Cedar Rapids City Council anticipates more ‘targeted’ spending after tax reform

CEDAR RAPIDS — City of Cedar Rapids officials anticipate they’ll have to be more “targeted” as they set future priorities and spending plans to fund new initiatives while state legislation that provides tax relief to homeowners limits the amount of growth Iowa communities can capture.

Overall, the city’s proposed expenditure budget for fiscal 2025 — the budget year spanning July 1 through June 30, 2025 — is $852 million, including infrastructure investments in the city’s permanent flood control system, Water Pollution Control Facility and street repairs funded by the 1 percent local-option sales tax-funded Paving for Progress program. City Manager Jeff Pomeranz presented the budgeted Tuesday to the Cedar Rapids City Council.

While making these investments, the city is contending with a new state law that passed last year with bipartisan support, House File 718, which caps the amount that local governments can capture by taxing a growing tax base. While this limitation doesn’t affect Cedar Rapids this year, another part of the new law provides tax exemptions to seniors and military veterans, which did decrease the residential property revenue the city could tax.

Compounding this is the fact that the state-set residential rollback rate — the percent of a home’s value that can be taxed — is the lowest it has been in 45 years. That means now more than half a home’s value can’t be taxed, which is bad news for local governments, but could be relief for taxpayers.

In a growing city, council member Dale Todd said infrastructure only gets older and complex social issues such as homelessness are “things we’ve never really had to deal with before” but are a priority for the city.

“One of these days there’ll be a reckoning” because of those factors, he said.

Mayor Tiffany O’Donnell said she is happy that property taxpayers get some relief, but Pomeranz and city department directors have had to figure out how to allow for that relief, which is “forcing all of us to evaluate what’s important.”

Council member Scott Overland, chair of the council’s Finance and Administrative Services Committee, said the council’s annual goal-setting session will have to give more consideration to these financial constraints “so that we can do the things that the citizens of Cedar Rapids want us to do.”

What’s the tax rate?

Overall, property owners would see a city tax levy rate of $16.47 per $1,000 of taxable value. The city’s current tax rate is $16.25.

The increase of 22 cents can be attributed to the city’s approximately $750 million flood control system.

The city’s proposed fiscal 2025 rate is lower than the property taxes levied by Waterloo, Council Bluffs, Davenport and Des Moines, but higher than Iowa City and Sioux City, for the 2024 budget year.

Total assessed property value in fiscal 2024 is $15.3 billion — an increase of 12.6 percent or $1.7 billion from the current fiscal year. Of this increase in valuation, $52.6 million, or 3 percent, is related to tax increment financing development areas.

Despite this major growth, under the state changes, total taxable value rose by only 0.98 percent to $7.5 billion — an increase of $72.4 million. Residential valuation decreased, largely because of the new exemptions for Iowans aged 65 and over and for military veterans.

General fund

The total general fund revenue and expenditure budget — which funds police and fire, community development, parks and recreation and public works — is $163.6 million, an increase of 4 percent or $6.9 million from fiscal 2024.

Rising health care and property and liability insurance costs, along with the legislative changes, meant a largely status quo budget for Cedar Rapids. There were minimal funding increases and no new general fund positions added.

Among the new items included in the budget are:

The budget maintains $47 million in reserves, or 29 percent of the fiscal 2025 operating budget.

The federal government still owes Cedar Rapids a combined total of about $18 million in reimbursements for costs related to recovery from the 2020 derecho, Pomeranz said. He said city staff anticipate that by the end of 2024, Cedar Rapids will be fully reimbursed.

Utilities

Cedar Rapids’ utility rate will increase 5.9 percent. That’s about $85.80 annually for the typical residential customer.

According to the city, this increase largely will fund operations and capital improvement projects for water, water pollution control, stormwater and sanitary sewer.

Assistant Finance Director Heidi Stiffler said many projects budgeted in fiscal 2025 are related to Paving for Progress water main replacements, totaling $3.4 million out of $5 million overall for water main installations and replacements.

But rates have ramped up while the city has been in the design phase on a large project at the Water Pollution Control Facility near Bertram. The project is nearing construction, which Stiffler said is slated to begin in the 2025 budget year. The multiyear project covers needed upgrades to solids processing and nutrient reduction. It is estimated to cost more than $250 million.

“We're going to be borrowing further dollars in order to make sure that our utilities primarily are able to continue to serve our citizens, but also serve new opportunities as far as economic development,” Pomeranz said.

The residential rate for solid waste and yard waste collection will decrease by 1 percent.

What’s next?

The council will hold a public hearing at its March 26 meeting for property owner statements, followed by a public hearing and council adoption of the budget on April 23.

Comments: (319) 398-8494; marissa.payne@thegazette.com