At the close of a legislative session that went into overtime and ended with more than thirty consecutive hours of debate, Iowa lawmakers reached a property tax compromise. The comprehensive bill being sent to Governor Reynolds for her signature includes a 2% growth cap on various city and county levies, an idea rooted in Iowans for Tax Relief’s longstanding call for such protection. Lawmakers also included reforms to school funding and Tax Increment Financing (TIF), along with changes to the taxation of multiresidential properties, among other provisions.

The foundational reform within SF 2472 is a 2% growth cap applied to city and county property tax collections. Iowans for Tax Relief advocated for a cap in order to bend the long-term cost curve of property taxes. While the 2% limit that was passed is very meaningful, it is less than the hard across-the-board cap as originally envisioned by ITR.

For cities, the cap does not apply to the debt service levy, unified law enforcement levy, insurance levy, or employee benefits levy. Similar county levies will also remain uncapped, as will their ability to levy for elections. Growth resulting from new construction will not count against the cap.

With certain levies remaining uncapped, we will need to remain vigilant in monitoring where these reforms succeed, and where they may fall short. Our team has already compiled data on each tax levy in every city and county across the state, and we will track their changes over time. One thing is certain: some local governments will exploit any available loopholes and continue searching for new ways to fund their tax-and-spend priorities.

Even with these concerns, Iowa is a more taxpayer-friendly state with the passage of this bill—not just because of the 2% cap, but also due to several additional reforms.

Importantly, the bill does not include an increase in the gas tax or the local option sales tax, both of which were included in earlier versions of the Senate bill. Iowans for Tax Relief worked to avoid using new taxes to offset property tax limitations, which would have only shifted the burden of who pays for government. The Iowa House, and Speaker Pat Grassley in particular, heard that message clearly and held firm to that position, protecting conservative fiscal values.

The school foundation property tax levy rate will be reduced from $5.40 to $4.90. To offset that reduction, the state will provide additional funding to school districts from the General Fund, and a larger share of SAVE (Secure an Advanced Vision for Education) revenue will be directed toward property tax relief. This will occur through a gradual increase in the portion of SAVE funds dedicated to property tax relief until it reaches 25% in Fiscal Year 2031.

Many of the TIF reforms, some of the most heavily debated aspects of the property tax proposals considered this session, focus on long-term changes. Among other provisions, all future TIF districts will have a 23-year sunset. For existing perpetual TIF districts, usage will begin to be limited after 20 years. While these changes do not go as far as some earlier proposals, they represent the first meaningful guardrails placed around TIF in many years.

Although the overall rollback system largely remains in place, there are two key changes. Multiresidential properties (such as apartment buildings), which in recent years have used the same rollback formula as residential properties, will now see their taxable share gradually increase to a level 6% higher than that of single-family homes. Additionally, the equalization process administered by the Department of Revenue prior to applying the rollback factor has been eliminated.

One underreported element of the legislation is how it addresses ending fund balances. Cities, counties, and school districts will no longer be allowed to maintain ending fund balances exceeding 35% of their expenditures, helping ensure that excess tax collections are not stockpiled.

The Homestead Credit will be replaced with a Homestead Exemption. State funding for the credit will be phased out over a three-year period. The new exemption will equal 10% of property valuation, with a minimum of $5,500 and a maximum of $20,000, and it will adjust with inflation. The compromise also preserves existing exemptions and credits for seniors and veterans.

The Business Property Tax Credit, currently set at $150,000, will be preserved and treated as an exemption. The $125 million backfill previously paid from the General Fund to local governments will be eliminated, with those dollars instead transferred into the Taxpayer Relief Fund.

Another major focus of recent property tax reform efforts has been improving transparency and accountability through direct notification. This requires local governments to send property tax statements that outline proposed budgets, estimated tax increases, and details about public hearings. Iowa’s current system, while well-intentioned, has often caused confusion. The legislature now requires these notices to be redesigned using a clearer format developed by the Iowa League of Cities.

Finally, this session’s property tax bill includes several other reforms. County assessors will now bear the burden of proof when property assessments increase by 10% or more, requiring them to justify those increases. The Department of Management will also be required to maintain a website with parcel-level taxation data. Additionally, the Governor’s “First-Time Homebuyers” program is included in the final bill.

Ultimately, this legislation represents a meaningful step toward greater taxpayer protection, but it also underscores the importance of getting the policy design right. Without firm, across-the-board limits, the ability for government to grow spending—and, in turn, tax collections—does not disappear. That’s why continued vigilance will be essential. Lawmakers have taken an important step in acknowledging that spending drives taxes, but the work is not finished. Protecting taxpayers over the long term will require building on these reforms, closing remaining loopholes, and ensuring that the growth of government never outpaces the ability of Iowa families and businesses to pay for it.