Iowa Senate lawmakers advanced a second draft of Iowa Republicans’ proposed property tax overhaul that would make the largest changes to the state’s property tax system since the 1970s.
The bill, Senate Study Bill 1227, would make a number of reforms to the property tax system, but it is a second draft of the changes Iowa lawmakers are considering for the property tax system after they unveiled a first draft in March.
The bill would eliminate the state’s rollback system by first eliminating it for all property classifications except residential, which would have its taxable value capped at 75 percent of the assessed value, and then over 10 years would gradually phase out rollback completely.
The bill would also give a 25 percent discount on taxable value via the homestead tax credit up to $125,000 off the taxable value of the property. Also, the bill caps local government’s budget growth at 2 percent per year and allows for higher increases if inflation goes above 2 percent.
Iowa Republicans marked property tax relief as a key priority for this legislative session.
The head of the Iowa Senate Tax Committee Sen. Dan Dawson, R-Council Bluffs, who also authored the bill, said the bill is still a work in progress, and they want to get more input before getting a bill to the floor.
“I think that this is darn near close to threading the needle between small communities, large communities, property poor, property rich, and not having a one-size-fits-all approach to this homestead, which I think really is going to help us drive and reform the system in the end,” Dawson said.
Nate Ristow, with the Iowa Taxpayers Association, said the bill should consider incentivizing local governments not using the full 2 percent increases, allowing them to roll it to the next year, to keep levy increases low.
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Dustin Miller, representing the Iowa Chamber Alliance and some local governments, said the inflation portion of the bill was concerning for local governments that might not be able to capitalize on growth in their communities and disincentivize development.
“We want to make sure that new growth language is correct because I think that’s important from a pro-growth standpoint,” Miller said. “What we don’t want to do is penalize those communities that are growing, and then certainly, we don’t want to impinge any existing deals that are out there.”
Mike Owens, with Common Good Iowa, said the bill’s authors should take the summer to get more feedback from Iowans rather than rushing the bill to close the session.
“We think it’s good to have a new draft, but it would be best used for hearings that are held throughout the state, throughout the summer and fall, to get a full range of views on the impacts of this legislation,” Owens said.
Iowa Sen. Janet Peterson, D-Des Moines, said the bill was moving in the right direction on providing relief to Iowans, but she would like to make sure there aren’t major impacts to school budgets as a result.
Under the bill, the state general fund would pick up the tab for about $400,000 that property taxes previously paid for.
“So, we need to proceed with caution when we say the state’s going to pick up a portion of the tab on the school for our schools,” Petersen said. “So, that’s one area I’m really wanting to make sure that we’re in a decent spot for that, so that our allowable growth and school budgets don’t take a hit on that.”
The bill now heads to the whole Senate committee for consideration on Thursday.