April 10, 2025

Property Tax Legislation Update: Revised Proposals Filed

Yesterday, Ways and Means Chairs Rep. Bobby Kaufmann and Sen. Dan Dawson filed updated versions of the property tax overhaul proposed several weeks ago with new bill numbers: HSB 328 and SSB 1227. 

While the revised bills include changes, legislative leaders continue to emphasize their intent: to reduce the overall property tax burden on Iowans. Lawmakers have expressed a continued willingness to engage with stakeholders and consider feedback throughout the process. At the same time, they acknowledge that all taxing entities will face pressure to maintain or expand services with fewer resources. 

The League remains actively engaged, advocating on behalf of cities to highlight real-world impacts these proposals may have on local services. We are working to minimize negative consequences for city budgets while ensuring lawmakers understand the vital role cities play in delivering core services to residents. The new bills maintain a similar framework to the original proposal along with several key changes highlighted in more depth below.

Overview of the New Bills

Provisions kept in the new bill include:

• New valuation continues to be outside the revenue restrictions in the bill.

• 2% revenue restriction on CGFL.

  • New: A CPI-based “budget adjustment factor” has been added alongside the 2% restriction, allowing the CGFL to grow under specific circumstances.

• The school foundation levy is expected to be reduced by the state from $5.40 to $2.97.

Several changes have been made in the updated bills, reflecting ongoing policy discussions since the original bills were introduced. Changes include: 

• Increasing the homestead exemption benefit from $25,000 to $50,000, providing additional relief to residential property owners.

• Accelerating the rollback removal for all property classifications (excluding agriculture), effective for the FY 2027 budget – eliminating the previously proposed 5-year phaseout. 

• Adding a CPI-based adjustment alongside the 2% revenue restriction, intending to help local entities manage times of high inflation.

• Introducing a minimum budget guarantee to provide greater stability for small/non-growing communities. 

Initial Reaction to Key Bill Provisions

City General Fund Levy Rate Limitations

For only FY 2027, the general fund levy rate will be restricted at the greater of: 

• A rate that results in 100.5% of the prior year’s actual property tax dollars; OR

• A rate that results in 102% of the prior year’s actual property tax dollars certified, adjusted for total assessed value and excluding new valuation.

  • If a city did not impose a general fund levy in the current fiscal year, it may calculate a levy rate equal to 102% of its certified general fund budget divided by the remainder of assessed valuation (excluding new valuation). This provision ensures that cities that have not opted to levy in the past can do so without being penalized. 

In FY 2028 and beyond, the allowable revenue growth rate will be calculated:

• Up to 102% with a minimum growth of 100.5% of the prior year’s actual property tax dollars certified; OR

• If the total assessed value, excluding new valuation, in a budget year is above 102% of the prior year’s actual property tax dollars certified, adjusted for total assessed value, then the growth rate will be between 102% and 105% pending the results of the budget adjustment factor.

League's Initial Reaction

• The implementation of a 0.5% revenue growth guarantee is a welcome addition for small/non-growing cities, helping to provide more stability in their budgeting processes.

• Maintaining new valuation as exempt from the revenue restrictions in a budget year is a positive development. However, the definition of new valuation may need to be adjusted to better address the inclusion of certain TIF releases.

• The acceleration of the rollback removal, particularly its impact on the levy rate and subsequent impact on TIF, needs to be modeled to be fully understood.

• The increased homestead exemption is likely aimed at alleviating the impact of the shift to residential property taxes within cities. Modeling is necessary to assess the full impact on communities with a concentration of residential properties.

Budget Adjustment Factor

A new inflation-based adjustment factor allows cities to modestly increase property tax revenues in response to rising costs:

• If CPI is less than 4% → 102%

• If CPI is between 4% and 6% →103%
  

• If CPI is between 6% and 8% → 104%

• If CPI is greater than 8% → 105%

League's Initial Reaction

• This is a welcome addition intended to help cities maintain service levels during inflation. The League recognizes the current formula may not work for all cities and will advocate for improvements.

Study Committee on Property Taxation Rates

• The legislation establishes a legislative study committee composed of lawmakers and stakeholders to examine appropriate tax rates for local governments. The committee’s recommendations will influence future changes to the property tax system.
  

League's Initial Reaction

• This interim study committee will currently consist of three members of the House and Senate. The League is monitoring the development of the committee and its composition as the process moves forward.
  

New Valuation Definition - No Change From HSB 313 / SSB 1208

• The bill retains the existing definition of “new valuation,” which includes increases in taxable valuation from new construction, improvements, and boundary changes–but continues to exclude valuation from Tax Increment Financing (TIF).
  

League's Initial Reaction

• The League continues to emphasize the importance of TIF for economic development in collaboration with other taxing entities and private developers such as the Professional Developers of Iowa and the Greater Des Moines Partnership. Discussions are ongoing with the Legislature regarding potential language to include at least a portion of TIF releases.

Prohibition on Using Bonds for General Operations - No Change

• The bill continues to prohibit cities from issuing bonds funded by property tax revenues for general operating expenses.
  

League's Initial Reaction

• The League has been collaborating with bond counsel and city representatives to ensure that cities retain the ability to bond for larger, essential expenses and corporate purposes. We are actively discussing language with lawmakers to address these concerns.

Coming Soon

• The League is actively modeling the impacts of the new legislation on city budgets, just as we’ve done for HSB 313 / SSB 1208. More information about the bill will be in tomorrow’s Legislative Link.

You can view all editions of Legislative Link at iowaleague.org/resource/legislative-link.

Like our membership, the Iowa League of Cities is a non-partisan, service-oriented organization that does not participate in elections, make campaign contributions, or have a political action committee (PAC).