Reynolds shares property tax proposal

As Gov. Kim Reynolds spoke Jan. 13 on her proposals on property taxes, veterans’ benefits and health initiatives this session in her Condition of the State message, she said finding ways to spend government funding effectively is key to all of these goals.

Reynolds, who has served as Iowa governor since 2017, announced in April 2025 she would not seek re-election, meaning 2026 will be her final session leading the state’s executive branch. In her remarks, she said she was entering the session “deeply grateful, fully committed, and determined to finish strong.”

One of the issues she said Iowans have told her is most important to address before she leaves office was reducing property taxes. The governor said her property tax bill is a solution to address the growth rate of property taxes across the state, which she said are rising “faster than inflation, faster than paychecks and faster than population growth.”

At the conclusion of the 2025 legislative session, Reynolds named property taxes as her top priority for the upcoming year. Over several months, she and legislators held meetings across the state with local government officials and community leaders discussing the state’s property tax system, in addition to holding roundtable discussions with Iowans about the impacts of property tax increases on Iowans.

Through these discussions and reflections on previous legislative attempts to limit local taxing authority, Reynolds said she found limits on specific levies are not an effective way to address property tax increases.

“So this year, we need to go after the real driver of the problem, spending,” Reynolds said. “Spending is what drives taxes, always has, always will. And the most reliable way to protect taxpayers is to limit the growth of government itself.”

The governor’s proposal would cap overall revenue for local government to 2% growth each year, with an exemption built in for new construction. The cap also includes exceptions for debt service and school funding.

The measure incorporates two ways aimed at helping local governments reduce costs. The proposal would create a $10 million fund of one-time money to provide grants to local governments pursuing consolidation and shared service agreements with other local governments for services like emergency medical services, law enforcement and public health. It also would remove election mandates for county treasurers, auditors and recorders, meaning these positions could become appointed, instead of elected, positions in the future.

The proposal also would change how often property tax assessments are conducted, moving from every two years to every three years. Additionally, it would limit the use of Tax Increment Financing (TIF) districts and accelerate the timeline for using the state’s Secure an Advanced Vision for Education (SAVE) funding stream for property tax relief.

Reynolds said the proposal also works to provide property tax relief for both older homeowners and new homeowners. The legislation would freeze property taxes for seniors age 65 and older in homes valued at $350,000 or less, “because no one should be taxed out of their own front door,” she said. The bill would also create FirstHome Iowa Accounts modeled after the Iowa 529 Plan, the state-sponsored savings plan that allows families to create a savings fund for a person’s future educational expenses that offers both tax-free growth and tax-free withdrawals for qualified costs.

The FirstHome Iowa Account proposal would mean funds in tax-deductible savings accounts could be used to for the purchase or closing costs of a home, with certain restrictions. The money in these accounts could only be used to purchase a home in Iowa, and the person using the funds cannot have owned a home in the past three years in the state. Unlike the 529 Plan accounts, the FirstHome Iowa Accounts would be subject to some federal taxes, as there is not a federal equivalent to the program.

This proposal differs significantly from the legislation brought forward by Senate Republicans Jan. 12. Senate Study Bill 3001 proposes ending the state’s “rollback” system of calculating property taxes, while Reynolds’ measure would not make a change to this system. The Senate GOP measure would also expand Iowa’s homestead tax credit, while the governor’s bill would change the homestead tax credit to a tax exemption.

Senate Majority Leader Mike Klimesh told reporters he was waiting to see the language for property tax bills coming from Reynolds and House Republicans before starting the conversation, but said he believed it was worthwhile to make larger, structural changes to Iowa’s property tax system.

“My messaging that, you know, we have a 40-year-old system, we’ve slapped a lot of Band-aids on it,” Klimesh said. “… I still see a lot of value in taking the system and stripping it down to its chassis and then rebuilding it from there, I think. But again, waiting until we see the proposal from the governor’s office and from the House, and then having that conversation.”

While House Republicans have not come out with a property tax proposal yet, House Speaker Pat Grassley said the caucus plans to come out with legislation next week. Grassley said there will be some points of consensus – and differences – between the House GOP plan and the Senate’s and governor’s proposals.

Though there will be differences, Grassley said he believes Republicans will be able to come together to find a solution.

“I think you’re going to see three different bills with the same objective, which is providing certainty for Iowans,” Grassley said. “… I think we’re going to have the ability to work together. I think we have the same mindset when it comes to that. But as far as specific pieces that she walked through tonight, I want to see what the impacts are going to be moving forward before I commit to any sort of specific piece that she touched on.”

House Democrats have also introduced a property tax plan earlier in January to freeze property taxes for seniors age 65 and older, triple the Homestead Tax Credit and limit annual property tax growth to 4%.

Proposed spending increase

The governor also released her budget proposal for the fiscal year that begins July 1. Reynolds’ budget proposes spending $9.666 billion in FY 2027, an increase of roughly $188 million from the current year’s budget. According to the budget, the state is expected to have roughly $10.546 billion in available funds, with an expenditure limit of $9,877 billion, while accounting for a $1.464 billion in reserve funds and proposed $583.9 million transfer from the Taxpayer Relief Fund.

Reynolds is proposing a roughly 2% increase in state funding, with a 2% State Supplemental Aid rate for K-12 schools and 1.5% increase in funding for Regents and community colleges, 1.5% increase for state health and human services, judicial and justice systems and a 0.1% reduction for other state appropriations.