Property taxes will stay flat, utility rates to increase under Iowa City’s proposed budget

IOWA CITY — Iowa City’s proposed budget for next fiscal year projects a deficit of $2.8 million in the general fund. And while city officials said they have had past success decreasing deficits through “conservative budgeting practices,” that’s becoming more difficult.

“It's not the first deficit budget that this council has seen,” City Manager Geoff Fruin said at a recent city council budget work session. “In the past, we've been able to flip deficits into surpluses, but that's going to be increasingly more challenging … our hope is that we'll be able to get that close to zero through conservative budgeting practices, but I'm less and less confident of that going forward.”

Iowa City’s general fund budget will increase about $2.4 million, from $71.1 million for the current fiscal year, to $73.5 million in Fiscal Year 2026, which begins July 1 and runs through June 30, 2026.

City officials said they will cover the general fund deficit by dipping into the city’s general fund reserve, which contains $26.8 million.

The city’s property tax levy for Fiscal Year 2026 would be unchanged from the current year at $15.633 per $1,000 of taxable valuation. Rates for utility fees and other city services are proposed to increase 1-3 percent.

Fruin said the city is facing a loss in property tax revenue, historically a large source of revenue for municipalities, following changes at the state level.

The state’s “backfill” that was intended to compensate for the loss of property tax revenue from changes to the state’s rollback system, is being phased out. Fruin said in the past, the backfill has provided approximately $1.5 million to the city, but next fiscal year the city is expecting to receive about $308,000.

“We are certainly facing the most difficult budget time since I have been here, and we’re projecting that the next few years will be even more challenging,” said Fruin, who has been Iowa City’s city manager since 2016. “So these headwinds are really starting to impact our ability to maintain our service levels.”

Utility rate and fee changes

Under the proposed budget, water rates would increase 3 percent, which amounts to a monthly increase of $1.12 per month for the average household that uses 800 cubic feet of water. The money will be used to fund general operations.

City staff have proposed a 1 percent gas and electric franchise free, estimated to provide the city with an additional $1 million each year to support fare-free transit.

The city launched a two-year fare-free pilot program in August 2023 to encourage people to use public transit and to meet the city’s climate action goals.

The pilot program, set to end later this year, is funded through federal pandemic relief aid. The city council has expressed its intention to continue the program beyond the pilot.

Other user fee changes

The city is proposing a $2 sticker fee for additional bags of yard waste outside compost bins. A $5 minimum charge will be assessed for yard waste deposited at the city landfill to support operations. The city’s leaf vacuum will remain available to residents for no charge.

General fund deficit

The initial proposed budget projected a $2.6 million deficit in the general fund. However, the city council directed staff to increase the deficit to $2.8 million in order to maintain funding for affordable housing efforts.

While the city will work to close the budget deficit over the course of the year, there will be no tax or fee increases other than what’s outlined in the budget proposal.

“Closing a deficit would require us to realize higher than anticipated revenues and/or expend less than the budgetary authority. We would aim to reduce projected spending levels, which includes contingency lines. This could be delaying rehiring of positions or restricting discretionary spending,” Fruin wrote in an email to The Gazette explaining how the city would work to close the deficit.

Next steps, public input

The first public hearing on the budget is scheduled for April 1, followed by a final public hearing and council vote April 15.

Comments: megan.woolard@thegazette.com

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