Iowa City property taxes set to decrease, while water, sewer rates rise under proposed budget

IOWA CITY — The City of Iowa City is proposing a $75 million general fund budget, up from $73.5 million in the current fiscal year, with a $1.5 million deficit that will be covered using reserves.

While property tax reform at the state level continues to impact local revenue collection, the city plans to decrease property tax levies in part due to increases in taxable valuation and revenue from the recently passed 1 percent local-option sales tax (LOST).

Iowa City is operating with a planned general fund budget deficit of nearly $3 million, covered by reserves.

“The fact that we’re still budgeting a deficit with the property tax reform coming shows that there’s going to be some long term constraints in the general fund,” City Manager Geoff Fruin told the city council during a budget work session. “I know that we want to maximize LOST for that value add as much as possible, but I think you also have to be cognizant that … some of that relief is going to provide some needed relief to your staff who’s out there on a day-to-day basis providing service to the community.”

State legislators this session are considering several proposals to reduce property taxes. Four proposals exist, but a single plan has not yet emerged as the favored plan.

Representatives of local governments across the state have warned that additional limits on revenue growth from property taxes could affect the ability to fund services.

Property tax rates set to decrease

The city is proposing a property tax levy of $15.433 per $1,000 of taxable valuation, a decrease of 20 cents from $15.633 in the current fiscal year.

Iowa City ‘s property tax levy has remain unchanged for the past three fiscal years.

The state’s residential rollback rate is decreasing from 47.43 to 44.53 percent. That means property tax rates will be applied to a smaller portion of a property’s value.

In Iowa City, city staff estimate that every one percent change to the rollback is equal to approximately $1.3 million in tax revenue.

Water, wastewater rates will increase

Under the proposed budget, water rates would increase 3 percent, which amounts to a monthly increase of about $1.16 for the average household that uses 800 cubic feet of water. The additional revenue will be used to fund general operations.

This would be the second straight year of a 3 percent water rate increase if approved.

Wastewater rates also are set to increase, by 5 percent. That would amount to around $1.94 more per month for households. That increase also will be put toward general operations.

Estimated $14 million in local-option sales tax revenue

In the November election, 84 percent of Iowa City voters approved a 1 percent local-option sales tax.

Fifty percent of the revenue must be used for property tax relief. Of the remaining 50 percent, 25 percent will be directed toward affordable housing initiatives, 10 percent toward public infrastructure, and 15 percent toward community partnerships.

With an estimated $14 million in LOST revenue for fiscal year 2027, that means $7 million would be put toward property tax relief, $3.2 million for affordable housing, $1.4 million for public infrastructure and $2.1 million for community partnerships.

Next steps

The first public hearing on the budget is scheduled for April 7, followed by a final public hearing and council vote April 21.

Residents will receive a mailing notice in March about the maximum property tax levy.

Comments: megan.woolard@thegazette.com

Get a weekly roundup of Johnson County news by signing up for my Johnson County Update newsletter.