Des Moines city staff told the City Council at its Nov. 2 work session that Iowa's new property tax law could weaken tax increment financing, the city's main tool for getting redevelopment deals done, and that projects needing new city services or infrastructure will be discouraged until lawmakers change it (via Business Record).
The law is Senate File 2472, which Gov. Kim Reynolds signed May 18. Starting with the budget year that begins July 2027, it puts a 2% hard cap on growth in city and county general revenue. New construction is exempt from the cap. But according to Business Record, property coming off a tax abatement doesn't count as new construction, so that value stays under the 2% limit.
The law also rewrote the TIF rules. New TIF districts are limited to 23 years. Existing districts with no sunset run as they are for 20 years, then can collect only 60% of their increment and can't take on new debt above that line, according to an analysis by the law firm Ahlers & Cooney.
One piece builders may like: workforce housing, as defined in Iowa Code Section 15.353, is now an allowed TIF use.
What city staff said
Economic Development Administrator Carrie Kruse explained the timing problem. When a TIF rebate period ends, the city normally collects taxes on the project's full value. Under the cap, that released value can't push revenue above 2%.
"The most likely scenario is at the end of the rebate period when that valuation comes online, it is going to be used to reduce our tax rates," Kruse said, as reported by Business Record. "We won't be able to recognize the full value of that valuation coming onto the tax rolls."
One workaround: delay rebates, so a project pays taxes as new value in its first year and the rebate period starts in year two.
Kruse was blunt about what happens if the city can't capture growth on either end of a deal: "It no longer makes sense for us to continue incentivizing projects that are adding to city service costs."
City Manager Scott Sanders said most of Des Moines' growth needs incentives because redevelopment usually means demolition and new infrastructure. He called the law "the most impactful anti-growth legislation in more than 40 years."
What changes for projects
Going forward, the city will favor pay-as-you-go rebates generated by the project itself, plus infill and redevelopment that won't add much to city services or infrastructure. Kruse said projects that need new services or infrastructure "are going to be discouraged until there are refinements in the TIF legislation," with possible exceptions for catalytic projects. Any incentive request for a project that adds city service costs will go through the city's debt review committee.
The law has slowed deals before. In May, right after it passed, Sanders paused new TIF agreements, and a TIF request for a $13.7 million office redevelopment at 108 SE Fourth St. was pulled from the council agenda, Business Record reported.
The budget backdrop
Des Moines' general fund levy is already at the state maximum of $8.10 per $1,000 of value. Kruse said that starting in fiscal 2030-31, if the city grows faster than 2%, the general fund rate will have to come down to stay under the cap.
The city has cut 43 positions to close an estimated $11.5 million gap for fiscal 2027-28 and expects to need about $5 million more in cuts the following year, according to Business Record. In May, the city's finance director put that first-year shortfall at nearly $12 million, Iowa Public Radio reported. The city also plans to end its tax abatement program in December.
City staff want lawmakers to count released TIF and abatement value as new construction, raise the 2% cap, adjust or drop the 60% limit on perpetual districts, or allow more local option sales tax or a share of a statewide sales tax.
Why it matters for Contractors
If you build or remodel in Des Moines, expect fewer city-backed deals for projects that need new roads, utilities or city services. Infill and redevelopment on existing infrastructure looks like the safer bet, and that work suits smaller shops.
The end of tax abatement in December matters for clients weighing new builds or big additions. If one has been counting on abatement, talk timing now and check the city's current rules before you price the job.
The workforce housing change is worth watching. It gives cities a new way to put TIF toward housing, which could open up smaller residential projects once cities work out the new rules.