Tax bill effects felt in city budget process

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By Willis Patenaude, Times-Register


Budget talks have dominated recent city council meetings, with a large portion of discussion centered around changes affecting the budget as a result of House File 718 (HF 718), which was passed by a near unanimous 94-1 vote late last spring. It was sold as a $100 million property tax cut for Iowans, with a crystal clear message coming from the state legislature:  once local governments fund their priorities, they should pass excess revenue on to constituents through lower taxes. 


One of the key motivations behind the bill was acting as a response to property assessments done across the state that revealed skyrocketing increases in the assessed values of homes, which was up 22 percent statewide in 2023. HF718 was meant to prevent that rise from initiating increases in local property tax bills, as well as a means to control property taxes, which have increased 145 percent since 2000. Incomes have not kept pace, having only increased 44 percent. 


Among the notable changes being implemented is the consolidation of levies, whereby 15 existing levies, which were all previously intended for specific purposes, will either be eliminated or added to the adjusted city general fund levy (ACGFL) for the 2024 through 2028 budget years. This levy will also be capped at $8.10 per $1,000 in taxable value and it also caps general fund levy increases at no more than 3 percent, regardless of growth in property tax assessments, essentially meaning growth is also capped at 3 percent. 


This cap will mean less money for core services, including fire and police departments, parks, community development, library, administration and employee salaries.


The other major change comes in the form of expanded exemptions, notably the new $6,500 homestead property tax exemption for Iowa seniors and $8,000 exemption for veterans. The homestead exemption provides an additional $6,500 for Iowans 65 and older and doubles the tax exemption for veterans. 


On the surface, HF718 sounds like a win for taxpayers, but it is not without opponents, who have concerns over what it means, especially for small communities like Elkader, which will be required by the state to continue providing basic and essential services while also attempting to make their towns desirable for people to live and work in—all within the confines of a constricting budget. It puts those priorities, which should be done in tandem, into competition, as they become increasingly difficult to navigate. 


The consolidation of levies—with some being eliminated, combined and even limited—will lead to “competition for even more limited revenue funds,” while “exacerbating existing concerns” like retaining talented staff or even recruiting qualified individuals, according to an Iowa League of Cities report from November 2023.


The latter is something Elkader is currently experiencing in the revolving door that is the Main Street Elkader position, which is currently seeking its fifth director in four years. 


When a city’s taxable value growth is capped at 3 percent, which is intended to control inflation and keep budgeting more consistent, according to Clayton County Assessor Andy Loan, it could also have the unintended consequence of deterring growth, acting as a disincentive. 


Within HF718 are what are commonly known as “rollbacks,” or in this case, allowable growth limitations. As described by the Iowa League of Cities, rollbacks “prescribe the portion of the assessed valuation that is taxable by local governments and HF718 contains a residential rollback that will decrease from about 54 percent last year to around 46 percent in the upcoming fiscal years.”


In essence, a homeowner will pay about 8 percent less in taxes on the value of their home under HF718.


The issues for Elkader surrounding HF718 are varied and economically complicated, but when it concerns taxable value, city administrator Jennifer Cowsert said the city’s taxable value actually went up 4.07 percent over last year. But using the numbers calculated on last year’s certification page and this year’s certification page, she found the city’s revenue was $8,497 less than last year. 


“This doesn’t sound like a lot, but starting off with less isn’t good when you want to provide employees a raise and other things increase just as they do with everyone else: fuel and utility bills,” Cowsert said. 


Cowsert indicated there would be a loss resulting from the newly established exemptions, specifically citing the homestead exemption. She estimated there are 185 properties eligible for the homestead exemption, totaling about $1,202,500 of valuation that will be removed from the city’s overall valuation. Based on last year’s valuation, that is an estimated $14,000 loss of revenue. 


This could result in, among other things, higher property taxes, as Loan indicated. “If revenue askings stay the same for that taxing jurisdiction, they would adjust the levy rate, which would then increase other properties taxes,” he said.


Cowsert indicated projects under consideration like the new floor in the pool house, vehicle replacements, pool filter pumps, the old fire station wall and crack sealing are currently on the chopping block due to HF718. It underscores what could be an eventuality if revenues increasingly decline, especially as the city is already stretched thin as a result of recent costly projects like Carter Street and the Keystone Bridge rehabilitation. 


While Elkader doesn’t appear impacted currently, it’s a situation that was discussed in the Iowa League of Cities report, which noted there were several municipalities that had already made plans to delay projects. HF718 will inhibit them from being able to meet grant matching requirements or financially plan for future repairs and maintenance.  


Besides that, HF718 has led to actual cuts in other places already, namely pay raises. While Elkader tries to provide competitive raises and looks at the social security increase or CPI, those would lead to a 3 to 3.3 percent increase. Instead, the city is budgeting just a 2 percent increase, according to Cowsert. 


Additionally, contributions to social service agencies such as Helping Services and Northeast Iowa Community Action are currently cut.


There are other concerns Cowsert has, especially as HF718 handles libraries. It was one reason she believes a financial impact study of the bill should have been done prior to its passing. At the very least, it would’ve given legislators an opportunity to understand the impact the bill would have on smaller communities, perhaps preventing a one-size-fits-all bill. In her estimation—and Loan’s—it was a reaction to communities that are undergoing rapid growth, and it passed without contemplating the impact on smaller rural communities which don’t see such growth. 


“One example that I can’t believe was not reviewed was the impact to libraries that have the library specific levy. If they had a library specific levy, now they would have to go back to the council and try to make up that difference from the general fund,” Cowsert explained. 


Along with other objections, Cowsert also brought up Home Rule 50, which was adopted by Iowa in 1968 and basically states, “Municipal corporations are granted home rule power and authority, not inconsistent with the laws of the general assembly, to determine their local affairs and government, except that they shall not have power to levy any tax unless expressly authorized by the general assembly.”


The way Cowsert interprets the rule, the state “granted certain powers to local government, property taxes being one of them.” As such, they need to let local governments decide what’s best for the community, giving voters the ability to make the determination at the polls as well. 


“If the state wants to start regulating property taxes, then they need to change the local government process,” Cowsert said. She added that she firmly believes the state is “overstepping” with regard to Home Rule 50. 


However, the issue is not as clear cut as it seems. Home Rule 50 comes with restrictions, as cited by the Iowa League of Cities. Cities can tax citizens only as “expressly authorized” by the legislature, and though the code allows cities to tax real property, it limits how much of the value of property is subject to taxation and the levy rate that may be applied to property values. It also limits the exercise of Home Rule power by cities, in that they cannot exercise that power in a manner inconsistent with laws passed by the legislature. 


“In effect, the state of Iowa can, through its legislature, pre-empt city exercise of local governance,” noted the Iowa League of Cities. 


Regardless, as budget talks continue and revenue streams shift with political decisions coming out of Des Moines, rural communities such as Elkader will have to find a path forward.

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