Are you frustrated with high property taxes? Too often Iowans are told by local government officials that nothing can be done to lower property taxes. Governments, at all levels, often forget that the money they spend is generated from your tax dollars. It is not the government's money, yet policymakers have no shortage of reasons why they need to spend more or why they cannot provide tax relief.
Recently, Dave Trabert, president of the Kansas Policy Institute, visited with Tax Education Foundation of Iowa on how local governments can cut taxes without cutting services. Trabert pointed out that not only does Iowa have high state and local taxes, but we also have numerous local government taxing authorities.
Without addressing spending, it will be almost impossible to provide tax relief. “States that spend less are able to tax less,” noted Trabert. Spending is at the heart of taxation whether it is the income or property tax. Trabert also said that states that tax income spend 56 percent more per resident than states without an income tax. States with an income tax also tend to have higher local taxes.
Property taxes are the major driver of government spending for local governments. The Tax Foundation ranks Iowa with the 10th highest property tax burden. How can local governments provide property tax relief while still providing for the priorities of government?
First, policymakers can control spending. More public officials need to learn a lesson from President Calvin Coolidge, who often said “no” to spending requests. Trabert recommends that local governments follow performance-based budgeting. The goals of performance-based budgeting include:
- Prioritize each program or service. If reductions are needed, they go to the lowest priority.
- Establish measurable goals for each program or service.
- Determine out-of-pocket cost for each program or service.
Policymakers should also consider the following when implementing performance-based budgeting:
- Did we meet the objectives? If not, what corrective action will be taken?
- Can the program be provided more efficiently?
- Analytical justification for any new expense. Taxpayers also have inflation; don’t add unnecessary tax increases.
Performance-based budgeting is not the only solution to controlling tax increases at the local level. The Kansas Policy Institute was instrumental in getting a strong Truth-in-Taxation law passed this year. The Kansas legislature approved a Truth-in-Taxation law, which was modeled after Utah’s successful law.
Utah’s Truth-in-Taxation law is a revenue-based limitation, which means as valuations increase property tax rates decrease. The Truth-in-Taxation law guarantees that each taxing entity receives the same property tax revenues as the previous year, including new growth (Kansas excludes new growth).
If a local government wants to exceed the certified tax rate, it then requires a Truth-in-Taxation hearing that is accompanied by an extensive public notification and hearing process. Truth-in-Taxation also forces local government officials to take recorded votes to approve an increase in tax collections.
Through the Truth-in-Taxation process, local governments must justify why they want to increase taxes for additional spending. A crucial aspect is the direct notification requirement, where notices are sent to taxpayers, providing information on the proposed tax increase and how it will impact their tax bill. It also includes the date, time and location of the Truth-in-Taxation budget hearing.
Already over 200 local governments in Kansas are not going to raise property taxes. Truth-in-Taxation is working for Kansas taxpayers. For the past few years, TEF Iowa has written extensively on the need for a Utah-style Truth-in-taxation law that will provide both property tax relief for taxpayers and force local governments to be more accountable and transparent. Truth-in-Taxation is the gold standard policy for property tax reform.
High state and local taxes hurt economic growth and they punish hard-working taxpayers. Performance-based budgeting and Truth-in-Taxation will make better use of taxpayer dollars and place Iowa taxpayers first.