Later this fall, cities will begin developing their budgets under restrictions in Iowa’s new property tax law. The law is aimed at giving more certainty and stability to taxpayers, according to GOP lawmakers, while also reining in local government spending.
“Spending is what drives taxes — always has, always will. And the most reliable way to protect taxpayers is to limit the growth of government itself,” Gov. Kim Reynolds said in her 2026 Condition of the State address in January.
Under the new law, homeowners will have 10% of their home’s taxable value exempted from property taxes. For cities, general fund revenue growth will be capped at 2% each year, with some exceptions.
However, city officials say that while property owners may see marginal changes in their bills, residents could see reduced city services due to the new law.
IPR News spoke with a dozen cities across the state about how they’re handling the law and what challenges they are seeing from it. Here’s what we learned.
What are cities concerned about in the law?
The law places a 2% cap on city general fund revenue growth. This limits the overall dollars cities can collect in revenue. It does not mean the levy rate is capped at 2% or that residents' property tax bills are capped at growing 2% each year.
City general funds are their main funds that cover municipal services like fire, police, libraries and parks and recreation. They are largely funded by property taxes but also draw revenue from sources like utility franchise fees, hotel/motel taxes, state grants and reimbursements, and licenses and permits.
Last budget year, property taxes made up 54% of city general fund revenues in Iowa, according to the Iowa Department of Management.
A fiscal note on the property tax law estimates cities could lose $103.7 million in property tax revenue in the first four budget years after the cap takes effect.
New construction is exempted from the 2% cap, and levies for debt service, school funding, insurance, elections and employee benefits are also not subject to the cap.
Property coming out of economic development tools, like Tax Increment Financing and tax abatement, would not count as new construction, according to the legislation. City officials from Altoona, Pleasant Hill and Des Moines have said the law negates the financial benefits of using these tools.
The law also includes a 10% homestead exemption, which city officials said would further erode their property tax bases. The law also phases out reimbursement payments for local governments tied to the former homestead credit.
The Legislative Services Agency estimates local governments could see a $1.1 billion revenue reduction from the new homestead exemption and the phasing out of state reimbursement funds.
What steps are cities taking now?
A few cities IPR interviewed are currently taking steps to reduce costs, while others, including Dubuque, are waiting for further information on the impacts of the law before making budget decisions.
The city of Colfax, in central Iowa, will face a $60,260 shortfall and has been fixing fewer roads and donating less to county fireworks in efforts to find savings ahead of next year, said City Administrator Wade Wagoner. Future potential cuts include reducing city hall hours and cutting staff, which could lead to slower response times at city hall and the city applying for fewer grants.
In Pleasant Hill, on the east side of the Des Moines metro, the city has paused a tax abatement program, left public safety positions vacant and reduced library hours.
“We are annually evaluating, ‘What is the next thing that we could pull back on?' And we've done a handful of those things already that may or may not have been noticed by the public,” said Madeline Sturms, assistant city manager and community development director of Pleasant Hill. “But now we're reaching the point where we have run out of the things to cut that the public won't notice.”
Other city officials from Waukee and Mason City predict their cities will implement hiring freezes or hire city staff, including public safety positions, at a slower rate. It's a step Fort Dodge City Manager David Fierke said his city has already been practicing for years to keep costs low. Mason City administrator Aaron Burnett said it's partly a response to the state law and the pace of cost increases.
"A basket of goods purchased by municipalities is actually going up higher because you have to consider fire trucks are more expensive, police officers are more expensive, paramedics are more expensive, concrete is more expensive, steel is more expensive," Burnett said. "All of the things that we use to provide services — either labor, equipment or materials — all of those are going up at a higher clip."
Other cities, like Newton, are considering diversifying their revenue streams through additional fees. Newton is weighing a utility franchise fee to help fill a $500,000 to $600,000 budget deficit, according to Mayor Randy Ervin. A public hearing on the fee occurred before the property tax law was passed, but was brought up for reconsideration afterward, Ervin said. The fee is going to a public vote in March 2027.
Des Moines, Iowa’s largest city, is considering eliminating 40 full-time positions across 10 departments, as part of its initial budget recommendations presented Wednesday.
The recommendations also include adding or increasing fees, reducing park maintenance and programming, selling underutilized parkland and eliminating remaining mosquito treatment. Budget reductions for libraries would correlate to reduced library hours.
The city is facing a $12 million shortfall in the upcoming budget year that could grow by another $5 million the year after. At a public budget meeting July 9, City Manager Scott Sanders said the city will face a budget gap of approximately $4 million to $5 million every year under the law.
“This is not a temporary downtrend in the economy that we need to solve two or three years and we're good. It's the opposite of that,” Sanders said at the July meeting. “What we have with this new law is that it is limiting our every year thereafter revenues by that 2% to 2.5% [after taking exceptions into account].
The city also announced Wednesday that the property tax law was a factor in ending negotiations with developer Krause Group over a proposed professional soccer stadium and surrounding development. The announcement follows seven years of negotiations.
Officials from Mason City, Burlington, Exira and Forest City are not projecting budget shortfalls from the law at this time.
Why are cities feeling uncertain?
The property tax law, passed near the end of the 34-hour final stretch of the legislative session, is 75 pages in length, with 26 different divisions. The fiscal note on the law, which was issued July 15, models the impacts of each component independently, which the note states was due to the complexity and interdependence of the various parts of the law.
Sanders, with the city of Des Moines, said this gap in data can make it difficult to accurately gauge the comprehensive impact of the law. Taken together, the multiple divisions can have a compounding effect, he said.
