Iowa’s local governments are facing financial challenges as recent state tax cuts continue to impact revenue. House File 718 and Senate File 2442, passed in 2023 and 2024, were designed to reduce property taxes for residents, capping county tax rates at $3.50 and city rates at $8.10.

While these cuts have been popular among taxpayers, they have created budget constraints for many cities and counties, forcing officials to make tough decisions to maintain essential services.

Financial Challenges for Cities and Counties

Many counties, especially those in southeast Iowa, were already above the capped rates before the legislation was enacted. Others had anticipated a gradual reduction in tax rates due to property valuation growth. However, the unintended consequences of the tax cuts have become evident.

Lucas Beenken, a public policy specialist with the Iowa Association of Counties (ISAC), explained, “If your valuation exceeds certain thresholds, your levy rate is automatically reduced. We’re seeing some of those unintended consequences now, and the one-size-fits-all approach is not working for everyone.”

In Ottumwa, Finance Director Cole O’Donnell stated that the city’s taxable growth was limited to just 7.77%, which has restricted its ability to generate more revenue. As a result, Ottumwa is expected to lose $450,000 in revenue for FY 2024 after eliminating three levies. Despite these cuts, the city is still responsible for providing essential services such as public safety, infrastructure maintenance, and community programs.

“We are making small cuts each year instead of one large reduction in FY 2029 when the full impact of HF 718 will be felt,” O’Donnell said.

Rural Counties Hit Hard

Rural counties like Van Buren are feeling an even greater financial strain. Supervisor Dale House shared that the county has had to take several measures to stay within budget, including leasing county land, freezing employee raises, and making other cost-cutting adjustments.

At a recent ISAC conference, House expressed his concerns, realizing that many other counties were facing similar struggles. “I brought up the fact that we were struggling, and I found out that we weren’t alone. Many other counties are also wondering if they are the only ones dealing with these challenges.”

House also pointed out that Van Buren County had been working hard to keep property taxes low for its residents, but that decision has now left them financially stretched. “We didn’t build up a big nest egg, and now it’s coming back to bite us,” he added. “We’re in recovery mode.”

Proposed Solutions and Legislative Priorities

To address these financial struggles, ISAC has outlined three key legislative priorities:

Funding for Mandated Services: Counties are required to provide certain services by the state, but the funding does not always cover the actual costs. ISAC is advocating for more financial support to ensure counties can meet their obligations.

Equity in Cost-Sharing: ISAC is calling for a fair and accountable cost-sharing system between the state and local governments. They argue that counties should not bear an unfair financial burden for services mandated by the state.

Revenue Replacement or Sharing: ISAC is also pushing for alternative revenue options to help counties maintain essential services without relying solely on property taxes.

Growing Concerns Among Local Officials

Despite these proposals, some local officials feel that their concerns are being ignored. O’Donnell expressed frustration, saying, “One of our local representatives has been responsive and has taken our concerns to leadership, but overall, legislative leaders are dismissive of our struggles.”

While there is a bill in the legislature that could allow residents to vote on reinstating the library levy, other legislative proposals may further restrict property tax collections, making the situation even more difficult for local governments.

As Iowa continues to implement property tax cuts, local governments are left grappling with how to maintain essential services while facing significant revenue losses. Cities and counties are making budget adjustments, but many fear that without additional support or legislative changes, they will struggle to meet the needs of their residents. The debate over tax cuts and local government funding is expected to continue as officials work to find sustainable solutions.