Cities say House GOP’s property tax plans will curtail essential services

Local government officials said Monday that law enforcement and essential services would suffer if the Legislature imposes the property tax changes under consideration in the Iowa House.

But Republican legislators and tax relief advocates said the measures will keep costs lower for Iowa taxpayers.

Two House subcommittees advanced separate bills to the House Ways and Means Committee.

One of the bills, Senate File 181, would fix an error from a 2021 property tax law, which caused the Iowa Department of Revenue to provide incorrect information to cities, counties and school districts as they made their budgets.

The error, related to the calculation of residential property values, would have raised property tax revenues up to $133 million. Correcting the error is expected to cost cities $39 million a year in lost revenue. School districts will collect $21.4 million less.

Law enforcement and public safety services can make up half or more of city and county budgets, advocates with local government associations said. If the bill passes, localities could take money away from Iowa police, sheriff and emergency medical service providers as officials figure out where to make budget cuts.

Rep. John Forbes, D-Urbandale, echoed calls from Senate Democrats to backfill the money local governments expected to receive due to the error. The Legislature needs to take responsibility for the “honest mistake” on the state’s part, in order to make sure Iowans still receive the services they depend on from local entities.

“Public safety will suffer. Response time will be affected,” Forbes said. “You know if you have yourself or a loved one that needs emergency services or some type of issue at your home, most likely it’s going to take a little bit longer. Because cities, if they have to cut budgets, most likely it’s going to come from public safety.”

Tom Sands, president and CEO of the Iowa Taxpayers Association, said it’s unfortunate that local entities’ budgets are impacted by this error. But, he said, the legislation took the correct approach by ensuring property tax owners aren’t burdened with an extra expense they shouldn’t owe.

“That’s why we have supported this legislation, because it’s the right thing to do and delaying it might be easy for some people but it’s not easy for the residential real estate,” Sands said.

Local government officials agreed the additional cost should not burden residents. But, they said, the bill does not address the issues the error the state caused as cities make their budgets.

“When we look at this bill, what we see is the potential for disruption of transparency, public engagement, and quite frankly, trust,” Robert Palmer of the Iowa League of Cities said.

Cities have already spent months working on their budgets with the incorrect information provided by the Department of Revenue, he said. In that process, cities solicited public feedback, held meetings and published notices which are required by law in order to move ahead with their proposal.

While the Senate amended the legislation to give local governments a one month extension in filing their budgets, Palmer said the extra time does not ensure the transparency and public engagement that the budgeting process should include.

The League of Cities asked for a one year delay on the bill. Lucas Beenkin, representing the Iowa State Association of Counties as well as County Auditors and Supervisors groups, also called for more time, telling lawmakers it’s important to acknowledge “the mistake was made at the state level, and recognize that the cleanup will be at the local level at the county level and other local jurisdictions.”

“So we simply ask that you recognize that, as we work towards fixing this mistake that was made: give the locals the time to do what they need to do in a very open, transparent and responsible manner,” Beenkin said.

Rep. Bobby Kaufmann, R-Wilton, recommended the legislation move forward, saying it’s a problem that “has to be fixed immediately.”

Conversation starts on bigger property tax changes

The other bill, House File 1, is the House Republicans’ proposal to reduce Iowans’ property tax costs by changing how local entities assess value and fund projects, in addition to adding new transparency measures.

The proposal would reduce all applicable school foundation property tax rates by $0.50. The bill would also limit the growth of individual property values to 3% per year in the absence of improvements that would enhance the value.

Local government representatives were also opposed to this bill. Public school advocates said some of the transparency measures would be burdensome for school districts, and that the $0.50 school foundation property tax rate reduction would put more of the cost of running public schools on the state government.

City and county lobbyists also cited problems with the valuation limitations proposed, which critics said would overturn Iowa’s current property tax system.

“Our property tax system is built on first finding the market value of property,” Beenkin said. “So a proposal … suppressing and not actually finding the market value, or finding the market value and then having a separate valuation, we don’t think is the right approach.”

Many taxpayer and real estate lobbyists were registered “undecided” on the legislation. While they supported the measures to lower property taxes, they said putting an artificial cap on property valuations could “distort” the tax liability for some property owners.

Market valuations establish an unbiased assessment of a property’s value, and creates a “fair and accurate” system for dispersing property tax liabilities evenly across taxpayers, Sands said.

Kaufmann said this legislation came out early in the session to make sure there was time to work with local governments, lawmakers in both chambers and the governor’s office to make a property tax bill that works for everyone. He said this legislation is getting the conversation started on how to best change Iowa’s property tax systems.

While he said he has no problem with criticism or calls for change for specific parts of the bill, he said he wanted critics to present solutions.

“The only thing I would ask, is: I’m ready to hear you come in with something better. Something that works. Because I’m not interested hearing well, ‘I don’t like that part. Take it out.’ I’m interested in, ‘here’s how we can achieve your goal,’” Kafumann said. “That’s the challenge that I will levy, no pun intended, to all of you.”

Senate Majority Leader Jack Whitver said last week that Republicans in his chamber are starting to work on property tax proposals that are “vastly different” than the bill House Republicans introduced.

” I think it’s pretty easy to assume that we’re a long ways apart on any kind of agreement on property taxes,” Whitver told reporters Thursday. “So if anything gets done with property tax, it’s probably going to be a much longer process and drawn out more similar to typical tax debates around here.”