Lawmakers send property tax fix to Reynolds' desk

DES MOINES — A proposal to fix a state error in how property taxes are calculated — which cities, counties and other local governments say will leave them in a lurch — is headed to Gov. Kim Reynolds’ desk after House lawmakers passed the bill Wednesday.

The bill, Senate File 181, means Iowa property owners would be off the hook for about $130 million in taxes they would have otherwise paid under an erroneous assessment formula — but local governments would lose that amount from spending plans they now are in the process of planning.

Changes to property tax law in 2013 and 2021 changed multi-residential properties, like apartment complexes, to be taxed at the same rate as all residential properties.

However, no corresponding changes were made to the section of Iowa Code that defines the mathematical formula used to calculate the number used to establish the statewide taxable value for each property class subject to taxation by cities, counties, school districts, community colleges and other taxing entities.

The result: A higher percentage for residential property as a whole, because former multi-residential was included. That “rollback rate” — designed to cap the total taxable value for homes and farms from increasing more than 3 percent — was set at 56.5 percent when it should have been 54.6 percent.

Statewide, it means a swing of tens of millions of property tax dollars.

Local government administrators had unsuccessfully urged lawmakers to delay the fix or make up the shortfalls with state reserve funds so they can avoid for now cutting planned public services to fit the loss in revenue.

Wednesday, the proposal passed the House with mostly bipartisan support, 86-13. It passed the Senate unanimously Feb. 1, making it eligible for Reynolds’ signature.

Democrats proposed an amendment that would have shored up the lost funds using the taxpayer relief fund, which held a little over $1 billion as of last fall. The amendment failed a vote along party lines.

“This amendment is made to protect Iowa taxpayers, and what a better way to protect Iowa taxpayers than using the Iowa taxpayer trust fund to cover a mistake that was not local governments’ fault,” said Rep. Dave Jacoby, a Democrat from Coralville.

Rep. Bobby Kaufmann, a Republican from Wilton, said the bill had to be passed quickly to prevent the tax increase from going into effect, and the amendment would delay that.

Kaufmann said the bill does not mean local budgets have to be cut. He pointed to the fact that cities have cash reserves they can tap to make up for the shortfalls, and he compared the change to the government revising its revenue estimates lower than they initially expected.

“There will not be one dime cut from public safety due to this legislation,” Kaufmann said. “And if someone does choose to do that, that’s a local decision, it’s a poor local decision, and I don’t think that’s actually going to happen.”