Des Moines officials are warning that a new Iowa property tax law could quietly undercut one of the city's main tools for financing growth, even as the city plans adjustments to address an estimated $11.5 million deficit for fiscal year 2027-2028 and anticipates roughly $5 million in cuts for fiscal year 2028-2029. At a work session Monday, city staff told the Des Moines City Council that a 2% cap on property tax revenue growth, combined with new restrictions on tax increment financing, could make it far harder to capture new revenue from development projects going forward.
A Cap That Reshapes How Growth Pays Off
The briefing centered on tax increment financing, or TIF, a tool cities use to direct new property tax revenue from a development back into that project or district before it flows to general government coffers. At the work session, according to Business Record, the Des Moines City Council received an update on how Iowa's new property tax law could weaken that tool and curb growth citywide. The law imposes a 2% cap on property tax revenue growth for cities and counties beginning in fiscal year 2027-2028, and that cap applies to existing properties already on the tax rolls.
New construction is exempt from the cap, which is normally how growing cities see their tax base expand. But the same report notes a wrinkle that caught city staff's attention: properties coming off a tax abatement are not defined as new construction under the law, meaning that valuation would be subject to the 2% cap rather than treated as fresh growth once abatement ends.
Abatement Program Winding Down as Deadline Looms
The issue is more than theoretical for Des Moines. The city plans to eliminate its tax abatement program in December, and currently carries more than $10 billion in total taxable value, of which $1.3 billion sits under abatement, per the same report. As those abated properties come off the program and their full value would normally join the tax rolls, the new law's cap could prevent the city from recognizing that value all at once.
Carrie Kruse, Des Moines' economic development administrator, said TIF district base valuations typically flow to the applicable taxing entities, with the full value released once it's no longer needed to cover rebate payments. “We won't be able to recognize the full value of that valuation coming onto the tax rolls,” Kruse said, describing the practical effect of the cap on that released value, according to Business Record's report.
A Possible Workaround, and Real Budget Pain Already
City staff have floated one possible fix: a project could be added to the tax rolls and pay taxes in its first year, with the TIF rebate period then beginning in the second year, allowing Des Moines to draw that valuation into a TIF fund once the rebate period starts. The Business Record reports the new law also caps all TIF districts at 23 years, though a separate legal analysis from Ahlers & Cooney, P.C. describes that 23-year limit as applying specifically to new TIF ordinances adopted after May 18, 2026, with existing ordinances lacking a prior sunset instead getting a 20-year status quo period before being limited to 60% of otherwise available increment revenue. The two accounts describe the transition differently, and neither has been independently verified against the enacted statute.
The stakes aren't abstract for Des Moines' budget. The city cut 43 staff positions and made other adjustments to close an estimated $11.5 million deficit for fiscal year 2027-2028, with staff anticipating roughly $5 million more in cuts for fiscal year 2028-2029, the outlet reported. City Manager Scott Sanders has painted an even longer horizon: Des Moines can expect $3 million to $4.5 million each year in budget cuts for the foreseeable future because of the new cap, he told the Des Moines Register.
Not Just a Des Moines Problem
The squeeze is showing up statewide. A fiscal note estimated cities could lose $103.7 million in property tax revenue in the first four budget years after the cap takes effect, according to Iowa Public Radio. That same report notes city officials from Altoona, Pleasant Hill and Des Moines have said the law negates the financial benefits of using TIF and tax abatement in the first place.
Bondurant City Administrator Marketa Oliver raised a related concern about abated properties rejoining the tax rolls, telling Business Record that “that is valuation that has never been on the property tax rolls before,” arguing it shouldn't be treated the same as revenue growth from existing properties under the cap.
Des Moines Pushes for Legislative Changes
City staff called for legislative changes to address the law's effects, proposing that the definition of new construction be clarified to include value released from TIF once a project's rebate period ends. Other legislative priorities include increasing the 2% growth cap itself, adjusting or removing the 60% limit on perpetual TIF districts, allowing abatement releases to count as new construction, and increasing or expanding access to local option sales tax, per the work session briefing.
City officials said the growth cap and TIF restrictions may leave the city without enough new tax revenue to fund both project incentives and the services that development demands. Kruse put the underlying concern bluntly: without a way to capture growth either before or after incentives are granted, incentivizing projects that add city service costs may no longer make sense. New development can increase demand for police and fire response, snow plowing and other long-term city services, she noted, which is why Des Moines says it needs durable tax benefits to keep pace with the growth it's trying to attract.
