Iowa GOP lawmakers target lowering property taxes

DES MOINES — After previously enacting multiple rounds of reductions to state income taxes, Iowa Republican lawmakers have a new target for tax cuts in 2023: property taxes.

While a specific proposal has not yet surfaced, the overall tone from Republican legislators is clear: They plan to use their majorities in both chambers of the Iowa Legislature to pass legislation that will, in their view, help reduce Iowans’ property taxes, and send that legislation to Republican Gov. Kim Reynolds for her approval.

“Property tax … this year will be will be a top priority,” said Jack Whitver, the Republican Senate majority leader from Grimes. “From our perspective, everything’s on the table as far as changes.”

Property tax rates are set at the local level by cities, counties and school districts, among other local entities. So any changes made to state law will impact property tax policy, not rates.

“Ultimately that is a huge concern that we’ve heard from Iowans as we campaign,” Whitver said. “Property tax is concerning a lot of people, especially with the assessment increases that have occurred over the last few months.”

The 2023 session of the Iowa Legislature begins Jan. 9.

Iowa Gov. Kim Reynolds declined to be interviewed for The Gazette’s legislative preview series.

Property taxes are primary drivers of local governments’ budgets and help determine how much is spent on police, libraries and parks, among other services. That means officials representing cities, counties and school districts will have a vested interest in the conversation that takes place and legislation that is produced this year at the Iowa Capitol.

Lucas Beenken, public policy specialist for the Iowa State Association of Counties, said county leaders welcome the conversation about property taxes, but urged caution against making changes that simply shift the tax burden from one set of Iowans to another, or that would make it difficult for local leaders to properly fund services that their communities provide.

Beenken said county leaders understand that many Iowans have become frustrated with property taxes. In a 2019 Iowa Poll by the Des Moines Register and Mediacom, 55 percent of Iowans said property taxes were too high.

“County officials understand that frustration. They don’t run for office to raise taxes on their friends and neighbors. They run for office to provide high-quality services for the communities, to make them a nice place to live, work and play, as the saying goes,” Beenken said. “So the reality is, the cost of providing those services doesn’t remain the same and doesn’t go down. So the discussion is really, how do we use the taxpayer dollars that are entrusted to the local officials to provide those services?”

Pat Grassley, the Republican House speaker from New Hartford, said property tax is a difficult tax to address through legislation because of the many different government agencies it funds. He also said one example of a need for reform is that after the state moved the funding of mental health services off of property taxes and to the state’s general fund budget, not all local property tax rates were reduced as a result.

“So I think what you’re going to see us looking at this year is more of, how do we help bring down some of these levies, but at the same time, how do we make sure that there’s a level of accountability so Iowans see this property tax relief?” Grassley said.

Beenken said he feels any discussion of accountability should expand to the state as well, and cited the 2013 reduction in Iowa’s business property tax rates. When that legislation passed, lawmakers created a funding stream from the state to local governments to help them offset revenue losses as a result of property tax reductions. But that fund — called a backfill — had a short shelf life: in 2021, the Republican majorities passed legislation that phases it out.

“I think there needs to be some transparency there when the state takes action. What does that do to the taxes at the local level?” Beenken said. “In general, we would want to avoid legislation or tax law changes that would be just another property tax burden shift. … We want to make sure that if we’re going to call it reform, let’s actually do reform, not just relief for some and a shift to others.”

Beenken said county leaders believe property tax reform can be achieved by diversifying the way local services are funded. For example, he said fees for titles and licenses could be increased in order to make them more self-sufficient and thus less reliant upon property taxes.

Without a balanced approach to property tax reform, Beenken warned, local leaders face reduced revenues that would force difficult budget decisions.

“We don’t want to be in a position where county supervisors are deciding, ‘Do we have a couple fewer deputies patrolling the roads? Or maybe cut the staff of the county attorney so the workload is heavier for that staff. … Or is it less snowplow drivers or motor grader operators out on the road?’ Where do you cut is my point,” Beenken said. “Counties are already running a very tight operation. So the ‘where to cut’ would be difficult.”

Jennifer Konfrst, leader of the minority party House Democrats from Windsor Heights, also called for striking that balance.

“We need to find that balance between ensuring the property taxes remain affordable but also that we have public safety, that we have ambulances, we have roads, that our public schools have funding,” Konfrst said. “We need to make sure that we’re finding the balance between affordability of property taxes and continuing to provide the services that Iowans expect.”

State budget

When they craft the next state budget, which begins July 1, state legislators will have very little new revenue with which to work.

State revenue is projected to increase by the slimmest of margins — just 0.1 percent — for the next budget year, according to the latest estimates from the state’s nonpartisan revenue estimating panel. But the $9.63 billion the state expects to take in still is comfortably more than the $8.2 billion allocated for the current state budget year.

And the state’s reserve accounts are flush: the general fund budget has a $1.1 billion surplus, the state’s two reserve funds have a combined $895 million, and the taxpayer trust fund has more than $2 billion.

However, state revenue may decrease in future years as those state income tax reductions become phased in. Eventually, the state will have a 3.9 percent income tax rate for all Iowa workers, which will result in $2 billion less in state revenue each year.

The taxpayer trust is set to be used if state revenue dips because of the income tax cuts.

Comments: (515) 355-1300, erin.murphy@thegazette.com