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Iowa Republicans want to cut property taxes. Here’s what it could mean
Speaker: ‘How do we get certainty for the property taxpayer?’
Jan. 5, 2025 5:30 am, Updated: Jan. 6, 2025 7:44 am
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DES MOINES — Iowa Republican lawmakers say they’re not done finding ways to lower property taxes across the state.
Republican leadership in the House and Senate said Iowans should expect to see further action that limits property tax collections by cities, counties, school districts and other entities during the upcoming legislative session.
Lawmakers reconvene Jan. 13 for the 2025 session.
Republicans — who have had control of the state lawmaking process since 2017 — will have a 34-15 majority in the Senate and a 67-33 majority in the House when legislators convene. A special election will be held later his month for the Senate seat previously held by Republican Chris Cournoyer, the new lieutenant governor.
Statehouse Republicans said rising property tax costs were a recurring concern brought up by voters while they campaigned ahead of the November 2024 general election. But lawmakers have yet to present a specific plan or proposals to the public.
House Speaker Pat Grassley, R-New Hartford, and Rep. Bobby Kaufmann, chair of the House tax policy committee, said "everything is on the table" when it comes to efforts to reduce property taxes.
“My objective, and what I'm trying to steer the conversation toward is, how do we get certainty for the property taxpayer?” Grassley asked during an interview. “ … I think that the system right now is skewed toward the taxing entities. And so what I want to see us do is to come up with something very bold.”
Senate President Amy Sinclair, R-Allerton, likewise said Senate Republicans plan to make lowering the cost of property taxes a top priority.
“I think Senate Republicans as well as House Republicans and the governor have been pretty clear that we want taxpayers to be able to keep as much money of their money as possible and still fund state functions that matter to Iowans,” Sinclair said in an interview.
Some local government officials have raised concerns about being able to pay for public services and amenities in their communities into the future.
Reynolds has not shared details about her proposals for the 2025 legislative session. She’ll deliver her Condition of the State Address to lawmakers outlining her legislative agenda on Jan. 14.
Reynolds declined to be interviewed for The Gazette’s legislative preview series, which begins today and runs until the session starts.
Legislative preview series
Today: Property taxes
Monday: Curious Iowa: Citizens’ guide to the Legislature
Tuesday: Voting
Wednesday: K-12 education
Thursday: State agency proposals
Friday: Agriculture/environment
Saturday: Hot-button issues
Jan. 12: Higher education
Jan. 13: Demographics of the Legislature
Focus comes after income tax cut
This year’s focus on lowering local property taxes comes after Republican lawmakers have cut state income taxes during recent sessions.
While the governor has said her goal is to completely eliminate the state income tax by the end of her current term in early January 2027, House and Senate Republican leadership said they do not intend to make further changes this year to state income taxes.
Lawmakers last year passed legislation dropping the state’s top individual income tax rate from 5.7 percent to a 3.8 percent flat rate for all taxpayers. The law, Senate File 2442, accelerates a 2022 overhaul that would have instituted a 3.9 percent flat tax by 2026.
Grassley stressed the importance of not overextending income tax cuts to maintain certainty and sustainability.
“We've made significant progress that, quite frankly, a lot of states would be jealous of. Let's not get out ahead of ourselves until we know what the full implementation of this new flat tax would be,” he told The Gazette.
Iowa’s nonpartisan Revenue Estimating Conference projects the state will see a drop of $602 million in annual state revenues this fiscal year over last fiscal year. The panel projects personal income tax revenue will fall by about $665 million — a 12 percent drop — in the coming budget year.
Republican lawmakers have said they’re confident the state can withstand the projected reduction, noting Iowa has a $2 billion budget surplus, $961 million in its reserve accounts and $3.75 billion in a Taxpayer Relief Fund.
Democratic lawmakers contend the latest revenue estimates are unsustainable in the face of Republican priorities.
House Minority Leader Jennifer Konfrst, D-Windsor Heights, said the state’s budget outlook will only get worse under Iowa’s private school tuition assistance program, which cost the state $179 million in its second year and is expected to grow as it continues to be phased in.
“It is a runaway train right now, and the state cannot continue to sustain this kind of push for tax dollars to go to private schools” while public schools struggle with staffing and other resource needs, Konfrst said.
Senate Democratic Leader Janice Weiner of Iowa City said the minority party will focus on ensuring that anything passed benefits Iowans most in need — “those who are on a fixed income, the middle class, and is not a further giveaway to the wealthy or corporations.”
What’s being proposed for property taxes?
A proposal by Iowans for Tax Relief, noting the example of the state income tax cuts, would limit local property tax growth to 2 percent.
While a 2023 reform bill added transparency to a complex tax system and limited cities and counties from increasing spending as a result of growth in property valuations, the advocacy group says further spending or budget limits are needed that apply to an entire local government budget.
“I understand that there are obligations that they have, but we all know because of the example we have set by the Legislature that they can do better and so we think it’s appropriate to put some spending limitations in this year,” Iowans for Tax Relief president Chris Hagenow said during a budget hearing hosted by Reynolds last month, according to Radio Iowa.
