Cedar Rapids, Iowa City officials not happy about property-tax relief

Classification to change for apartments, nursing homes from commercial to residential

City officials in Cedar Rapids and Iowa City aren’t happy that years of talk in the Iowa Legislature about property-tax relief for commercial and industrial property owners ended Thursday with a new law that they say will cost their cities dearly.

The part of the new law that is particularly unnerving, city officials said on Thursday, is what they say is the less-noticed part: the new law’s provision that changes the property classification for apartments, nursing homes and manufactured home parks from commercial to residential gradually over a decade.

Local jurisdictions now tax commercial property at 100 percent of value and residential at about half that much as dictated by a state property-tax formula.

The new law makes no provision to use state funds to make up or "backfill" the revenue lost to local jurisdictions due to this change for "multi-residential" properties, Cedar Rapids Mayor Ron Corbett and Geoff Fruin, assistant to the city manager for the city of Iowa City, said.

"We’re very disappointed they didn’t backfill this part of the law," Corbett said.

Casey Drew, the city of Cedar Rapids’ finance director, estimated on Thursday that city of Cedar Rapids could see a reduction of $10 million a year in property-tax revenue by 2024 because of the provisions in the new state law that come without state funds to backfill the losses. The city now takes in about $99 million a year in property-tax revenue, Drew said.

Iowa City’s Fruin said the city of Iowa City could face an estimated $7.7 million annual loss in property-tax revenue without state backfill support by 2024. Iowa City currently takes in about $57 million a year in revenue from property taxes, he said.

The "multi-residential" provision of the new law does not take effect until the budget year that begins on July 1, 2015, and so Cedar Rapids City Manager Jeff Pomeranz on Thursday said the city will have some time to figure out how it will adjust and respond.

Corbett said Cedar Rapids city officials will push state lawmakers next year to fix the problem before the city looks at job eliminations and service cutbacks.

The loss of property-tax revenue from apartments, Fruin said, hits university towns such as Iowa City particularly hard because of the number of rental units in the community to support the student population. Corbett said Cedar Rapids has plenty of apartments, too.

Cities in Iowa use local-option sales taxes and franchise fees as two ways to raise revenue other than property taxes. Most cities in Iowa have a 1-percent local-option sales tax in place well into the future, but Iowa City’s 1-percent tax expires on June 30 while the city of Cedar Rapids’ expires on June 30, 2014.

Iowa City currently has a 1-percent franchise on electric and gas bills while the city of Cedar Rapids is about to raise its franchise fee from 1 percent to 2 percent.

The dissatisfaction Thursday from local officials is a bit of a surprise because lawmakers and Branstad have talked a lot about passing a law that uses state funds to make up for lost property-tax revenue to local jurisdictions.

But the backfill provision comes for just the most talked about part of the new law, which reduces the percentage of commercial and industrial property subject to property tax from the current 100 percent of value to 95 percent of value and then 90 percent of value by the fiscal year beginning July 1, 2015.However, even the backfill funds for this provision come with only a hope that state lawmakers down the road would honor the current commitment, Corbett and Fruin noted.

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