USA – IOWA Trends and Developments Contributed by: David M. Erickson, Christopher S. Talcott, Amy S. Montgomery and Shannon M.H. Hasse, Dentons Davis Brown PC
ity to finance improvements such as water and sewer infrastructure for developments would be extremely limited. While the proposed tax levy cap is intended to result in lower property taxes, the practical effect will be to significantly restrict city budgets, thereby limiting the ability of cities to offer incentives such as TIF to developers. Furthermore, by limiting a city’s ability to finance certain improvements for growth through tax increases, such costs will likely fall on devel- opers. This was a small part of comprehensive property tax overhaul legislation introduced in the 2025 session. Ultimately, the Iowa legislature did not advance the legislation, but comprehen- sive property tax reform is likely to remain a top priority during the 2026 legislative session. Tax abatement Developers may benefit from tax abatement incentives, which exempt a project from pay- ing property taxes over a period of time. Typi- cally, a tax abatement is granted only on the increased property value amount resulting from the improvements made to a property. In order to calculate tax abatement, a base property value is established prior to the development of improvements, and a new value is established after construction of the improvements. The difference (or a portion thereof) between these values is “abated” and is not subject to local taxation for a designated period of time. Like TIF, tax abatement incentives are implemented and approved at the local level by city councils, sub- ject to restrictions in the Iowa Code. As with TIF incentives, tax abatement incentives also typi- cally require developers to enter into a minimum assessment agreement. Local infrastructure agreements Data centres require access to robust infra- structure both during construction and dur- ing operation of the project. This infrastructure
may include roadway improvements, water and sewer improvements, water and electricity booster stations, water main installation, and other important infrastructure. In many cases, the developer and local municipality will share obligations to construct such infrastructure, with the terms of such arrangements typically set forth in an Infrastructure Agreement. Such agreements generally require a city to construct certain local infrastructure improvements within a specified timeframe and with particular service parameters necessary to meet the needs of the project. If the city fails to construct such improvements in a timely manner, developers frequently negotiate step-in rights to complete the work. Moreover, such Infrastructure Agreements typically require data centre developers to construct various infrastructure improvements that benefit not only the data centre project but also the broader community within which the data centre is locat- ed. These improvements may include, for exam- ple, the construction of a water tower, roadway improvements and other public improvements. Additional rights and interests In addition to the incentives outlined above, data centre developers are frequently afforded important additional rights and interests to pro- tect their project investment. Vested rights Public sentiment for or against data centre development projects can wax and wane over time based on a variety of factors, and data cen- tre development projects are complex, expen- sive and may take years to complete. To pro- tect against this uncertainty and the risk that a presently co-operative city may change course and renege on various zoning and permitting approvals, developers frequently negotiate for
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