John Hendrickson and Rusty Cannon
Iowa’s high property taxes are a growing concern. The Tax Foundation examined the “effective condominium tax rates” in the United States. Iowa was ranked 12th in the nation. Local government spending is at the center of high property taxes. Unless spending is controlled, property tax relief is limited. The Iowa property tax system is complex and needs more transparency. Iowa should adhere to Utah’s “Truth In Taxation” law, which has controlled property tax growth since 1985 and provides transparency and accountability for taxpayers. Utah’s “Truth In Taxation” is the gold standard model for any property tax reform.
During the 2019 Iowa legislature, lawmakers passed a property tax accountability and transparency bill. This new law requires local governments such as counties and cities (school districts not included) to hold a public hearing if the proposed budget is increased by more than 2 percent year-on-year and a majority vote must be taken to increase it. This new “soft cap” of 2 percent is intended to control the growth of property taxes and requires that local governments create more transparency in the local budget process.
The 2019 law is often referred to as the “Truth In Taxation,” and while the move increased transparency and accountability, it should not be compared to Utah law. Utah’s “Truth In Taxation” law is widely recognized as one of the most tax-friendly property tax laws in the country. The Truth In Taxation Act is an income-related constraint, meaning that as valuations go up, property tax rates go down.
Utah law guarantees that every tax authority will receive the same property tax revenue as last year, including new growth. This prevents the local governments from suffering a godsend as ratings have risen. The truth in taxation prevents local governments from benefiting from elevated ratings. If valuations go up 10 percent, that doesn’t mean local government budgets should go up 10 percent.
If a local government wishes to exceed the certified tax rate, it requires a “Truth In Taxation” hearing, which is accompanied by a comprehensive public notification and consultation process. “Truth In Taxation” is also forcing local government officials to cast recorded votes to approve an increase in tax revenues.
Through the Truth In Taxation process, local governments need to justify why they want to raise taxes on additional spending and force them to be more transparent about why they need additional tax revenues.
A critical aspect of Utah law is a direct reporting requirement, which involves sending notices to taxpayers with information about the proposed tax increase.
ARTICLE CONTINUED UNDER ADVERTISING
It also includes the date, time and place of the budget hearing. This comprehensive public notification and consultation process has been successful and Utah taxpayers are actively participating in the hearings.
Iowa could implement a similar direct notification system, either via email or mail, or both, to notify property taxpayers of a potential tax increase. Iowa real estate taxpayers deserve greater transparency in understanding their overall real estate tax bill. This will help prevent local governments from hiding windfalls from elevated assessments and provide greater clarity to the taxpayer.
The aim of the property tax reform should not be to highlight specific property classes, but rather to ensure that all Iowans receive tax breaks. In addition, the real estate tax relief should not give preference to one tax class over another. For example, it is often argued that older, fixed income adults should have targeted property tax relief, but the danger of applying such targeted relief is that the tax burden is shifted to other taxpayers. The fixed income argument also becomes relative because the older adult may have a fixed income, but so does the family in which both parents work and try to provide for their families.
If the goal is to ensure that all Iowans receive property tax relief, the best approach is to strengthen the property tax transparency and accountability measure in 2019 by adding a “Truth In Taxation” process to Utah -Type is required.
John Hendrickson is the Policy Director of the Tax Education Foundation in Iowa and Rusty Cannon is the Vice President of the Utah Taxpayers Association.
John Hendrickson and Rusty Cannon