“This one change on its own might have an impact A, but when you take it into consideration with 12 other changes, the magnitude of that change has now multiplied, sometimes by two or threefold."
Cities are also waiting for assessment values to be set Jan. 1, 2027, as they evaluate their property tax base, officials said. And they’re waiting on further guidance from the Iowa Department of Management on the law, according to Mickey Shields, deputy director of the Iowa League of Cities.
The guidance will be rolled out on an ongoing basis throughout the fall and winter during the budget process, an Iowa Department of Management spokesperson confirmed.
Asked about the lack of modeling before passing the bill, Sen. Dan Dawson, R-Council Bluffs, said he asked for feedback from local government associations on previous versions of the bill, which he acknowledged he received. But Dawson calls concerns about further modeling “a stall tactic.”
“We were not going to walk out without a property tax bill,” he said, referring to the 2026 legislative session. “It was a big table. Everyone had the opportunity to have a seat at the table there. But to say we should wait one more year. We've been working on this for three years, and there wasn't going to be another stall out year.”
Dawson said a committee to investigate unintended consequences of the law is not being formed, contrary to rumors.
How will this affect communities differently?
New construction is not counted under the 2% revenue growth cap. Officials point out that that means high growth communities will potentially fare better under the law.
Waukee, a Des Moines suburb with high growth, will be able to offset impacts from the home exemption by collecting on the value of new construction, according to Mayor Courtney Clarke. Low growth communities will not be able to offset their smaller tax base value with growth, she said.
Waukee estimates the homestead exemption will reduce the city’s revenue by $98 million. But new growth will add more than $124.5 million in revenue.
“We are growing and we get to capture the new valuation, that additional growth we get to tax, we get to levy taxes on, and so that helps make up for it for us,” she said. “We will still come out about even.”
Smaller cities’ budgets could be more exposed to revenue loss due to being more dependent on residential property tax and having fewer commercial properties to offset the impacts of the homestead exemption, Clarke said. Iowa has 937 incorporated cities, according to the Iowa League of Cities. Of those, 633 have a population of 1,000 residents or less, and 122 cities have populations of 100 or less.
Towns with aging populations could see further shrinking of their tax base due to more residents qualifying for senior homestead exemptions and elderly tax credits, according to Dubuque Mayor Brad Cavanagh.
“We are, at this moment, an aging state,” Cavanagh said. “I get the need and the desire to want to give a break to the people who have been in their home for a long time. You don't want people to be priced out of their homes. You don't want that at all. But it is going to make an impact on local funds and local services for sure.”
Will homeowners see a difference in their property tax bill?
Homeowners may see a difference in their property tax bill, but several factors are at play.
The earliest people could see changes from the law would be on their September 2027 property tax bill, according to city officials from Newton, Forest City and Independence.
A report from the free-enterprise Common Sense Institute estimates the law reduces the property tax burden statewide by $1,463 per household over its first six years, or an average of $20.32 per month for a household.
And homeowners will see an increase in homestead benefits. Under the new law, 10% of their home’s taxable value, up to $20,000 in value, is exempted from property taxes. The previous homestead credit was worth the same as a $4,850 exemption, which averaged to $167 in yearly savings for homeowners, according to the Legislative Services Agency.
The law also increases the maximum credit for tax credit and rent reimbursement programs for elderly and disabled residents. And it establishes the FirstHome Iowa Program, letting people invest money in a public trust for future qualified homebuyer expenses, while ending the creation of new Iowa First-Time Homebuyers Savings Accounts.
Some officials, like Waukee's mayor, estimate some residential property owners could see a modest reduction in their bill. However, all property owners could potentially see gradual reductions in their tax bill due to changes in the law to the school foundation levy, according to Waukee City Administrator Brad Deets.
Cavanagh, of Dubuque, estimates residents' bills could stay the same or increase slightly, despite possible budget cuts at the city level.
"The cost of providing services that people need, those that are legally required and those that are things that people just want, all those things are still going to be in existence,” Cavanagh said.
However, other officials, like City Manager Chad Bird in Burlington, said the law’s impact could vary from property to property. And, the complex nature of property taxes can make it difficult to gauge its effects on residents' bills, he added. Different taxing entities, assessment values and formulas at the state level contribute to property tax calculations, as do different property tax classifications and property tax credits and exemptions.
What other changes could taxpayers see?
The law updates annual property tax notices, so homeowners will have more accurate information about projected property tax increases.
Under the new notice, which is subject to final approval from the Iowa Department of Management, taxpayers will be able to see more clearly their property’s assessed and taxable value, any credits they’re receiving and actual and proposed taxes attributable to different taxing entities.
The previous version used a sample property that increased 110% in value to show proposed taxes, which cities say is higher than what residents would pay and subsequently caused confusion among residents.
Upcoming legislative session
As the next legislative session approaches in January 2027, city officials told IPR News that changing property tax legislation over the past decade has made it difficult for cities to plan and gauge the long-term effects of each piece of legislation.
“We need some level of consistency and certainty to be able to say, 'This is what the law is. These are your guardrails. Stay within those,’” Dubuque Mayor Cavanagh said during a work session on Aug. 3. ”We might not like them, and we might advocate to change them. But if we could at least have some guardrails that say this is what this is and help us to get moving.”
Bird, in Burlington, hopes the city can continue its strong relationship with state lawmakers to be a part of future discussions on legislation.
“We all want the same thing. I think that's the important thing, is that we all want a standard of living that's important to us that drives quality of life and growth in our communities,” he said. “So, how can we get there together? How can we better partner on some of these changes and just work together in that cohesive manner?”
Iowa’s next legislative session begins Jan. 11, 2027.
