Still on Iowa lawmakers’ to-do list: limiting property tax bills

DES MOINES — With the assessed value of homes skyrocketing — up a statewide average of 22 percent this year — Iowa lawmakers from both political parties say they want to keep that rise from triggering big increases in the local property tax bills that homeowners have to pay.

But the clock is ticking, as legislators’ work for the 2023 calendar year is drawing to a close. Soon, they will adjourn for the year and not be back at the Iowa Capitol until January 2024.

Lawmakers are focused on two proposals — one bill each in the Iowa House and Iowa Senate, both written by majority-party Republicans — that have similar overall goals, but are operationally different. The question on many taxpayers’ minds is whether the two chambers can agree on just one bill still this year.

A big rise in assessments, of course, doesn’t mean there will be a similarly big increase in tax bills. The state’s rollback rate caps how much of a property’s value can be taxed. But even if taxing entities such as cities, counties and school districts keep the same tax rates as before, taxpayers could still see considerable increases despite the state rollback rate.

Here is a look at the two legislative proposals: how they are similar, how they are different, and what are the prospects for lawmakers’ ability to reach an agreement they can pass this year.

The proposals

The House bill would cap the amount of property taxes that local governments could collect on increases in property assessments. Under House File 718, local governments could not collect more than 3 percent of any growth in assessment increases for residential and agricultural property. Commercial and industrial property tax growth is limited to 8 percent.

So, for example, if the assessment on an Iowan’s house increased 6 percent, the local governments could collect property taxes on only 3 percent of that increase.

The Senate bill also attempts to address assessment increases, but in a different way. Senate File 569 ties the maximum property tax revenue growth that an entity has to spend on both the tax rates it charges and the rise in assessments. Local taxing entities would have their maximum tax revenue reduced between 2.5 and 3.25 percent, depending on how much they charge for a key tax rate and the percentage of assessment growth in its jurisdiction, provided that growth is 2.5 percent or more.

The House bill also decreases by $1 the state tax on property that is part of the state’s K-12 public school funding formula, and replaces it with funds the state’s general budget — not property taxes. That provision, which would cost the state more than $200 million annually, is not in the Senate bill.

Conversely, the Senate bill also combines multiple local government levies, and eliminates others. Those provisions are not in the House bill.

The negotiations

Ultimately, state lawmakers — particularly, leaders in the majority Republican Party — must come to an agreement on one legislative proposal to send to Gov. Kim Reynolds for her signature.

The final product could be a mishmash of some elements of both bills, but negotiations are not quite as simple as, for example, deciding which rate on state income taxes to establish.

The complex nature of property taxes, lawmakers say, is what makes this particular negotiation more challenging.

“I think the difficult part is that as opposed to moving down the state income tax rate, you are moving levers on a system that touches 99 counties, almost 1,000 cities, 300-plus school districts. So that’s where it becomes a lot more nuanced in trying to find that solution,” said Sen. Dan Dawson, a Republican from Council Bluffs who chairs the Senate’s committee on tax policy.

“I’ve said before if property taxes were easy we would have fixed that in 2017” when Republicans gained full control of the state lawmaking process by virtue of a Republican governor and majorities in both chambers of the Iowa Legislature, Dawson added. “This is going to be a thoughtful, long-term process.”

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House Speaker Pat Grassley, a Republican from New Hartford, this past week conceded House and Senate Republicans had not yet reached an agreement on property taxes, but also said that Republican leaders are continuing to meet.

“We recognize we’re trying to get to the same place, which is to provide certainty and relief for Iowans,” Grassley said. “We’re working toward the same goal, but again, it’s a very complicated system. I’ve been talking about that for four months now, how complicated the system is.”

Bipartisan support

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While they have not yet agreed on a precise method, lawmakers from both parties do appear to agree on the need for changes to Iowa’s property tax laws. Both main bills received widespread, bipartisan support: the Senate bill passed its chamber on a 48-1 vote, and the House bill passed there in a 93-1 vote.

However, even among minority-party Democrats, there is not consensus around a preferred proposal. During a news conference this past week, Senate Democrats’ leader Sen. Zach Wahls, of Coralville, and House Democrats’ leader Rep. Jennifer Konfrst, of Windsor Heights, said they preferred their own chamber’s proposal.

Both, however, also stressed a need to get some bill passed before this year’s session is over.

“I think the No. 1 concern that we have is making sure that something gets done this year and figuring out a way to do that that’s going to both balance the fact that Iowans are seeing these property taxes rising and in many cases rising assessments, but that also is going to allow some of our high-growth areas to continue to grow and provide services in a responsible way, without shortchanging law enforcement officers and other public safety workers, provide those critical services,” Wahls said. “Clock’s ticking. So that’s got to be a priority.”

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Future prospects

As legislators return Monday for what very well may be the final week of the 2023 session, the questions remain: whether they can reach an agreement on one tax bill, and what that bill will look like.

Dawson and Grassley expressed optimism.

“I think you’re going to see very strong efforts to try to make sure we pass something this session that at least gives some certainty to Iowans,” Grassley said. “There is a lot of uncertainty (about) the impacts that will happen from these assessments. So I think we feel pretty strongly about trying to find something that will try to ease some of those fears from Iowans.”

Dawson said he feels motivated to get something passed that addresses how much new property tax revenue local governments can use in their budgets. He said by addressing that this year, local governments will have time to prepare for their budgeting process next year.

“If we are going to address the assessments that Iowans received in their mail this last three or four weeks, my position has always been that no matter what we agree upon this session, or the next session or sessions beyond, we have to address these assessments before we walk out the door,” Dawson said. “Otherwise, we’re going to have cities and counties going to be budgeting in the (new property tax revenue) windfall (from) those property tax assessments. We try to come back next year from scratch, we’re going to be fighting against (local governments’) budget process.”

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