iowa has an opportunity to protect its taxpayers from steep tax hikes, promoting accountability and a fairer, more predictable property tax system for all Iowans.

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    About ITR Local

    ITR Local is a joint project of Iowans for Tax Relief and ITR Foundation.

    When local elected officials choose to increase spending and raise property taxes, they need to clearly explain why government needs the money more than the people they represent.

    Data on this site was pulled from one of the following sources:

    Read ITR's explanation of why reasonable property tax growth is the combined percent change of inflation and population or enrollment.

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