North Liberty property tax, utility rates set to increase for the second year in a row

NORTH LIBERTY — North Liberty is proposing a $20.9 million budget for the coming fiscal year, with a $116,000 deficit and another year of increases for both utility rates and property taxes.

The city proposes covering the deficit using a budget surplus from fiscal 2025. Under Iowa law, cities cannot have unbalanced budgets.

While the proposed budget for fiscal 2027 includes property tax increases, most North Liberty residents likely will pay less or a similar amount in city property taxes because of a decrease in the state’s residential rollback rate. The rollback rate determines how much of a property’s value is subject to taxes.

The proposed budget also catalogs the continuing impact of property tax reforms passed by the Iowa Legislature in 2023 that limit the amount of tax base growth a city can capture.

“Despite this constraint, several positive trends are supporting revenue growth. Strong development activity continues to boost permitting revenue, recreation programs are generating solid user fees, and careful management of cash balances has produced additional investment earnings,” City Administrator Ryan Heiar wrote in a memo to the North Liberty City Council about the effects of the 2023 state law.

The general fund budget is increasing by about $1 million from last year, in part due to requests to add more fire department staff, the opening of the city’s event center and other city infrastructure improvements.

Property taxes, utility rates set to increase under proposed budget

The proposed property tax levy for the fiscal year that starts July 1 and ends June 30, 2027, is $11.84 per $1,000 of taxable valuation, up 15 cents from $11.69 in the current fiscal year.

While the city’s rate is increasing, 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.

Water rates are set to increase by 5 percent, following a 6 percent increase this fiscal year. Before that, North Liberty hadn’t raised its water rates in four years.

The rate increase is meant to help provide for upcoming capital improvements to the city’s water system, including new wells and other plant upgrades.

Managing limits on ability to capture tax base growth

In 2023, the Legislature passed and Gov. Kim Reynolds signed into law limits on the amount of tax revenue local governments can capture from a growing tax base.

Because of this, North Liberty and other growing cities across Iowa have had to scale back what can be captured by the general fund levy if valuation growth exceeds the caps set by the legislation.

The city’s total taxable value grew by 5.28 percent, but the city will be able to capture only 3.22 percent of the growth in property tax revenue.

City staff have been keeping a running total of revenue the city has been unable to collect as a direct result of the law. Through fiscal 2027, that number will reach over $1.3 million, with more than $800,000 this year alone.

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

State legislators are continuing to explore different property tax proposals during this legislative session, which is ongoing.

Next steps and public input

The City Council will need to vote on whether to adopt the proposed budget. Before that happens, the city has to hold two public hearings, which typically take place in April.

The final approved budget has to be submitted to the Johnson County Auditor’s Office by April 30.

Comments: megan.woolard@thegazette.com

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