Gov. Kim Reynolds signs $100 million property tax cut into law

Just hours after the Iowa House and Senate gaveled out for the last time in 2023, Gov. Kim Reynolds signed into law the property tax agreement GOP legislative leaders promised in January.

Reynolds said the plan, which lawmakers estimated would save taxpayers $100 million, was just a start.

“But even more important than what it accomplishes today, is what it lays the groundwork for tomorrow,” Reynolds said “… This is just the beginning of our work to deliver the property tax relief for hardworking Iowans what they need and what they deserve.”

Lawmakers sent House File 718 to the governor Tuesday with broad bipartisan support. The legislation is a compromise reached between House and Senate Republicans, who pursued distinct legislative proposals on how to limit property tax costs for most of the 2023 session.

Sen. Dan Dawson, R-Council Bluffs, who led much of the discussion on property taxes in the Senate this year, said Republicans met their goal to ensure local governments follow the state’s spending model: fund your priorities, but pass along excess revenues to constituents through lower taxes.

“It’s an honor to be part of a group who challenged the status quo in the state,” Dawson said. “What we do is, we seize broken government systems and we reform them. And Iowans made it clear our property tax system needs reform. ‘Too complex’ can’t be a reason for inaction and appraisal control can’t be excused to defend a broken property tax system.”

The legislation caps levy rates for cities and counties. Cities will have a general fund levy, consolidated from 15 existing levies, capped at $8.10 per $1,000 in taxable value. Counties have a cap of $3.50 per $1,000 for general services and $3.95 for rural services. Local governments are placed into three tiers based on their revenue growth with different formulas to determine how much of the excess revenue must be dedicated to lowering property taxes, and the process for bringing existing property tax rates down to those set maximums.

These caps — as well as the new $6,500 homestead property tax exemption for Iowa seniors and $8,000 exemption for veterans — will mean Iowans pay a smaller share on the assessed value of their homes, farms or businesses in future years. As Iowa homeowners saw a 22% average growth in home value assessments this year, these measures will mean larger reductions in costs for taxpayers.

Sen. Pam Jochum pointed out during Senate debate that Iowa homeowners should also rest assured they will not pay property taxes based on the assessment value reported on the letter they received from county assessors in April. Iowa has a “rollback” rate that limits the amount property taxes can increase in a year. A home valued at $100,000 would only pay property taxes on $54,000 of the house’s assessed value under the current rollback rate.

Even so, Democrats overwhelmingly supported the bill, arguing the property tax cut will do more to help lower- and middle-income Iowa families than the 2022 income tax cut. However, minority party members said they were keeping an eye on the affects of these tax code changes in Iowa communities.

Local government advocates told lawmakers the property tax cuts would limit their ability to fund essential services, including road maintenance and construction, emergency medical services and law enforcement.

House Minority Leader Jennifer Konfrst said Democrats would be watching to ensure “the people we’re trying to help don’t get hurt on the other end of the budget process” through cuts to city and county services they rely on. “So we’re going to be cutting property taxes for seniors and veterans, let’s make sure that they’re not losing services from their cities and counties in ways that are hurting them as well,” she said.

House Speaker Pat Grassley said the property tax bill was “the beginning of this conversation, not only about property taxes, but taxes as a whole for Iowans.”

“We understand the increased pressure from inflation, and we want to continue to provide relief through letting you keep more of your money, or sending more money back to you,” Grassley said at the bill signing Thursday. “And I think this is just one of those steps along the lines of continuing to provide certainty and relief for Iowans. I think you’re gonna see us hopefully standing here again next session in a similar position.”

Republican leaders said they want to continue working on property taxes in upcoming sessions, including finding ways for Iowa local governments to diversify their revenue sources. Dawson introduced measures changing local option sales taxes to a statewide tax as well as a measure to reduce and eventually eliminate Iowa’s income tax this session, neither of which advanced past the Senate committee process.

Reynolds told reporters she supported phasing out the income tax, pointing to 15 other Republican governors who named lowering income taxes a priority in 2023. She said these tax cuts, as well as the government reorganization plan she spearheaded and signed into law, show Iowa Republicans’ commitment to reducing the size and spending of government.

“I’ll say the same thing today as I said after signing each one of those tax bills: We are not done,” Reynolds said. “This is just the beginning of our promise to deliver the property tax relief for hardworking Iowans that they need and deserve.”