Utility rate increases coming for Iowa City residents

IOWA CITY — Challenges lie ahead as Iowa City and other local governments navigate the municipal budget process amid cost increases, inflation and supply chain issues — in addition to financial pressures from property tax reform.

Iowa City is paying close attention to these challenges as it discusses the fiscal 2024 budget, which starts July 1, as well as what the potential long-term impacts could be, Assistant City Manager Rachel Kilburg told the Iowa City Council earlier this month.

Kilburg said the city is in a “strong financial position, but these are very real challenges.”

Residents can expect utility rate increases. The property tax rate is proposed to stay the same, but the tax bill residents see could change with property assessments.

The proposed fiscal year 2024 budget represents $219.6 million in all expenditures. The fiscal year 2023 budget approved last year was $194 million.

The general fund is just under one third of the total budget, at $67.8 million, and includes services such as police, fire, parks and recreation and general government. General fund operations are largely funded by property taxes.

Property tax rate staying the same

The property tax rate is proposed to stay the same and not inch down as it has.

The budget proposes a property tax rate of $15.63 per $1,000 of taxable valuation, which is the same as fiscal 2023. The city’s property tax rate has decreased every year from fiscal 2012 to fiscal 2023.

The owner of a house whose taxable value is $100,000 would pay $883 in city property taxes in fiscal 2024, an increase of $35 from the last fiscal year.

One of the reasons the city wasn’t able to decrease the rate in fiscal 2024 is because the overall tax base isn’t growing at the rate the city needs, Kilburg said.

“As we keep an eye on our growth in general, we may need to actually consider the increases in the future if things don't improve,” Kilburg said.

Utility rate increases expected

Various utility rate increases are proposed for fiscal 2024.

The water rate is anticipated to increase by 4 percent, which is about $1.50 more per month for the average user, according to the city.

The wastewater rate will increase by 2 percent, which is about $2.85 more per month.

There will be a $2 per month increase for the refuse and recycling rate, as well as a 50 cent per month increase for the stormwater rate.

Property tax reform challenges

City staff again reminded the City Council of the challenges ahead with setting the city budget with property tax reform.

The Iowa Legislature passed a historic property tax reform in 2013 and pledged to “backfill” some of the losses from lower taxes to local governments. But a law in 2021 phased out the backfill.

Iowa City’s backfill of $1.5 million a year started to be phased out in fiscal 2023. The impact will be a loss to the city government of $7 million over five years.

The 2013 law changed the property taxes paid by multi-residential properties, which Kilburg said the city is feeling the most impact from in the fiscal 2024 budget. Multi-residential properties — such as apartments — were treated as commercial buildings before 2013, meaning taxes were paid on the full building value. After the reform, multi-residential properties were taxed a rate that decreased each year.

In fiscal 2024, the multi-residential rollback rate on which taxes are partly calculated will be the same as the single-family residential rate, at 56.49 percent. The is an estimated loss of $150 million in taxable value, Kilburg said. That loss translates into $3 million in lost property tax revenue for the city in fiscal 2024, Kilburg said.

Adding to financial pressures is “uncertainly about what the state Legislature might do in this 2023 legislative session,” Kilburg said.

Republican lawmakers have said property tax is a top priority and “everything’s on the table as far as changes.”

The City Council will hold a public hearing on the proposed budget and adopt a resolution setting the maximum property tax on Feb. 21. A month later, on March 21, the council will hold a public hearing and adopt the budget.

Comments: (319) 339-3155; izabela.zaluska@thegazette.com