Clearing the air on property tax reform bill



District 11, R-Storm Lake

Chairman of the Justice Systems Appropriations Subcommittee

It’s time to clear the air on HSB 165, the property tax reform bill. Special interests have gone out of their way to misrepresent and in some cases, outright lie about the content of the bill and what it does. While HSB 165 is a long and complicated piece of legislation, I will try to summarize the most relevant issues.

Cities have long complained about the 8.10/thousand dollars of assessed valuation levy cap for the general fund. The cap is then supplemented by various levies outside of the 8.10 for special purposes; many of these levies are approved by city government without a vote by the people. In HSB 165 the $8.10 levy cap is eliminated and will be replaced by a new system.

Under HSB 165 a city’s current tax, asking for the general fund will be combined with their taxing authority for any special levies currently in place, and this total will become the base for their taxing authority going forward. Levies that will not be thrown into this new base will be the levies for debt service on bonds and the special levy to fund the city’s retirement plans. All special levies aside from these two will be abolished.

With the new base established, the city may increase its tax asking by 2% with no special actions. If the city believes there is a need for an increase of larger than 2% they must approve a resolution stating the amount of increase and post it in their local newspaper of record. From the date of publication, the citizens have 20 days to gather signatures on a petition equal to 20% of the votes cast in the last presidential election, with a maximum of 2,000 and a minimum of 10, to challenge the resolution from the council. If the minimum signatures are not met, the increase stands. If the required signatures are achieved, the council must hold a reverse referendum election on the tax increase. If the reverse referendum wins the election the city must go back to a 2% increase. However, if the reverse referendum fails the proposed increase stands. Those who are claiming that the bill establishes a hard 2% are incorrect.

Detractors claim that HSB 165 will prevent a city from growing because they won’t be able to provide services for expansion. This is also incorrect. If a city decides to annex an area, an amount equal to the area’s tax base times the city’s current levy will be added into their base calculation upon annexation. This will also apply to areas coming out of a tax increment financing area.

Some claims have been made that cities would be limited to a 2% per year cumulative increase forever. Again false, if a city approves an increase over 2% in a given year, the entire amount becomes part of the new base for the next year’s calculation.

HSB 165 contains a provision that says that a city or county can have an ending fund balance of no more than 25% of their budget, unless they state a purpose for the amount above 25%. Those opposed have attempted to paint this as a hard cap on reserves of 25%, again false. All the city or county has to do is state a purpose for the money. A reason can be as simple as a bonding company requiring a 40% reserve in order to maintain a triple A bond rating.

As you can see there has been a lot of misinformation disseminated in an attempt to derail this legislation. The most egregious misinformation campaign has come from a shadowy coalition that claims that HSB 165 is a clandestine attack by Americans for Prosperity and the Koch brothers. These shadow groups claim that limiting the taxing authority of government bodies will cause those bodies to abandon and bankrupt the pension plans of their employees.

The first lie is that this bill limits taxing authority; on the contrary, by eliminating the 8.10 levy cap it may expand taxing authority should the voters approve. The second lie is that the bill puts pension plan contributions in a competition for funds with other essential services supplied by government. When the bill as amended leaves the House floor, pension contributions will still be funded with a separate proprietary levy outside of the general fund. The third lie is that a government body can abandon their contractual agreements to fund the pensions of their employees. They cannot.  For the information of these shadow groups, there is no conspiracy against public sector employees by Americans for Prosperity or anyone else, for that matter. Legislation similar to HSB 165 has been around for nearly two decades, HSB 165 is simply the current version of ideas that have been discussed for twenty years.

HSB 165 increases the transparency of property taxes by decoupling taxing authority and property assessments. The taxing authority of a city or county will no longer be directly related to the level of property assessments but rather, will be governed by standards that are entirely independent of assessed property values. Iowa’s property tax system has been amended, tweaked, patched, repaired and modified over the last century, now may be the time for an overhaul. As I said, pieces of this bill have been around for 20 years, it looks like now may be the time they come together. 

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