The property tax reform bill that was passed by the Legislature on May 3 will endanger local communities’ ability to provide basic services, city leaders said, and may make it nearly impossible to provide amenities residents and businesses are looking for a place to call home.

The bill will also jeopardize cities’ ability to grow by restricting incentives, such as Tax Increment Financing, making Iowa less competitive, the leaders said.

They also said the bill strips away the ability for local officials to make decisions for the communities they serve.

City leaders acknowledged, however, along with leaders of the Iowa League of Cities, that the final version of Senate File 2472 will need further analysis and that its true impact may not be known for weeks or months.

As of Monday, May 11, the bill had been sent to Gov. Kim Reynolds’ desk awaiting her signature. Most elements of the bill would not take effect until fiscal year 2027-28 as local governments have already finalized their budgets for the 2026-27 fiscal year, which begins July 1.

City leaders focused on the 2% cap on property tax revenue growth, restrictions in TIF incentives and the definition of “new valuation” in discussing their concerns.

While leaders of some metro communities declined to comment, saying they didn’t yet know enough about the bill to speak publicly about its effects, others said they were concerned about how the bill would affect their budgets and their ability to meet the needs of their residents and local businesses.

Bondurant Mayor Doug Elrod called the bill “well-intentioned.”

“But I think it comes up short on the city’s ability to take care of its people,” he said. “I think we’re going to struggle.”

Elrod said the 2% cap may be the biggest challenge facing cities, but he’s also worried about the impact the TIF restrictions could have on economic development.

“That speaks directly to economic development and our ability to bring new opportunities and new jobs to the state,” he said. “But I think the 2% cap is probably going to be the most problematic.”

According to a summary of the bill created by the Iowa League of Cities, the 2% cap does not allow for an inflation adjustment. While it exempts valuation from new construction, it does not include TIF and property tax abatements in the definition of new construction, so when a property comes off abatement, revenue gained from that would be limited to the 2% gap.

“I appreciate that the bill exempts new valuation, but when you have valuation that is rolling off abatement, that is new valuation because that is valuation that has never been on the property tax rolls before, so I’m not sure why that would not be considered new valuation,” said Bondurant City Administrator Marketa Oliver. “If that piece is not corrected, I think you will see a lot of cities will be forced to re-evaluate their abatement tools, which is an economic development tool.”

The cap does not apply to debt service, school funding, and special revenue levies, such as insurance and benefits, items that are considered beyond local government control.

There is a 3% cap on transit agencies, such as Des Moines Area Regional Transit Authority.

The bill also sets a 23-year sunset on new TIF districts. TIFs that are perpetual are capped at 60% after 20 years. The bill also eliminates the school foundation levy from perpetual TIFs and new TIF projects.

Pleasant Hill Mayor Sara Kurovski said the 2% cap will leave her city in a $200,000 deficit to start the fiscal year that begins July 1, 2027. That will leave the city with some tough decisions to make.

“Our budgets are in place right now and we have been working on this for around a decade to fully staff police, EMS and first responders, and we are now in a position where we’re going to hit a deficit,” she said. “Can we fill those positions or not? You don’t want to bring people on and then have to turn around and raise the levy or fire them.”

Kurovski said cities make financial decisions years in advance, and there will be challenges in adjusting to the restrictions contained in the new property tax law.

“Nobody makes financial decisions one year at a time, or they shouldn’t,” she said. “We have a long-term lens and understand long-term impacts, or we’re just being irresponsible.”

Kurovski said the funding challenges that communities, especially smaller ones, will face will mean prioritizing basic services over amenities residents and businesses want in a place to live and work.

For example, Pleasant Hill has a sewer system upgrade project that needs to be done. The multimillion dollar project will be necessary to prevent overflows and backups.

“It’s a hidden piece of infrastructure that is an essential part of city operations,” Kurovski said. “You don’t get any growth off of replacing your sewer. It’s just an operating expense.”

She also expressed concern about how the TIF restrictions in the bill will affect economic development, citing the new valuation question raised by others.

“The most important definition everybody needs to be looking at is it where it says new construction,” Kurovski said. “When you have projects that are in TIF districts or under tax abatement, when those roll onto the property tax bill, they are technically not new construction. So they have been in a district or under abatement for five or 10 years, when they come off they are not new construction, therefore making TIFs and tax abatement null and void as an economic development tool in the state of Iowa.”

And that will make Iowa less competitive in attracting jobs and residents, she said.

“All the states around us have tools like this and if we can’t use them, we can no longer compete,” Kurovski said. “As a city, we have had state-supported projects and development agreements and all of those projects have TIF or tax abatement tied to them, and you can’t partner on those projects without those tools.”

