House Study Bill 165, the House property tax reform bill, cleared its subcommittee hurdle Wednesday morning and will be submitted to the full committee according to Rep. Dustin Hite (R-Oskaloosa). It spurred much discussion around property taxes in the state of Iowa.
Jim Fitts of Urbandale retired in 1995. He built a house in 1993. When it was built, taxes were $3,000 a year. Today the property taxes are $6,492.
“That’s $541 a month,” Fitts said. “That’s a lot of money.”
The bill would establish budget limitations for counties and cities. It removes the property tax levy rate limitations on the general and rural funds for counties and on the general fund for cities and substitutes a limitation on the maximum amount of property tax dollars that may be certified for expenditure by a county or city for those funds for fiscal years beginning on or after July 1, 2020.
For the fiscal year beginning July 1, 2020, and subsequent fiscal years, the maximum amount of property tax dollars which may be certified for levy shall be an amount equal to the sum of the current fiscal year’s total property tax dollars certified by the county or city multiplied by an annual growth factor. An amendment to the bill that has not yet been adopted would set this annual growth factor at two percent.
The bill also allows counties and cities to annually certify additions to the maximum amount of property tax dollars to be levied following a public meeting, subject to a voter referendum, if requested by petition. Such additional amounts are not to be included in the computation of the maximum amount of property tax dollars for future budget years, so cities and counties are not permanently rewarded by exceeding the revenue cap.
In addition, the bill specifies certain requirements for ending fund balances for counties and cities. Budgeted ending fund balances in certain specified funds for a budget year in excess of 25 percent of budgeted expenditures shall be explicitly reserved or designated for a specific purpose.
Fitts said the legislature needs to look at all of its tax laws.
“Scrap all of your tax laws and start again and make them reasonable,” he said. “There are a lot of people in this state who are old like I am and cannot afford the taxes their paying and to me, that’s criminal. That should not happen.”
He’s from a big city on the east coast, he said, but he loves Iowa.
“It’s a great place to live, but the tax code needs to change. You need to start doing some serious thinking about the tax codes and go back and start again,” he said.
In 2004 he bought a Cadillac. Registration costs him $500 a year for it.
“A little piece of paper and something to stick on my license plate,” he said. “To me paying that much money for registration shows greed and envy. Somebody is doing well and you want to tear them apart. That is not right. That’s not American.”
Chris Ingstad, president of Iowans for Tax Relief, said his organization supports the bill. Property tax reform is the top priority for the group’s members.
“And while Iowa does have some property tax protections in place, these protections aren’t effective at keeping property tax bills in check, and property taxes have become unaffordable for too many Iowans,” he said. “Focusing only on the rate ignores the fact that assessments in many corners of the state have increased dramatically and in turn, have grown government revenue. These increased assessments have put property tax increases on autopilot.”
Revenues, Ingstad said, will continue to grow. He would just like to see that growth be closer in line with the growth Iowans experience in their incomes.
“Thirty-five states have some sort of local growth limit in place already,” he said. “Those states have shown that if local governments want to exceed the growth cap, voters might be willing to pay for it when the case is made to them, either on the ballot or through a process of hearings. It’s the transparency of tax increases that is important.”
Jennifer Kingland, a representative for Iowa Taxpayers Association, said their group is registered as undecided, calling property taxation complicated at best and confusing at worst. The group supports the overall concept as it incorporates some basic principles of tax policy that benefit both local governments and taxpayers. It promotes stability and allows more predictability, they said. A cap at two percent growth factor would help find a balance.
Lucas Beenken, who represents the Iowa State Association of Counties, Iowa State Association of County Auditors and Iowa State Association of County Supervisors said the groups are all opposed.
“Multiple reports indicated property tax was something heard on the campaign trail last year,” Beenken said. “I can assure you, especially county supervisors also hear those concerns and share those concerns. I don’t think county supervisors are getting any particular joy from asking friends and neighbors to pay their property taxes.”
But, he said, we live in a society where everybody has to pay for services people want and depend on. In many ways local governments are run like a business. They anticipate expenses and revenues.
“But unlike a business, there’s no personal gain for county supervisors,” he said. “They’re just simply trying to provide services that your shared constituents depend on at the local level.”
Some counties might benefit, but for counties that are growing, Beenken said it could hinder their efforts to match service delivery with increased population.
He suggested other ways to reduce the property tax burden. An additional one-cent local option sales tax and a local option income tax were two ideas he shared.
Gretchen Tegeler spoke as a citizen with background working at the intersection of state and local government.
“I appreciate your bill,” she said.
She called it a reasonable approach and said it would provide transparency on the actual revenue increase and help eliminate confusion between rates and revenue.
“Property taxes, particularly here in central Iowa, has eclipsed growth almost twice as much as personal income or inflation or population,” she said. “I do believe one of the reasons for that is the confusion between revenue and rate and the ability for people to say, ‘well, we kept the rate constant, therefore we’re watching out for property taxes.'”
Dustin Miller of the Iowa Chamber Alliance said they want to make sure community and city leaders have the tools and flexibility needed to react to local issues.
Kendall Kruse of Huxley said he and his wife are lifelong residents of Iowa. Newly married with stable jobs in management, they’re looking into the idea of home ownership. Property taxes, though, are a serious concern.
“While I do acknowledge property taxes provide states and communities with several services, the rate at which taxes are rising on us, it feels like they’re getting out of control and sometimes I feel like they’re getting unchecked,” he said. “With tax rates unchecked, at some point we’re no longer going ton be able to call Huxley or the state of Iowa our home any more.”
High property taxes also negatively impact efforts to lure employees into a community that already has incredibly low unemployment.
“I am a proponent of House Study Bill 165 because it’s going to give our citizens an opportunity to regulate their local elected officials,” he said. “Regulating for me usually isn’t a word I like to use in the form of government, however, when it comes to citizens being allowed to regulate what their officials are doing, I’m absolutely for it. This bill gives us the opportunity to do so.”
Don Petersen of Iowa Farm Bureau said since 2000 property taxes have doubled in Iowa. This year alone property taxes collected will be over $5.75 billion statewide.
Drew Klein with Americans for Prosperity is in favor.
“I think there is a lot of confusion around property taxes and how they work, especially among residential rate payers,” Klein said. “The reality is people don’t care what the levy rate is, they care about how much money they have to pay to stay in the home they bought to raise their family.”
Residential rates in the metro go up 10-15 percent consistently, Klein said. It’s almost impossible to restrain that kind of growth he said.
“I think this is a really common sense approach,” he said. “I’m sure you’ll continue to hear about the threats this poses and all the potholes that are going to appear, which is why you guys have created the release valve. If there’s a justifiable reason revenue should be growing faster than the proposed two percent, take that to voters out of respect for taxpayers in the state of Iowa.”
Democrat Rep. John Forbes (D-Urbandale) talked about the bill through the scope of his former role as a city council member.
“I had to balance my budget every year,” he said. “When I served on the city council in Urbandale I felt as though as an elected official in the city that my job was to provide the best services to my citizens at the lowest possible costs.”
His main focus was public safety. That means police and fire, which are two large chunks in city budgets. That means putting a two percent cap in growing cities could cause problems.
“It all boils down to quality of life in our communities,” Forbes said. “With quality of life, it costs money. I think the majority of people in this state are very proud of their cities.”
Citizens have the opportunity to replace local leaders in elections, he said.
“I’m a local control person,” Forbes said. “I believe that we should move as many things as possible to allow local government to make those important decisions for our communities.”