“What I’ve worked 50 years to build up, they’re taking away from me. Pie in the sky assessments allow government to grow and prosper way beyond what property owners and other taxpayers can afford.” These are comments a retired Iowa veteran recently sent to us and the data backs up his claim about affordability. Since 2000 total property tax revenue across the state of Iowa has increased over 100%. Over that same time, the cost-of-living adjustment (COLA) provided to Social Security beneficiaries has only increased by 46%. This growing property tax burden is painful to all Iowans and especially to our retirees.
The property tax bills recently received by Iowans continue to increase. Many local governments have avoided hiking property tax rates, instead relying on increased assessments to drive property tax revenue higher and higher. Iowa’s current property tax structure does contain some property tax protections in the form of a valuation rollback and a 3 percent statewide assessment limitation, but these protections have proved ineffective at keeping property tax bills in check.
What many elected officials misunderstand is that it’s the revenue, not the rate, that matters. The Iowa legislature can help provide taxpayers with property tax relief by establishing a revenue limit on property tax growth. A property tax revenue limit would not interfere with the assessment process, but it could control the growth of property tax bills, while ensuring that local governments continue to have enough revenue to fund their priorities. Property taxes, as with any tax, must not be excessive; property owners should not be punished just for owning property.
Perhaps the most effective property tax limitation would “apply to increases in total tax revenue (property taxes and other types of local tax revenue) or aggregate spending.” The revenue limit could be based on a fixed percentage, or population growth plus inflation, or the Social Security COLA. A revenue limit would help solve the problem of taxpayers receiving a dramatic increase in their property tax bills because of higher assessments.
New York and Utah are two examples of states that are successfully limiting the growth of property taxes. Both focus on the revenue side of the property tax equation and they provide mechanisms for additional revenue if approved at the local level. New York established a “property tax cap that limits the annual growth of taxes levied by local governments and school districts to two percent or the rate of inflation, whichever is less.” In addition, the New York provision allows taxpayers to override the cap if 60 percent of voters approve an increase if it is a school budget issue or a super-majority vote of a county or city governing body can override the cap. This empowers taxpayers with the decision to allow a tax increase. The Empire Center for Public Policy estimates that since the caps were enacted in 2011 they have saved taxpayers close to a billion dollars.
Utah’s approach to controlling property taxes is somewhat different than New York’s. Utah utilizes a “truth in taxation” system and local governments can only budget the same amount of property tax as the preceding year. That state’s truth in taxation policy requires an extensive public notification and hearing process that not only notifies citizens of the intent to raise taxes, but also explain why additional revenue is needed.
The purpose of truth in taxation is to provide “notification, disclosure, and the elimination of automatic property tax increases.” In describing the importance of truth in taxation the Utah Taxpayers Association argues that “local governments should not receive an automatic 12 percent revenue increase simply because property valuations increased 12 percent.”
Iowa property taxpayers deserve both relief and transparency. New York and Utah provide instructive examples for Iowa legislators to consider. A property tax revenue limitation in Iowa’s code will help keep local government from growing “beyond what property owners and other taxpayers can afford.”