Kurovski said Pleasant Hill is working with two developers to hurry projects along to avoid financial damage. One is a multifamily housing project that has tax abatement as part of their plan.

With the changes in TIF and the 2% cap it could be difficult for the city to provide basic services to the development, Kurovski said 

The other project is a commercial project where under the terms of the development agreement, If the development hits a certain threshold of added assessed value in the community, the developer would get a TIF rebate.

“If we’re running a deficit under a 2% cap, we can’t fulfill those payments into the future now,” Kurovski said.

Brad Deets, city administrator in Waukee, also said the 2% cap “could make it difficult from the standpoint of just general operations.”

With new valuation being exempt from the cap, it will place the burden of growth on the community, he said.

“Growth is going to become that much more important from the standpoint of being able to pay for operations, and then balancing that growth based on expenditures,” Deets said.

There could be consideration on land use types and how development occurs to facilitate that growth, he said. 

“Time will tell in terms of what impacts that may have from a development perspective and then just being able to keep up with the level of service that our residents are looking for in the community,” he said.

Deets said with the changes in TIF that are included in the bill, “incentives are going to change.”

“There’s going to be less TIF dollars coming in on new development based on the removal of the school foundation levy, so for a community like us that’s 20% right off the top, I think absolutely incentives will have to change,” he said.

Deets said Waukee and many other communities pay for new infrastructure to support growth with TIF revenue, and the changes contained in the bill could affect that moving forward.

“We pay for a lot of that infrastructure from new growth, through the TIF that’s generated from that growth so if we’re taking 20% off the top immediately for funding that’s being invested in new roads, widening existing roads, what that means for us is we’re doing fewer projects.”

The bill also restricts use of debt service for general operations and caps general fund reserve balances at 35%.

In Des Moines, City Manager Scott Sanders issued a statement in which he expressed disappointment in the bill and its effect on the future of economic development.

“These new property tax regulations remove the very tools that the City has used successfully to transform downtown Des Moines into the vibrant city center that our residents and visitors love today,” he said. “The new changes will necessitate a complete re-evaluation of our economic development strategies and how the City of Des Moines can grow in the future.”

All the leaders said they and their city councils and department heads will be sitting down and building models of what the impact of the bill will mean for their individual communities.

Alan Kemp, executive director of the Iowa League of Cities, said his organization will do its own analysis to better understand the bill’s effects.

“There are a lot of moving parts and we’re still trying to break down and verify all the different parts that ended up in the bill,” he said.

Kemp said he believes the Legislature took a more thoughtful approach to property tax reform this year and passed a bill that adds predictability and stability for local governments.

Kemp said that while the bill limits revenue from property tax growth, the biggest impacts could be seen on smaller rural communities that have less potential for growth than their larger counterparts in more highly populated areas, such as the Des Moines metro.

“So over the next couple of weeks our intention is to try the best we can to model out the impact that these changes in the property tax system will have on a wide variety of cities at all levels and we’ll have to see what comes out of that,” he said.

In the end, though, whatever challenges local leaders say the new property tax bill creates, it infringes upon the concept of home rule, they said.

“It’s removing the ability to make choices locally based on the needs and challenges we encounter,” said Elrod, Bondurant’s mayor.

Oliver, the Bondurant’s city administrator, said the bill “is taking away the voices of local elected officials, and that’s concerning.”

Kurovski said decisions that affect local communities need to stay in the hands of locally elected officials.

“The state has not appreciated when the federal government over the past few decades has been telling them how to act and operate,” she said. “Now they are doing the same thing to the local government. You have locally elected officials for a reason and if the citizens are upset, they need to vote the local official out.”

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Iowa’s new property tax reform bill by the numbers

As cities evaluate the effects of the new property tax bill passed at the end of the 2026 legislative session, the Iowa League of Cities created a summary of the legislation. Below are highlights of provisions included in the bill.

Revenue limitations

• 2% cap with no inflation adjustment.
• Exempts new construction.
• Abatement and Tax Increment Finance not exempt.
• No cap on debt service, school funding and special revenue levies.

Tax Increment Financing

• 23-year sunset on all future TIF districts.
• Caps increment usage at 60% after 20 years. Cap can only be exceeded to cover. pre-existing bond obligations. If exceeded, a city cannot issue new bonds or capture school foundation taxes during that time.
• School Foundation Levy is eliminated in perpetual TIFs and eliminated in future TIF projects.

Bonding and debt

• Restricts use of debt service for general operations.
• Caps general fund reserve balances at 35%.

Multi-residential

• Maintains current rollback calculation with floating rollback rate that is phased in over three years, with multi-residential rollback equal to residential rollback plus 6% in year three and beyond.

*Not inclusive of all provisions contained in the Senate File 2472.

Source: Iowa League of Cities