Category: Spending

County Per Capita Spending

County Per Capita Spending

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When your county supervisors create a budget and decide how much to spend, they also set the rate, which determines the county’s portion of your property taxes, which is the third largest part of your total bill behind school districts and cities.

City Per Capita Spending

City Per Capita Spending

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When your city council creates a budget and decides how much to spend, they also set the rate, which determines the city’s portion of your property taxes, which is the second largest part of your total bill behind school districts.

School District Spending

School District Spending

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When your school board creates a budget and decides how much to spend, they also set the rate, which determines the school district portion of your property taxes, which is the largest part of your total bill.

The Iowa Department of Education states, “Per pupil expenditure amounts, while informative, provide an incomplete framework in which to understand statewide, district, or school expenditure levels. A wide range of per pupil expenditure values exist as the result of a multitude of district and school differences statewide.

Limiting Spending Is the Solution to Iowa’s Property Tax Problem

Limiting Spending Is the Solution to Iowa’s Property Tax Problem

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Conservative budgeting has been a pillar of the state’s fiscal policy in recent years, and Iowans would benefit from all of their local governments taking a similar approach.

The team at Iowans for Tax Relief Foundation has been talking to Iowans all across the state lately. One topic that has been part of each one of those conversations is property taxes. That’s not just because of the sticker shock Iowans received when their new property tax bills showed up in mailboxes this August. The Tax Foundation reports that Iowa has the eleventh-highest property tax burden of all the states in the nation.

Policymakers have begun enacting positive reforms to lower the property tax burden, but additional reforms are needed. Specifically, for lasting property-tax relief, policymakers must address the source of the problem, which is local government spending. In fiscal year 2024 local governments in Iowa will collect over $6.8 billion in revenue from property taxes. It is imperative that any future property tax reform measure include a fiscal or budget rule that limits the growth of local government spending.

Not only is the property tax the most despised of all taxes, but in Iowa, it is also the most complicated, which works to the advantage of reform opponents. This year, for example, higher-than-expected property tax assessments swung the spotlight onto county assessors and assessment notices. Some local government officials seemed to welcome shifting the blame to assessors because it saved them from unwanted attention. Even some advocates for property tax reform were distracted into focusing solely on assessment limitations rather than spending limitations.

Iowa has 99 counties, over 300 school districts, and nearly 1,000 cities.  There are certainly elected officials at each of those levels of local government who are keeping the taxpayer in mind as they make decisions about taxes and spending.  Many of them understand that their choices have a direct impact on the bottom line of businesses and families across the state.  But the pain of property taxes keeps building nonetheless.

During a call we were on with Iowa business leaders, numerous executives from across the state lamented their properties’ increased assessments, with many demanding a change to the assessment process.  While it is important to ensure the assessment process is being followed correctly, it is the growth in government spending that drives up property tax bills, not a growth in assessments.  If spending is left to grow unchecked, refining the assessment process is only going to reshuffle the property tax burden among Iowans.

Businesses aren’t the only property taxpayers who are feeling squeezed.  In a recent Main Street meeting we held in Southwest Iowa, a taxpayer wanted to know what happened in her community in 2018.  That year, her city’s property tax collections saw a double-digit increase.  The explanation was simple and it wasn’t because of a formula snafu.  Property taxes went up considerably because the city council decided to collect considerably more property tax dollars.

No matter if it’s your home or your business that is trying to shoulder a heavy property tax burden, the solution is the same.  Local governments need to adopt the fiscal habits of Governor Reynolds and the Iowa legislature. Elected officials must critically look at their budgets and slow the growth of spending. Limiting spending is the best solution to provide property tax relief.

Thankfully, during the most recent legislative session, legislators passed a property-tax reform measure that begins to reduce the complexity and bring an end to the blame game. As Iowa Senate President Amy Sinclair explained during a legislative roundtable hosted by Iowans for Tax Relief and National Federation of Independent Business this fall, “The system has just gotten complicated over time and most people don’t understand what they’re paying for.  Local governments all have different end runs around their taxing limits.  But we didn’t just go in and tell locals to lower taxes.  We went in and tried to simplify a complicated system.”

The reform consolidates city and county property tax levies and establishes a new formula that will force rates down as valuations increase. The new law also enhances transparency requirements for local governments through direct notification. This policy requires cities, counties, and school districts to send property owners specific notices with detailed information about their property taxes and an annual budget hearing.

 As Senator Sinclair further explained, “This is where we had to start.  Simplifying the system means putting the guardrails back in place and making it so that there is not a smoke show that keeps us from seeing property taxes clearly, or a smoke show about where the money is actually going. There will be more steps to this.”

One of those steps lawmakers could consider would be to directly address the issue of spending. Future reform efforts must apply fiscal rules or spending limitations to the entire local government budget. A spending or budget limitation could take many forms. Spending could be limited to the rate of population growth and inflation, or local government budgets could be restricted to a certain percentage increase absent direct voter approval.  One thing to avoid, however, is exempting certain portions of the budget from a spending limit, as that would immediately make any limitation ineffective.

Spending limits should not be controversial.  As an example, New York, which is not known as a conservative or tax-friendly state, has implemented a property-tax revenue cap limiting the annual growth of taxes that local governments and school districts can levy to the lesser of two percent or the rate of inflation. This reform has not hindered local governments or public education but has successfully saved taxpayers billions.

One additional benefit of a local government spending limit is that it avoids the unintended consequences that occur with reforms that focus strictly on limiting property assessments.

Such reforms would also be popular in Iowa. An Iowans for Tax Relief Foundation public-opinion poll found that 67 percent of Iowans support controlling the growth of property taxes by establishing limits on how much a local government can tax and spend. Conservative budgeting has been a pillar of the state’s fiscal policy in recent years and Iowans would benefit from all of their local governments taking a similar approach.

© 2023 Iowans for Tax Relief and ITR Foundation