SEN. SALMON: Legislature Adjourns – Part 3

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Below is Part 3 of the bills and budgets that the Senate passed in the final week of the legislative session which adjourned on May 3^rd, 2026.

Legislature Passes Property Tax Reform

The House and Senate came to a compromise agreement on property tax reform and it was one of the last bills passed before the session adjourned.

Iowa is the 10^th worst state in the country for property tax burdens. We have heard from a number of people on this issue. This property tax reform bill will save $4 billion in property tax relief for Iowa homeowners over the next 6 years. Plus, it should move Iowa up against other states in the rankings on property taxes.

Here are the provisions of this final package:

1. Homeowner Tax Break – Provides the homeowner a 10% discount on the taxable value of your house, adjustable for inflation, not less than $5500 and up to a maximum of $20,000. Phases out the homestead credit. Phases out the state funding to local governments for the homestead credit. The funding will be used for direct property tax relief.
2. What Stays in Place – Leaves in place the current senior and veterans exemption and the rollback system.
3. Renter Tax Break – Increases the Elderly and Disabled Rental Credit to $1500.
4. First-Time Homebuyers – Creates First Home Iowa accounts for first-time homebuyers. Works similar to a 529 plan.
5. Revenue Limits for Cities & Counties – Puts a 2% cap on the increase in rate-capped levies for cities and counties; this is aimed at controlling the cost of general operating funds, (excludes pensions, health insurance, employee benefits, tort, etc.) Provides for new growth within the community. Repeals HF 718. This sets limits on one of the primary drivers of property tax increases, which is local government spending. It still allows for flexibility for costs out of local government control so that they can still provide the services Iowans expect.
6. Levies – When property value inflation goes up more than 2%, (excluding new growth and construction) the levy rate automatically goes down.
7. Business Property Tax Credit – Repeals the Business Property Tax Credit reimbursement to local governments in FY 28. The funds will be directed to the Taxpayer Relief Fund.
8. Schools – The formula for distribution of the SAVE dollars (Iowa sales tax designated for schools) is adjusted so a greater percentage will go to provide property tax relief. Extends SAVE to 2071.
9. Schools – The uniform levy of $5.40 that schools use is lowered to $4.90, which lowers the amount of property taxes to fund schools. The difference is made up in state aid.
10. 10.Multi-Residential – Reinstates multi-residential property as its own class. Phased in, multi-residential property will be set 6% higher than the residential rollback.
11. Assessments – Shifts burden of proof for residential property values from homeowner to assessor for properties that experience a 10% valuation increase. Requires assessor to justify the increase.
12. Statements – Requires a new and more detailed and clearer taxpayer and local government budget statement to be provided to the taxpayer based on their property.
13. Reserves – Places enhanced restrictions on local government general fund reserve balances to 35% of budgeted expenditures and is to be audited. Schools have their own provisions.
14. Tax Increment Financing (TIF)  – Any new TIF going forward is limited to 23 years. This ends perpetual TIFs for the future. Any perpetual TIFs that currently exist will have limited usage after 20 years.
15. EMS – Allows EMS levy to increase to $1.50 from its current amount of $.75.

Water Quality Funding Update

Iowa has made great strides in water quality since the Nutrient Reduction Strategy began in 2014 and since 2018 when major funding was dedicated to addressing this issue. This past session funding for water quality was totally revised to distribute the monies in a way that better reflects the water quality needs we are seeing today. This change came due to constituent feedback we have been getting.

Iowans are already paying a water excise tax to fund water quality programs and this new funding distribution will not increase that tax. It will change around where the monies go so that the most urgent needs and most effective programs are funded.

There will be $18 million ($8 million one-time and $12 million annually for a $176 million total over 12 years) for the Iowa Finance Authority’s program to help communities upgrade wastewater treatment and drinking water infrastructure. About half of this money is for communities of 11,000 population or less. The maximum award is doubled from $500,000 to $1 million.

Central Iowa Water Works will receive a one-time $25 million amount to expand its nitrate removal system, doubling treatment capacity over the next 3 years.

There will be an additional $3.7 million annually ($52 million total over 12 years) to scale-up rural conservative practices in targeted areas especially in need, like the Central Iowa Water Works service area. These conservation practices include buffer strips, cover crops, bioreactors, wetlands, grassed waterways, etc. on farmland.

Farmers have been actively and voluntarily participating using the conservation practices outlined above to prevent soil erosion and improve water quality by filtering out nitrates and phosphorus. In 2024, Iowa farmers planted nearly 4 million acres of cover crops, up from fewer than 400,000 just a decade ago. Farmers have built over 150 wetlands and 500 buffers statewide and the pace is accelerating. These conservation structures reduce nitrate runoff.

There will be about $2.8 million annually ($42 million total over 12 years) for urban water quality projects, such as stormwater wetlands.

Large cities such as Cedar Rapids and Sioux City have constructed or are in the process of building Biological Nutrient Removal systems as outlined in Iowa’s Nutrient Reduction Strategy. These are working to meet nitrate and phosphorus reduction goals.

An additional $500,000 yearly ($6 million total over 12 years) will be available to the DNR for water quality monitoring. This brings the total that would be spent yearly on water quality monitoring to $3.5 million. This can be used for continuous monitoring sensors. DNR has been monitoring and collecting this data for more than 25 years following the guidance and protocols outlined by the EPA.

Big Picture: What the state is doing currently is spending $100 million annually on water quality programs. About half supports rural conservation practices on farmland. This state funding is matched by nearly $500 million annually from the federal government and more than $31 million from farmers, landowners and other organizations.