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Property tax assessments hit the mailboxes and the news this month and given such extraordinary (10 – 20 percent) increases, many people are fearful about what this will mean for their property tax bill.  And rightfully so.  Property taxes often operate on “autopilot,” where local government taxing entities simply leave the property tax rate the same year after year and collect from taxpayers the increases that come automatically from a constant rate applied to growing property assessments.  In a year like this one, the impact on taxpayers can be dramatic, even though local officials say they are “holding the line on taxes.”

The Taxpayers Association of Central Iowa has long encouraged local elected officials to shift the focus from a constant property tax rate ($ per $1,000 of taxable value) to the actual revenue that is needed for a given budget year.  If assessments grow so much that a constant rate generates more than is needed, the rate should be reduced.  Assessments are after all only step one in the process.  The real decisions are made by the local governments when they put a budget together and choose what to do with the growth.  Decisions vary in any given year, but over the long term, we believe the over-emphasis on keeping a constant rate has led to property taxes growing much faster than inflation, population, household income, and even state revenue.

 

property tax rate, tax revenue

 

 

In HF 773, the Iowa House has proposed a modification in the annual local budget process to improve transparency around property tax increases.  Even if the proposed rate is constant, in the event an increase of more than two percent in revenue is being sought by a city or county, some specific disclosure requirements would kick in.  The government would have to disclose the amount and purpose for the increase; hold a public hearing about it and consider input, and ultimately vote on a resolution to approve any increase above the two percent trigger.  The bill includes a “reverse referendum” process, whereby a citizen could petition for a vote to overturn the increase.  However, the level of effort required is so great, the opportunity is really just theoretical, not practical.

The bottom line is HF 773 is a property tax transparency bill, not a property tax cap.  The bill is certainly confusing to read; and if not read far enough in, perhaps one might conclude it is a hard cap.  Although nothing could be further from the truth, the level of misinformation being circulated about this bill is beyond the pale.  The same false statement is being used repeatedly (i.e. “It would impose an arbitrary annual cap on the growth of property taxes, regardless of rising costs or the needs and wishes of residents and stakeholders.”), and dark scenarios are being conjured such as “threatening the future of IPERS” or “hindering flood relief.”

Ironically, the Iowa Senate has recently released a bill (SF 634) which does place a hard limit on property tax revenue growth.  For all the teeth-gnashing and misinformation around the House version, the Senate goes far beyond a mere transparency trigger.  Perhaps now the House bill will be seen for what it is.

In summary, the House legislation contains a property tax growth trigger beyond which certain disclosure requirements kick in.  It does not constrain local governments from doing what they need to do; it simply requires them to disclose and explain it.  We believe these simple actions will clear up the confusion around a constant rate, and shift the focus to what’s actually being asked of property taxpayers.  The result will be more deliberate local budget decision making and a flatter curve on future property tax increases.

House Proposes Property Tax Transparency

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