Property taxes are a terrible way to fund a government. I would like to do away with them altogether. The amount that you are required to pay is based on someone’s subjective appraisal of what your property is worth.
Because you have to live somewhere, property taxes especially burden the elderly and poor, people who can least afford to pay them. And as a business owner, I can tell you that property taxes can be a real drag on businesses.
The Iowa legislature over the last few years has made a pathetic mess of the property tax system in Iowa. They have tinkered with it almost every year by using “rollbacks†and “back fills†and imposing limits on the value of a property that can be taxed and a whole lot of other things to try to make the system more fair or to limit local government spending. The system is so complicated now that even a rocket scientist can’t figure it out.
So I have to commend the Republican majority in the legislature for trying to “reboot†the property tax system in Iowa. Of course, the devil is always in the details, and whenever any legislator says “reform†I get worried that the end product will be even worse than what we currently are saddled with.
Property tax reform is a work in progress. But the current proposal would eliminate many of the more complex calculations such as the “roll back†— based on statewide increases in valuation — and replace it with a 2% cap on revenue growth. The proposal would increase the homestead exemption to $50,000 and increase the tax credits for older Iowans and veterans.
Eliminating the “roll back†will be especially valuable. Currently in Waverly we have no idea what taxable property values will be until December, and our budget process has to be started by January to get all of the legislatively mandated hearings and notices completed in a timely manner. This makes budgeting a very, very difficult process, because we don’t know what our tax revenue will be for the following year. We take our best guess so we can start planning and then get ready to make changes if we guess wrong.
All of this sounds positive, but there are concerns.
One of the major concerns about the legislation was the proposed 2% cap on annual property tax revenue growth, excluding revenue from new construction. The concern is that this cap on revenue growth does not take inflation into account. Employee costs — payroll, health insurance, etc. — and many other things that local governments have to pay for, such as rapidly escalating equipment and maintenance costs, are estimated to grow 5% to 7% per year.
Do you know how much a new fire truck or garbage truck costs today compared with just 10 years ago or even five years ago? Without some flexibility, many local governments will struggle to keep the lights on. To address this issue, the most recent version of the legislation allows local governments to exceed this 2% growth cap, allowing up to 5% growth for most property tax levies during times of high inflation as determined by the Consumer Price Index.
Another recent change includes a “minimum budget guarantee†to provide small communities certainty in their budgeting process.
Another issue is that the proposed legislation could result in an increase in the amount of taxes imposed on residential property rather than commercial or industrial property. Of the total real estate valuation in Waverly in 2024, 81% is residential property and only 15% commercial and 4% industrial.
Because of this, any change in how taxes are computed on residential property would have a large impact on Waverly. We are fortunate that taxable valuations in Waverly have increased from $308 million in 2012 to more than $565 million in 2026. Some of this is due to inflation, but we have also had substantial growth in new construction. And while growth is great, it also means that expenditures must increase to provide the services and amenities for our citizens that fuel that growth.
So, though I heartily commend the legislature for their efforts to fix the broken property tax system, I hope that they continue to do so carefully and thoughtfully, taking seriously the concerns of local governments.
And if you made it all the way to the end of this column on property tax policy — which has to be the most boring subject ever — I heartily commend you for your diligence.
