The issue of rapidly escalating property tax burdens is a concern for both individuals and businesses across Iowa. It is important to remember the ultimate source of high property taxes is excessive local government spending. Unless spending is controlled, any property tax relief will be limited.
The objective of real property tax reform should not be to single out certain classes of property or to favor one group of taxpayers over another, but rather it should ensure all Iowans receive tax relief.
How can Iowa lawmakers provide property tax relief for all Iowans? One elegant policy idea comes from Utah’s Truth in Taxation law, which is considered the gold standard for property tax reform. Utah’s policy successfully provides both transparency and accountability to what can otherwise be an extremely frustrating and complicated process for taxpayers. Too often, local governments take advantage of informing taxpayers that they have reduced rates, but after corresponding assessment increases, many times taxpayers are left wondering why their property tax bill has significantly increased from the previous year. This method of hiding tax increases through assessment-driven measures that never receive a public hearing or vote is unfair and dishonest.
States across the nation are starting to pay attention to massive assessment-driven property tax increases and looking for solutions. New model Truth in Taxation policy from the American Legislative Exchange Council was developed by legislators in Kansas earlier this year. It was overwhelmingly approved by bipartisan majorities in both legislative chambers. Unfortunately for Kansas taxpayers, due to several factors, their version of Truth in Taxation will be delayed until 2021.
During the 2019 Iowa legislative session, lawmakers passed a property tax accountability and transparency law. This law requires local governments such as counties and cities (school districts were not included) to hold a public hearing if the proposed budget increases more than two percent above the previous year and requires a supermajority vote for the increase to be enacted. This two percent “soft cap” is meant to control the growth of property taxes and requires local governments to provide more transparency within the local budget process. Iowa’s property tax accountability and transparency law is partially based upon Utah’s Truth in Taxation law, but Utah’s law is more extensive.
As valuations increase under Utah’s Truth in Taxation law, property tax rates decrease. “This automatic reduction in property tax rates prevents local governments from getting a windfall simply because valuations of existing properties have increased,” wrote Howard Stephenson, president of the Utah Taxpayers Association and a former member of the Utah Senate.
At the heart of Utah’s Truth in Taxation law is an extensive public notification and hearing process that is required if a local government wants to increase tax rates or assessments. Truth in taxation also forces local government officials to take recorded votes to approve an increase in tax collections. Through the Truth in Taxation process, local governments must justify why they want to increase taxes for additional spending, forcing them to be more transparent as to why they need additional tax revenue.
A crucial aspect of Utah’s law is a direct notification requirement through which notices are sent to taxpayers, providing information on the proposed tax increase. It also includes the date, time and location of the Truth in Taxation budget hearing. This extensive public notification and hearing process has been successful and taxpayers in Utah actively participate in Truth in Taxation hearings.
“While Truth in Taxation does not technically limit property taxes in a direct sense, it makes local elected officials think twice about increasing property taxes rates because they know all citizens will be notified of the increase and its potential impact on their property,” said Stephenson.
Strengthening Iowa’s property tax accountability and transparency law will help all taxpayers. Thankfully, Utah has proven the effectiveness of the Truth in Taxation model, which controls the growth of property tax burdens, drives real participation in the process of local spending decisions and, most importantly, serves the interests of the taxpayer.
John Hendrickson is policy director for TEF Iowa and Jonathan Williams is chief economist and executive vice president of policy for the American Legislative Exchange Council.