House, Senate advance competing bills on property tax reductions

by Robin Opsahl, Iowa Capital Dispatch
April 19, 2023

Both the Iowa House and Senate passed separate bills on property tax relief Wednesday as the chambers try to find a compromise on the best way to limit costs for property owners.

Senate File 569 and House File 718 both passed out of their respective chambers Wednesday with bipartisan, near-unanimous support, with only one member voting no in each chamber. Both measures put limits on local governments’ ability to raise property taxes, as well as adding transparency measures requiring cities, counties and school districts publish information on plans to take on debt.

The Senate bill would limit local governments’ levy rates. Cities’ rate would be capped at $8.10 per $1,000 in taxable value. County general services would be limited to $3.50 per $1,000 in taxable value and county rural services at $3.95 per $1,000.

Other measures include combining several localities’ supplemental levies into a base levies, expanding existing homestead and military service credits and increasing debt levy thresholds. The bill also requires local governments provide information on their budget plans and how changes will impact taxes owed to taxpayers.

The bill is the result of discussions on previous Senate property tax proposals with other lawmakers and with local government representatives, Sen. Dan Dawson, R-Council Bluffs said. Senators approved changes based on subcommittee comments Wednesday to give local governments more time to publish required information on their budgets, as well as adjusting and indexing bond thresholds to grow over time alongside increasing costs.

Despite the changes, local government advocates expressed concerns about lost funding for providing services their communities expect, and some limits on local control.

Dawson said the measure was necessary for two reasons: Iowa has higher property tax burdens than many other states, and other state attempts to take on costs currently funded through property taxes, such as the mental health levy move in 2021, did not reduce taxes for many Iowans.

“One of the things you don’t hear from local governments is that ‘I know all these valuations are coming in, but trust me, we’re not going to spend all this money,’” Dawson said. “No one is saying that. The silence is deafening, folks. That is why we had to do something here.”

Senate Democrats praised the bill for incorporating minority party suggestions, as well as reducing costs for Iowans in need. Sen. Pam Jochum, D-Dubuque, said she was happy to see the Legislature finally address property taxes after Republicans spent so much time focused on income taxes. Property taxes have an impact on Iowans of all socioeconomic levels, she noted, both for those who own homes and those who take on the tax burden through raised costs of renting.

“We all want to make a very complex, complicated … property tax system more transparent,” Jochum said. “We’d like to streamline it, make it easier to understand and make sure that we are balancing the costs of essential services at the local level — and that includes public safety, educating our children, quality of life issues — and to balance that with the actual cost to the property taxpayer.”

Senate Republicans said their bill will provide more than $100 million in property tax relief, according to Iowa Department of Management estimates. Dawson said the bill is a necessary first step toward bigger reforms to the property tax system and changes to how local governments are funded. He said addressing growth of local levy rates will help set a baseline on which lawmakers can build to pursue other tax credit and exemption changes, as well as alternative funding sources for local governments like changes to the local sales tax system.

“We can keep on credits and exemptions all we want to produce economic programs, that we can tip this, and we can abate that,” Dawson said. “But why don’t we actually go to the root cause of the problem: And that’s our property tax system. That’s why we’re here.”

House advances separate property tax plan

House Republicans also celebrated passing their property tax bill, saying in a news release it would provide more than $200 million in property tax relief to Iowans.

The House bill proposes different changes to reduce property tax costs. The bill reduces the school foundation property tax rate of $5.40 for every $1,000 of taxable valuation to $4.40, with the state taking over the $204 million in lost revenue. The legislation also introduces caps on property tax increases on per-parcel basis. Increases would be limited to 3% per year for homes and farms, and limited to 8% per year for commercial and industrial properties.

As transparency measures, the House proposal moves bond elections to the date of the general election, and requires local governments to post or send taxpayers information on property tax costs and reasons for rate increases. Lawmakers adopted an amendment specifying that state funds making up the costs removed through the school foundation property tax would come from the taxpayer relief fund. Another change lawmakers approved would push back budget certification dates.

Rep. John Forbes, D-Urbandale, said he was concerned about loss of local control and that the Legislature could renege on using state funds to make up for lost property tax funds for schools in the future. But largely, Democrats largely praised the bill for taking into account the suggestions and concerns brought forward by local governments and minority party members.

Rep. David Jacoby, D-Coralville, said the bill in its current form is a way to reduce costs without the systematic problems local government officials said the earlier version of the bill would cause.

“In my opinion, we’ve had many failed tax policies over the last 13 years, policy that did not help our everyday Iowans,” Jacoby said. “This, I believe, helps everyday Iowans, and Democrats are happy to see that our ideals are being met in this bill.”

Rep. Bobby Kaufmann, R-Wilton, said the bill was “historic” legislation, telling Iowans that “we have heard you.”

“We have heard you as you stated that property taxes are easily the most unpopular tax that exists,” Kaufmann said. “We have heard you that your bills and your evaluations have exploded in growth. We have heard you when you’ve had to say that you’ve had to make decisions on whether to pay your property tax bill or  other equally important bills. By my estimations, this bill, if signed into law will lower every Iowan’s property tax bill by north of 20%. That’s a big deal.”

Dawson and Kaufmann complimented one another for collaboration between chambers on an agreement on property taxes. Both bills are available to receive committee hearings by the other chamber. Republican leadership in both the House and Senate have said property tax change is one of their top priorities for the 2023 session, and Gov. Kim Reynolds has told reporters she supports changes to Iowa property taxes.

“We have continued to have ongoing positive conversations that can move towards a final deal,” Kaufmann said.

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