State “rollback” means harder work to balance local budgets

Local governments and school districts in Iowa are going to have to work harder to balance their budgets in the fiscal year that begins July 1 because state action has reduced how much of the value of residential property will be taxed.

For the first time, the Iowa Department of Revenue's annual 'rollback” rates address multifamily residential property as a separate classification than the higher-taxed commercial property, a change brought about by a new state law.

As a result, 86.25 percent of the value of multifamily properties will be subject to property tax next year - down from 90 percent.

In actuality, the hit to local taxing bodies will be steeper.

That's because the state reimburses them for local revenue lost as a result of state action that lowered the percentage of value subject to tax from 100 percent to 90 percent on commercial and industrial property. That reimbursement will not apply in the next budget year to multifamily properties because they are no longer considered commercial.

Cedar Rapids City Council member Kris Gulick, chairman of the council's Finance and Administrative Services Committee, said Friday the tax change related to multifamily properties is apt to mean that the city will have less property tax revenue for its next budget than now.

Gulick, past president of the Iowa League of Cities, said cities like Iowa City and Ames, which have a large share of apartments, may be hit harder than most.

The the Iowa Department of Revenue rollback announcement may be wallet-hitting news to local taxing bodies in a second way.

The department's new rollback percentage on other residential property is barely changed: In the current budget year, 55.7335 percent of a home's value is subject to tax, while in the next budget year, 55.6259 percent will be.

The change is tiny and to the benefit of the property owner. But more significantly, it halts a climb over the last seven years in which the percentage of residential property subject to property tax has increased from 44.08 percent of value to 55.7335. That's a 26 percent increase in the value subject to tax in seven years.

This trend has helped local taxing bodies generate more local property tax revenue without having to vote to increase the tax rate. Cedar Rapids, for instance, has kept its tax levy the same in recent years, at $15.21 per $1,000 of taxable valuation.

Cedar Rapids' Gulick said the small drop in the residential rollback from 55.7335 percent of value to 55.6259 is 'interesting” because he said it is counter to what had been an assumption by the state. The assumption, he said, was that the residential rollback would continue to climb to 60 percent as the rollback on multifamily properties gradually dropped until it reached the level of other residential property.

The thought was local tax bodies wouldn't lose any revenue as the residential classes moved and met.

'So it's not doing what had been originally anticipated,” Gulick said.

The residential rollback is tied to a state formula dictated by agricultural production. The rollback to commercial, industrial and multifamily is dictated by recent legislation.

Dennis Bockenstedt, finance director for Iowa City, said Friday he was happy to see that the state's rollback on residential property other than multifamily property remained 'fairly steady.” However, he said he understood that revenue lost in the next budget year on multifamily properties will not be replaced by the state.

Cedar Rapids Mayor Ron Corbett said Friday the Iowa Legislature has made some 'pretty dramatic changes” in how local governments assess property taxes. The change with multifamily properties 'will equate to lost revenue,” the mayor said.

'The main thing that cities have to do is they have to grow,” he said. 'If they are not growing, they are probably going to fall backward as far as revenue to run the operations of local government.”

He said that one reason Cedar Rapids has been promoting an 'open-for-business” mentality to attract businesses and investment.

'Just about every council meeting we have we have a development project for the City Council to approve,” Corbett said.

But he said the city likely will reduce or eliminate its program to provide property tax breaks to new apartment developments now that the owners will pay less in property taxes. He said the tax incentives for the projects have helped the city replace housing lost in the 2008 flood. But that housing has been replaced, the mayor said.

He said city budgets have a lot of moving pieces. For instance, the city will be paying less next budget year on police and fire pensions, which will help offset revenue lost from apartment complexes.

The city currently pays an amount equal to 27.77 percent of the wages of police officers and firefighters into their pension system, an amount that will decline to 25.92 percent.

l Comments: (319) 398-8312; rick.smith@thegazette.com