“I know that will be met with significant resistance,” Hagenow said, “but it’s time.”
Iowans for Tax Relief argues such a cap would allow for reasonable budget increases, curb excessive growth in property taxes and align local government budgets more closely with the financial realities of families and businesses. If additional spending is necessary, the cap could be exceeded with voter approval.
“This requirement ensures that any proposed spending hikes are thoroughly justified to the public, fostering transparency and accountability,” the group states. “By instituting such a cap, Iowa can ensure a balanced approach to property tax growth, promote fiscal responsibility, and maintain fair and predictable taxation for all residents.“
Chelsea Hoye, director of government affairs for the Iowa League of Cities, contends such a 2 percent cap does not provide enough flexibility for the diverse needs of cities across Iowa.
Hagenow, during the governor’s budget hearing, also urged lawmakers not to offset potential local revenue losses with state money, saying “the state should not be subsidizing the ongoing growth in local government spending,” KCRG-TV reported.
State lawmakers in 2013 cut certain property taxes based on property tax classification. Alongside the cuts, lawmakers authorized partial “backfill” payments from the state to local governments to make up for the lost revenue. In 2021, lawmakers decided to phase out the payments over five to eight years, ending in fiscal 2030.
Kaufmann said he will be “giving strong consideration” to Iowans for Tax Relief’s proposal, but would not commit to a cap. Whatever lawmakers do propose, Kaufmann said it likely will not include backfill payments.
“I would like to see a more systemic change than I would like to see a Band Aid, and especially not a backfill type of situation,” he said.
Grassley emphasized the need to look holistically at how much money the state already is contributing to local governments and how that money is being spent — rather than assuming the state will need to provide more funding if property taxes are reduced.
He said the state provides about $95 million annually to cover lost school property tax revenue due to local tax incentives used to pay for community improvement and economic development projects.
“What level of services do Iowans expect to have? Because I think we just assume that they expect every single service,” Grassley said. “But as property tax is becoming such a burden on them, we need to look at what are those absolute central services? Where are we seeing growth within those services? And what is the cost of the taxpayer in the growth within those services?”
Democrats cautiously supportive of further cuts
House and Senate Democrats said they are cautiously supportive of further property tax reforms.
Konfrst said that any proposal must ensure that property tax cuts do not lead to increased taxes elsewhere and not handcuff local governments’ ability to function and make decisions best for their communities.
“I want to make sure a property tax cut isn't just a shell game, and that people are really going to see a lowering of their budget overall, not just their property tax bill,” she said.
Weiner echoed Konftst, stressing the importance of involving local government officials in any reform discussions due to the complex and varied impacts on different communities.
“We're happy to work with our colleagues. We know that there are Iowans, particularly those on fixed income and middle-class, who are overburdened by property taxes right now,” Weiner said. “ … We want any reforms to benefit the people who need it the most, not the wealthy, and they still must allow communities to function, to provide public safety and other amenities that people need.”
Kaufmann said Republicans intend to avoid a one-size-fits-all approach, acknowledging that high-growth areas have different needs than rural communities where populations may be stagnant.
Grassley and Kaufmann said lawmakers intend to involve cities, counties and school districts to ensure adequate funding for essential public services and infrastructure. Kaufmann said he’s already had several productive meetings with local officials across the state.
What have lawmakers already done?
In 2023, Iowa lawmakers passed and Reynolds signed House File 718, which introduced major overhauls to the property tax system aimed at reducing future tax bills. Republicans estimated the changes would save Iowa taxpayers $100 million.
The proposal earned strong bipartisan support, passing in the Iowa House 93-1 and the Iowa Senate 49-0.
Among the law’s many provisions were limitations on local governments’ collection and use of several tax levies devoted to specific purposes, such as public library operations. HF 718 rolled the dedicated tax levies into cities’ and counties’ overall general tax rate, which are capped and where they must now be budgeted alongside all other services.
The law also limited the amount of new tax revenue local governments can capture from a growing tax base, and required certain information about property taxation to be provided to taxpayers and property owners.
The bill set triggers to reduce local property tax levies by certain amounts if valuation growth is 3 percent or more.
Lawmakers also passed a new $6,500 homestead property tax exemption for Iowa seniors and an $8,000 exemption for veterans.
While the law was meant to prevent cities and counties from seeing a windfall from rising property assessments, those with growing populations, new housing and industries are left to figure out to how extend public services to more people without being allowed to fully tap into that growth.
House Majority Leader Matt Windschitl, R-Missouri Valley, said lawmakers may look at changes to the 2023 law to address concerns about how the limits impact different communities.
“When we did House File 718, there was a knowledge that as we did that, that we would have to come back in and revisit property taxes in some future Legislature,” Windschitl told reporters last month. “So that's where we're at now, and we're going to have those conversations and it may be a one-year conversation and it may be a two-year conversation.”
Sen. Mike Bousselot, R-Ankeny, said further action is needed as property taxes have increased by an average 7 percent for counties, 6 percent for cities and 5 percent for school districts across the state last fiscal year.
“At the end of the day, property taxes are too high and they are constraining families’ ability to affordably stay in their homes, seniors ability to affordably stay in their communities and businesses’ ability to affordably expand in Iowa,” Bousselot said last month at the Iowa Taxpayers Association’s annual symposium.
