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Iowa Senate passes a bill to avoid property tax increase, raising concerns about local budgets

the iowa senate chamber
The Iowa Senate unanimously passed a bill Wednesday that would avoid an unintentional property tax increase.

The Iowa Senate unanimously passed a billWednesday that would avoid a looming residential property tax increase of up to $127 million and leave local governments with less money than expected.

Lawmakers said the Iowa Department of Revenue made a mistake that the legislature is now forced to fix to avoid an unintentional property tax increase, leaving cities and counties scrambling to adjust their budgets or raise local taxes. But a spokesperson for the department said the DOR followed the law for calculating assessment limitations and publishing the results.

Sen. Pam Jochum, D-Dubuque, proposed an amendment to the bill that would use state funds to fill the gaps in local budgets.

“It takes responsibility for a mistake state government made,” Jochum said. “It is not putting it on the backs of our cities and counties, and our taxpayers are going to get that reduction in their property tax bill.”

The Republican majority rejected the amendment.

Sen. Dan Dawson, R-Council Bluffs, said he doesn’t want to take responsibility for all the decisions local governments make, and said some are wasteful.

“This is a mistake, and I absolutely agree on the process,” Dawson said. “But the policy is, we have to live within our means. And we cannot take responsibility by backfilling local governments here with monies that could otherwise be used for better structural reforms for our state.”

Sen. Molly Donahue, D-Cedar Rapids, said local leaders were working within with the numbers they were given by the DOR.

“This isn’t about them living within the budget, because they were given the wrong budget,” Donahue said. “This is kind of a disaster for them, and [there’s] not a lot of time to fix it.”

She said this would hamstring local governments’ ability to hire and retain police officers and firefighters.

On Monday, Pleasant Hill Mayor Sara Kurovski asked senators to delay the property tax fix for a year.

“All of us know in these inflationary cost times, it is very difficult to keep up the pace with these costs while providing these services,” she said. “And if this bill cannot be fixed or even give us a year to prepare correctly, what this means to us, our city, is a reduction of $200,000 from our general fund, leaving us with only $47,000 in revenue growth from last year.”

Kurovski said that as a fiscal conservative, she does not want to use reserve funds to cover ongoing expenses.

Republican senators also rejected that request. Dawson said he didn’t want to punish residential taxpayers with an unintentional increase this year. The bill would extend local governments’ March 31 budget deadline to April 30 to give them more time to make changes.

How lawmakers ended up with this bill

The issue stems from a law passed in 2021, proposed by the DOR, which combined residential and multi-residential properties into one property class. The legislation did not change a separate part of Iowa law that sets the formula for calculating the property tax “rollback” rate.

The DOR published that “rollback” rate in late October, which local governments use to create their budgets for the next fiscal year. And in early November, an analyst with the Legislative Services Agency notified the DOR that their calculation would lead to a significant statewide property tax increase.

The LSA analyst published a memo Nov. 16 detailing his findings.

Democratic senators said the whole problem could have been prevented if the DOR had owned up to its mistake soon after discovering it.

Instead, Gov. Kim Reynolds’ office introduced the bill to prevent the property tax increase on Jan. 18, when local governments were well into their budget process that includes public hearings and notices.

The DOR spokesperson did not respond to IPR’s questions about if and when the department took steps to notify local governments about potential revenue changes.

Dawson said at a Monday subcommittee hearing that there should have been better communication.

IPR asked him who should have been doing that communication.

“I’d say there’s probably, you know, even from a legislative standpoint, you know, maybe we could’ve been communicating this more,” Dawson said. “I mean, probably a variety of persons.”

Dawson said the discussion around this bill is a preview of future discussions about broader property tax system changes meant to provide relief to taxpayers, a priority Republican lawmakers set for this legislative session.

Katarina Sostaric is IPR's State Government Reporter