Iowa — The Iowa legislature passed House File 718 and Senate File 2442, promising to cut property taxes for constituents.
The reform passed in 2023 and 2024, capping rates at $3.50 for counties and $8.10 for cities.
While tax cuts are popular, many cities and counties are now facing tough financial challenges.
Lucas Beenken, a public policy specialist with the Iowa Association of Counties (ISAC), says about a third of counties, including those in southeast Iowa were already over the cap before the legislation passed, and others believed they could reduce their rates with property valuation growth.
But as Beenken explains, “If you have a valuation over certain thresholds, your levy rate is driven down. So as I said, we know this is a multi-year process, but we’re starting to see some of those unintended consequences. The one-size-fits-all approach does not fit.”
In Ottumwa, Finance Director Cole O’Donnell says taxable growth was capped at just 7.77%, limiting the city’s ability to capture more revenue.
Under the reform, the city faces a $450,000 loss in FY 2024 after eliminating three levies, while still needing to provide the same services.
He says the city is working to make small cuts each year to the tax levies rather than one large one in FY 2029 when the full effects of HF 718 will be felt.
Rural counties like Van Buren are also feeling the pinch.
Van Buren County Supervisor Dale House says they have had to make tough decisions, leasing county land, freezing raises, and making other adjustments to stay within budget.
At a recent ISAC conference, House spoke out about the struggles of many rural counties.
“I brought up the fact that we were struggling and, come to find out at that point that we weren’t alone,” he said. “And found out that there were a lot of other counties that wondered if they were alone.”
House says they had worked hard to keep property taxes low for their residents but now find themselves financially stretched.
“We didn’t build up a big nest egg and by doing that, it kind of bit us. Now we’re recovering from it.”
To address these challenges, ISAC has outlined three legislative priorities:
First, they call for funding or fees for state-required services to match the actual cost of providing those services.
Second, a need for equity and accountability in the cost-sharing arrangement between the state and counties.
And third, the option to explore revenue replacement or sharing to protect essential services.
But some local officials, like O’Donnell, feel their concerns are being ignored.
He said, “I believe that one of our local representatives is responsive to our concerns and has taken those concerns, and ideas, to leadership. As far as the leadership in the legislature, they are dismissive of our concerns. While there is a bill currently in the legislature that would allow the library levy to be reinstated by a vote of the people, there are indications that leadership will be introducing legislation that would further constrict property tax collections.”
As local governments try to balance tax cuts with shrinking resources, all eyes are on the state legislature for potential fixes.
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