Oct 30, 2023 - News

Iowa's tax cuts create budget dominoes for cities, counties

Illustration of dollar bill stacks as a line of dominos.

Illustration: Aïda Amer/Axios

Some Iowa communities will be unable to pay their bills unless changes are made to a new state law restricting their revenue growth, Des Moines city manager Scott Sanders said during a public meeting last week.

Why it matters: He's one of multiple local government officials raising concerns as they begin budget talks for the upcoming fiscal year that starts next July.

  • Services like improving mental health support might need to be paused as cities try to find efficiencies, Cedar Rapids Mayor Tiffany O'Donnell said on Iowa Press earlier this month.

State of play: Property tax reforms were supported by both parties this year, largely in response to a steep hike in residential assessments that some feared would result in unprecedented property tax increases.

  • The Legislature's changes could amount to an estimated $100 million less collected annually in taxes.

Zoom in: Among the changes are new tax formulas that generally limit city and county tax base growth to 3%.

  • But that level of growth isn't keeping up with inflationary pressures, Sanders explained to City Council members.

What they're saying: Polk County Chairperson Tom Hockensmith tells Axios that the law discourages community development and is especially difficult for communities with growing populations.

  • DSM Mayor Frank Cownie said during this week's council workshop that state legislators have claimed political success in reducing taxes without fully assessing the consequences to local governments like DSM that focus on providing services over political policies.
  • "As we've always said, there's no such thing as a Republican or Democratic pothole," Cownie said.

The other side: There is not a will in the Legislature to reverse the reforms, Rep. Bobby Kaufmann (R-Wilton) tells Axios.

  • "We're not going back to the old system where growth was unlimited," Kaufmann said.

The bottom line: Local governments must find efficiencies, tap into alternative sources of revenue or make cuts in order to pay their bills.


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