Get Educated

Stay up to date with email updates

Issue Guide

Property Taxes Are Quickly Becoming Unaffordable

posted on January 2, 2019

“What I’ve worked 50 years to build up, they’re taking away from me. Pie in the sky assessments allow government to grow and prosper way beyond what property owners and other taxpayers can afford. “

These are comments from a retired Iowa veteran and the data backs up his claim about affordability. Since 2000, total property tax revenue has increased over 100%. Over that same time, the state’s General Fund has increased by 60%, population growth and inflation have combined to increase by 56%, and the cost-of-living adjustment (COLA) provided to Social Security beneficiaries has only increased by 46%.

Property taxes are quickly becoming unaffordable for too many Iowans. The property tax bills received by Iowans last fall continued to increase. Many local governments have avoided hiking property tax rates, instead relying on increased assessments to drive property tax revenue higher and higher.

What many elected officials misunderstand is that it’s the revenue, not the rate, that matters. The Iowa legislature can help provide taxpayers with property tax relief by establishing a revenue limit on property tax growth. A property tax revenue growth limit would not interfere with the assessment process, but it could control the increase of property tax bills while ensuring that local governments continue to have enough revenue to fund their priorities.

Perhaps the most effective property tax limitation would apply to increases in total tax revenue (property taxes and other types of local tax revenue) or aggregate spending. The revenue limit could be based on a fixed percentage, population growth plus inflation, or the Social Security COLA. A revenue limit would help solve the problem of taxpayers receiving a dramatic increase in their property tax bills because of higher assessments. Focusing on anything other than the radical growth of the budgets of local governments misses the root of the problem.

New York and Utah are two examples of states that are successfully limiting the growth of property taxes. Both focus on the revenue side of the property tax equation and provide mechanisms for additional revenue if approved at the local level. New York established a “property tax cap that limits the annual growth of taxes levied by local governments and school districts to two percent or the rate of inflation, whichever is less.” In addition, the New York provision allows taxpayers to override the cap if 60 percent of voters approve an increase. The Empire Center for Public Policy estimates that since the caps were enacted in 2011 they have saved taxpayers close to a billion dollars.

Utah’s approach to controlling property taxes is somewhat different than New York’s. Utah utilizes a “truth in taxation” system that requires local governments to only budget the same amount of property tax as the preceding year. This policy requires an extensive public notification and hearing process that not only notifies citizens of the intent to raise taxes, but also explains why additional revenue is needed.

The revenue growth limits that both of these states utilize help protect property owners from huge tax increases due to increased assessments. In describing the importance of truth in taxation, the Utah Taxpayers Association argues that “local governments should not receive an automatic 12 percent revenue increase simply because property valuations increased 12 percent.”

A property tax revenue limitation in Iowa’s code will help keep local government from growing beyond what property owners and other taxpayers can afford.