Iowa lawmakers send bipartisan, $100M property tax cut to Gov. Kim Reynolds
by Robin Opsahl, Iowa Capital Dispatch
May 2, 2023
Lawmakers in both chambers approved a compromise property tax bill Tuesday that they say will provide $100 million in property tax relief, sending it to the governor’s desk.
House File 718 passed the Senate unanimously Tuesday, with an amendment combining parts of the chambers’ differing property tax proposals. Much of the language comes from Senate File 569. The House passed the amended bill 93-1 Tuesday afternoon, with Rep. Elinor Levin voting against and six representatives not voting.
The bill caps city levy rates at $8.10 per $1,000 in taxable value, in addition to consolidating 15 existing levies available for Iowa cities into a general fund system. County general services would be limited to $3.50 per $1,000 in taxable value and county rural services to $3.95 per $1,000.
In addition to these limits, cities and counties would be required to spend excess revenues on property tax buydowns, the amount of which would be determined by how much their revenue has grown annually. If a locality’s revenue stays stagnant, it would not need to put funding toward lowering property taxes. The bill also adds several transparency requirements to local governments’ spending and plans to take on debt.
However, the amended version takes out several House proposals, removing the school foundation property tax rate reduction and per-parcel limits on residential and agricultural properties. House Democrats said they were concerned about moving the bill forward without a fiscal note, and Rep. David Jacoby, D-Coralville, said would like to see a smaller window before reviewing the changes — the bill has a timeline to reconsider the provisions in four years.
While Jacoby said he preferred some of the House’s proposals, he said the bill is a “move in the right direction.”
“The question is for us to decide today: Will this be effective? Will this help middle-class Iowans have some certainty, some predictability to what their tax liability will be for next year?” Jacoby said. “That is what I believe we are voting on today.”
Sen. Dan Dawson, R-Council Bluffs, said it’s been “quite a journey” reaching the agreement on property taxes. Republicans leaders kicked off the 2023 legislative session with plans to lower property taxes, but lawmakers only announced reaching an agreement on the issue in the expected final days of the legislative session.
Dawson said state lawmakers ran into “pitfalls” in previous attempts to lower property taxes.
“We’ve dealt with assessments, we’ve dealt with rollbacks, but if we’re really going to reform our system, it became apparent, you know, trying to focus on the homeowner — trying to focus on the actual levy itself — is really ultimately the one thing we’ve never tried to do around here,” Dawson said. “But ultimately, all the roads took us back to that.”
Democrats thanked Dawson and Republicans for including their input in drafting the final version of the legislation. Sen. Pam Jochum, D-Dubuque, said property taxes are one of the most regressive taxes in Iowa alongside sales tax, and an area where the government can help reduce costs for low- and middle-income Iowa families.
Many Iowans are facing “sticker shock” after getting their property assessments in April, Jochum said, when property owners saw their home’s valuation go up by an average of 22%. She said Iowans concerned about property taxes after receiving that assessment letter should keep in mind that Iowa’s current system involves a “rollback” rate, and Iowans will not be paying taxes on the full value of the property.
Iowa already has a rollback process limiting how much property taxes can increase each year. With the current rollback rate of 54%, Iowans with a $100,000 home would only pay property taxes on $54,000 of the home’s value.
But Jochum said Iowa’s “rollback” system does not negate the need for the changes proposed in the bill.
“In light of all of that, It’s a $6 billion-plus system, and we all know that every tax system can always use some change as time moves on,” Jochum said. “… Although we are slowing growth down to some extent, I still believe local governments are still going to be able to address the most essential services at the local level.”
Jochum also praised the senior homestead and military property tax exemptions included in the bill, which she said will provide “direct relief” to older Iowans and veterans. House Republicans estimate the exemptions will provide $50 million in relief to seniors and $7 million to veterans.
While state lawmakers praised the bill for lowering taxes, local government officials and advocates repeatedly raised concerns about the property tax bills, saying the provisions limit local control and will leave cities and counties unable to provide services and amenities their communities rely on. Just as Iowa families face rising costs of living and inflation, local governments are also facing rising costs of labor and materials, in areas from road maintenance to emergency medical services.
Local government advocates said property taxes have historically been one of the few avenues for local governments to bring in needed revenue to meet rising costs. Dawson said the Legislature will be looking at new ways to fund local governments in the upcoming session.
“There are a variety of topics out there (that) as a Legislature will have to confront: commercial industrial rollbacks, pipeline rollbacks, homestead, education and ultimately, local government revenue diversification,” Dawson said. “Those things will be conversations we will have in the immediate years to come.”
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