The Iowa Legislature is currently considering a bill, HSB165, which has raised concerns among local communities. The bill proposes a 2 percent cap on the growth of property tax levies every year, which could significantly increase state control over the budgeting decisions of locally elected city councils and county boards. The proposed cap is not based on any concrete data or analysis of the needs of different communities and would be applied uniformly to all municipalities, regardless of their size or level of development.
The proposed legislation could hinder the ability of cities and counties to accommodate growth, particularly in areas where affordable workforce housing is needed. The needs of different communities can vary significantly based on factors such as population growth, natural disasters, and the loss of major employers. Therefore, imposing a one-size-fits-all approach is problematic and could stifle local development.
Additionally, property taxes in Iowa have been stable over the past two decades, with an average of around 1.9 percent of personal income in the cities and counties targeted by the legislation. This level is significantly lower than the 4.0 percent to 4.5 percent that prevailed for the previous two decades. As such, the proposed cap is unnecessary and would not address any rising property taxes since the problem does not exist.
The bill would also force cuts in public services, as employee benefits that are currently financed by a “trust and agency” property tax levy would instead become part of a city’s general fund subject to the 2 percent cap. Counties would also be forced to include employee benefits under the cap, and this could lead to further cuts in public services.
The bill’s allowance for counties and city councils to propose exceeding the 2 percent growth limit for up to two fiscal years is not sufficient. A petition signed by 2,000 voters or 20 percent of the persons who voted in the last presidential election, whichever is less, would force a special election to be held, and the measure to exceed the limit would be approved by a simple majority vote. This mechanism is cumbersome, costly, and undemocratic, as it would shift budget decisions to a small percentage of voters, some of whom may have special interests to serve. This plan would undermine local democracy and reduce residents’ ability to participate in local government decisions.
The bill would also create an incentive for cities to issue Tax Increment Financing debt, which would disproportionately impact rural residents in the surrounding county. The bill would also create an incentive to maximize the use of fees and local option sales taxes, which would fall disproportionately on lower-income households.
In conclusion, the proposed bill, HSB165, is unnecessary, arbitrary, and undemocratic. It would impose unprecedented state control over the budgeting decisions of local, democratically elected city councils and county boards. The proposed 2 percent cap on property tax levies is not based on any data or analysis of the needs of different communities, and it would limit the ability of localities to accommodate growth, particularly where affordable workforce housing is needed. The bill’s allowance for counties and city councils to propose exceeding the 2 percent growth limit is not sufficient and would shift budget decisions to a small percentage of voters. Iowa’s property taxes have been remarkably stable over the past two decades, and there is no need for such a bill. The Iowa Legislature should reject this bill and instead seek to promote local democracy.