Sen. Bill Dotzler, D-Waterloo, said legislators should take their time with reforms. To reduce the burden on homeowners, Dotzler said the state should instead look at ways to cover the cost for services that have been pushed down to local property taxes.
Bousselot contends lawmakers need to rein in what he sees as “unconstrained” spending and force local governments to find innovative ways to control and lower costs.
How have communities had to adjust?
Coralville City Administrator Kelly Hayworth was one city leader who had to adapt to the changes as the new law left the city government in a problematic budget situation.
Last year, Coralville had a 3.05 percent taxable valuation growth. But under the new law, that slight growth over 3 percent triggered a reduction of how much of that growth the city could capture — limiting it to 1.05 percent.
“That's what was really devastating last year and there's really no control or mechanism to know where you're going to be in that percentage, right? So it's just kind of an arbitrary number, and if you go over it, you receive the penalty,” Hayworth said.
Coralville was able to make some spending adjustments across departments, but Hayworth said limiting the amount of growth a city can capture puts some city services at risk.
“What it does is eliminate any of the optional things that you know we might do, and that's one of the things that we hear from the public a lot. They enjoy the trails and the parks and the things that we can do there, but those are the areas that we'll see the biggest decrease, because those are optional,” Hayworth said.
Hayworth said at the moment it’s unclear what, if any, changes the city will have to make during its yearly budgeting process, which is being finalized as the Legislature meets.
“It's something that's become a big issue for communities across the state, and there's a lot of discussion this year in regards to the legislative session, and what could will be considered in regards to property tax. And so that does have people very nervous,” he said.
Marion’s taxable valuation grew by 9 percent, but the city could capture only a portion of that under the new law — not enough to keep up with rising costs of services, insurance and personnel under collective bargaining agreements, said City Manager Ryan Waller.
As a result, the city spent down some of its cash reserves, but still managed to increase staff pay, invest in infrastructure improvements and lower its tax rate.
In recent years, Marion has implemented a zero-base budgeting process to ensure “greater scrutiny and more productive use of taxpayer dollars,” according to the city. Under the budgeting technique, all expenses for a new fiscal year must be justified, starting from zero, versus starting with the previous budget and adjusting it as needed.
The city also rolled out a high-deductible health insurance plan for its employees to lower costs, and explored partnering with the school district for joint purchasing of fuel and copier services.
In the last three years, the heads of three city departments have left. Instead of filling those positions, Waller said the city used the openings as an opportunity to groom and invest in new talent, hiring a human resources manager rather than replacing a director with a six-figure salary. The city also merged its engineering and public service departments, which reduced expenses by $250,000.
Waller, though, said he recognizes not all Iowa cities have been as fortunate, with some facing “pretty dire” situations.
He encouraged lawmakers to pass legislation that incentivize local governments to share services and collaborate, such as jointly purchasing goods and services that create economies of scale.
Waller as well said cities need additional property tax authority for public safety functions.
“And so when we look at the expense side, the property taxes that come in that we're able to levy for is not enough to cover … police, fire and our (911) communications,” Waller said. “So is there an opportunity to seek additional property tax authority earmarked specifically for our public safety functions? Like with parks and recreation, we have the ability to (collect) program fees, whereas public safety we're pretty limited.”
Attracting and retaining police officers remains a struggle, he said.
“We’re authorized for 48 positions, and of the last 40 months, we've been fully staffed only five of those” months, he said.
Iowa cities: More time needed to see impacts
Hoye, with the Iowa League of Cities, said its members are concerned about further changes, but understand lawmakers are hearing concerns about property taxes from voters.
Iowa lawmakers have been tinkering with the state’s property tax system for the past 12 years. Cities need time to see the impacts and plan accordingly, Hoye said, noting property taxes are the main source of revenue for cities, used to pay for essential services like public safety and road maintenance.
She noted local governments face the same inflationary pressures and pricing increases as Iowa businesses.
“So something like a firetruck, the cost of one has increased from $750,000 to $1.25 million in just the past three years. So these are big expenses that take dollars to pay for,” Hoye said.
Hoye said cities are open to conversations with lawmakers to improve efficiency and reduce duplication of services. They also want to see alternatives to tax caps that still provide tax relief but with more flexibility for cities “to have the tools and freedoms to find the best solutions for their communities and values.”
Kaufmann said he’s open to ideas like fee increases for local government services that have not been updated in decades, as well as providing more flexibility to allow cities and counties to use untapped revenue sources.
The House Ways and Means Committee chair emphasized collaborative, comprehensive solutions over temporary fixes. The goal, he said, is to pursue systemic changes rather than focusing solely on property tax cuts in order to find long-term solutions.
“I'm not just open to a cut. I'm open to reforms,” Kaufmann said. “If there's a more streamlined way to do it, if there's a more efficient way to collect taxes for our locales that they suggest, I'm open to that. I'm truly open to all ideas from all affected entities.”
Megan Woolard of The Gazette contributed to this report.
Comments: (319) 398-8499; tom.barton@thegazette.com
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