Bill to limit future increases in property taxes heads to Iowa governor

DES MOINES — An attempt to limit the future growth of Iowa property owners’ tax bills is on its way to becoming state law after it was approved Tuesday by the Iowa Legislature.

Lawmakers gave near-unanimous approval to the proposal, which would temper local government spending that results from increases in property assessments. Assessments increased an average of 22 percent across the state this year, Cedar Rapids-area assessors have said, although that has never meant that tax bills would grow by a similar amount.

The new legislation seeks to achieve a reduction in future property tax growth primarily by merging most local taxes into one general levy, then installing mechanisms that reduce that levy if taxable valuation grows beyond a certain level.

Under the bill, when property assessments increase between 3 and 6 percent, the growth in the levy is limited to 2 percent. And when assessments increase 6 percent or more, the levy growth is limited to 3 percent.

“Most importantly, most historically, we stopped the old practice of assessment windfalls being a windfall for local government budgets,” said Iowa Sen. Dan Dawson, a Republican from Council Bluffs and one of the main architects of the legislation. “Going here forward, (when there are) excess assessments, you will have your rate reduced.”

Dawson said Senate Republican staff has estimated the measure will reduce future property taxes by at least $100 million. The bill would not affect the local budgets and spending plans now being crafted to take effect July 1, but in future years.

The latest version of the legislation, House File 718, is the result of negotiations between Republican leaders in the House and Senate. For much of the session, the two chambers had been focused on their own, separate proposals. The new bill combines elements from each of those two bills.

The Senate passed the new bill Tuesday morning with a unanimous, 49-0 vote; the House passed it later Tuesday afternoon with a 93-1 vote. Rep. Elinor Levin, a Democrat from Iowa City, cast the lone vote against the proposal.

“What I heard from constituents was a desire for simpler, lower property taxes,” Levin said. “While this bill may lower property taxes for a small percentage of Iowans, it also makes our property tax code much, much more complicated and hurts local communities and schools. And for those reasons I could not support it.”

Gov. Kim Reynolds is expected to sign the bill into law.

Rep. Bobby Kaufmann, a Republican from Wilton who managed the House’s proposal, during his floor remarks called the legislation “a big deal” for property owners and addressed Iowans who have expressed their frustration with increasing property taxes.

“For all Iowans, the predictability and the transparency that this bill brings is a big deal. And for all Iowans, the foundational changes that we’re making is a big deal,” Kaufmann said, and added to those frustrated taxpayers, “You’ve spoken loud and clear, we’ve listened, and relief is on the way.”

Reynolds issued a statement Monday when the compromise bill was first announced.

“My commitment to cutting taxes for the hardworking people of Iowa has never been stronger. After enacting the largest tax cut in state history last year, I’m proud to work alongside the House and Senate to begin property tax reform this year,” Reynolds said, referring to last year’s $2 billion state income tax reduction.

The provision that resets local levies as written in the bill covers four years. After that, state lawmakers would need to reauthorize those provisions.

In addition to the levy growth constraints, the new legislation contains other measures:

The provision in the new bill that allows for bonding referendums in even- or odd-numbered years means the Cedar Rapids Community School District could proceed with its planned $312 million bond referendum for this fall — but in a general election, not a special election to consider just that.

Democrats also lauded the bill’s passage. As property tax bills were being considered throughout this session, Democrats have said they wanted to see a bill that would lower Iowans’ tax burden while not limiting the ability of local governments to provide the services they believe their residents need.

“Although we are slowing (property tax) 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,” said Sen. Pam Jochum, a Democrat from Dubuque.

Rep. Dave Jacoby, a Democrat from Coralville, said the bill will help middle-class Iowans have some predictability about their tax liability. While a step in the right direction, Jacoby said the legislation fails to address “the core of what property tax valuations, assessments and local government do to provide services to our citizens.”

Local government leaders react

Johnson County’s finance director Dana Aschenbrenner said it is difficult to know specific impacts the bill will have on future budgets without knowing how property assessments will change and the rollback factors that will be applied in future years. The state already applies a “rollback” factor that determines how much of a property’s assessed value is subject to taxes.

Regarding the tax growth limitation, Aschenbrenner said this primarily will affect counties seeing “robust growth” in property values due to population growth, increases in property values and business expansions. There is an expectation that as counties grow, government services must also expand to keep pace, he said.

This (limitation) will ultimately limit growing counties abilities to keep pace with the natural growth they are experiencing,” Aschenbrenner said.

Aschenbrenner said this could, ultimately, impact quality of life for county residents as governments may not be able to respond to community demands and needs.

“It seems a bit odd that in a state that is struggling to expand and attract economic growth, that the state Legislature is looking to limit and choke out local governments’ access to resources that provide the infrastructure and public services that aid in stimulating economic growth within their respective borders,” Aschenbrenner said.

Johnson County cities The Gazette reached out to said they were still analyzing how the legislation would impact their respective cities and budgets.

In Cedar Rapids, City Manager Jeff Pomeranz said a growth cap would somewhat limit the city’s growth in valuation. Historically, though, he said Cedar Rapids has seen moderate residential growth that typically hovers around 3 percent.

“We have solid growth for our community that shows a very healthy economy, but it's not out of balance or out of line,” Pomeranz said.

Linn County Finance Director Dawn Jindrich noted the growth cap is not indexed to inflation. So if costs for things like elections, emergency management, flood insurance and workers’ compensation claims go up beyond the allowable growth cap, “the county will have to decide what programs to reduce or eliminate with additional cuts needed every year.”

Tom Barton, Izabela Zaluska and Marissa Payne of The Gazette contributed.

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