Government

Legislators look to slow property tax growth

But local officials worry about meeting community needs

Eric Ash of rural Linn County saw his acreage get reclassified from agricultural to multi-residential, commercial and industrial even though much of his land is in conservation forest reserve and subject to flooding. The change doubled his tax bill, he said. Ash on Thursday points out the back section of his property that was flooded. (Stephen Mally/The Gazette)
Eric Ash of rural Linn County saw his acreage get reclassified from agricultural to multi-residential, commercial and industrial even though much of his land is in conservation forest reserve and subject to flooding. The change doubled his tax bill, he said. Ash on Thursday points out the back section of his property that was flooded. (Stephen Mally/The Gazette)
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DES MOINES — Property owners facing Monday’s deadline for paying their latest tax installment can take consolation in efforts underway at the Capitol to slow the growth of revenue that cities and counties use to finance their operations and provide essential services for residents.

Leaders of tax-writing committees in the House and Senate are crafting legislation aimed at requiring more accountability if elected officials in local governments seek to exceed annual revenue growth of 2 percent. The measure under study would provide voters the option of calling for a referendum to challenge the increase.

Proponents of the plan still being negotiated say some kind of cap on revenue is needed to address complaints from Iowans frustrated when they see their tax bills go up, even when local levies remain constant or decline due to increased assessed valuation of their residential, commercial or agricultural property.

Representatives of local governments and other opponents of House Study Bill 165 argue that capping growth of their main revenue source — especially in areas of the state enjoying economic expansion or hit with flooding problems — will hamstring their ability to respond to community needs and represents undue state meddling.

Cedar Rapids is just embarking on a plan that relies on taxes to help fund construction of permanent flood protection.

After 10 years of holding the municipal tax levy flat, city officials last year approved a $264 million bonding plan that would raise the levy potentially 22 cents a year for 10 years. The increase was seen as necessary to generate local money to match state and federal aid for the flood system.

“The impact to flood protection would be the operating cost to maintain the flood protection system (i.e. maintaining pump stations, mowing, trails, etc.). Once completed, (it) would be difficult to fund due to the cap on taxable valuation for operating levy,” said a statement from Cedar Rapids Finance Director Casey Drew.

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He noted the proposed legislation also restricts fund balances. Cedar Rapids has used its balance as cash flow to help fund capital improvement projects and disaster recovery efforts, which “would be limited or no longer possible” under the bill.

“I think both sides are interested in finding some way to put some kind of limit on the growth of property tax increases,” said Senate President Charles Schneider, R-West Des Moines. “At the same time, I think both sides also recognize that there needs to be a provision for local governments to spend taxpayer dollars on projects the communities are asking them to move forward with.”

HSB 165 would create a mechanism for voters to call for a referendum on tax bill increases. Under the measure, county boards and city councils could increase property tax revenue collections by up to 2 percent before voters could call for a reverse referendum.

The petition for the referendum would have to be signed by a number of voters equal to 20 percent of the ballots cast in the last presidential election in that jurisdiction.

If presented with such a petition, a council or board could reduce the planned increase to 2 percent or less and avoid a referendum, said Rep. Lee Hein, R-Monticello, chair of the House Ways and Means Committee.

Hein said the legislation is in response to complaints from taxpayers who point out that local elected officials say the tax levy is going down, and yet the tax bills go up — a situation that can happen when the assessed valuation of residential, commercial or agricultural property goes up and the levy remains constant.

“Everybody wants their property value to go up, they just don’t want their taxes to go up,” said Hein. Legislators are trying to add transparency for property owners that he said should result in more local control for voters.

“If value goes up, the levy should come down,” said Sen. Randy Feenstra, R-Hull, chairman of the Senate Ways and Means Committee, who said he wants to bring more accountability to the process while maintaining flexibility in local budgeting. “It’s a balancing act. You still want to give the cities and counties the ability to raise taxes,” he added.

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Eric Ash, a rural Linn County resident, said he supports efforts to rein in property taxes after he saw his bill spike this year due to a decision to reclassify his acreage from agricultural to multi-residential, commercial and industrial even though much of his land is in conservation forest reserve and subject to flooding.

The new classification caused his land’s assessed value to jump significantly and his tax bill to more than double.

“I told my wife, ‘they’re skinning us,”’ said Ash.

“This is going to infuriate people and I’m one of them,” added Ash, who noted the tax spike will hurt affected neighbors who are on fixed incomes. “For some people, this will be a game changer for them.”

With about a month left in the 2019 legislative session, House Speaker Linda Upmeyer, R-Clear Lake, said the property-tax issue remains on her “wish list” while Gov. Kim Reynolds said she anticipates that majority Republicans will deliver a measure to her before adjourning this year.

“I know they’re working back and forth to try to expedite that language,” Reynolds told a radio audience last week. “I think Iowans know that their property taxes are too high and they would like to see something done. I think there is a consensus on that.”

However, Sen. Pam Jochum, D-Dubuque, said Iowans already have an appeal process for challenging their property assessments if they consider them too high. They also elect local officials to set policies on budgeting, revenue collections and service delivery who can be voted out of office if they run afoul of voter wishes.

“It really runs counter to what we say we believe in terms of local government having some authority and local control,” said Jochum, who expressed concern that provisions of the House bill would make other changes that affect how local entities pay into employee and police retirement funds.

“They will be held accountable if taxes are too high back home, so we should let the people we’ve elected to take care of local government business do that without a lot of interference from the Legislature,” she added. “I believe that we need to back off to some extent on what we tell local governments to do.”

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Schneider pointed to data issued by the Tax Foundation, a Washington, D.C.-based think tank that publishes research studies on tax policies at the state and federal levels, indicating that Iowa’s per capita property tax collections ranked 15th highest in the nation. In addition, the group’s 2019 State Business Tax Climate Index ranked Iowa 39th in property taxes.

Schneider said that “both are signs Iowa must become more competitive.”

But David Swenson, an associate scientist in Iowa State University’s economics department, disputed contentions that property taxes in Iowa are rising faster than personal incomes, saying his research found the taxes as a fraction of income are “quite stable.”

Total property taxes collected in Iowa of $5.497 billion in fiscal 2018 — of which cities and counties were about half — represented 3.71 percent of the $148.043 billion in personal income, Swenson said. In fiscal 1980, the $1.215 billion in property taxes collected represented 4.6 percent of Iowans’ $26.298 billion personal income.

“Growing areas have cost pressures to accommodate growth to provide public goods and services and this makes them jump through hoops,” said Swenson. “It seems to be unnecessary and a thumb on local government to restraint them. Numbers show they are not behaving badly and have been nothing but steady over 20 years, so it limits their flexibility.”

Prescribing growth limits also could create unintended consequences, he added, by forcing cities and counties to more aggressively impose charges and fees for services that otherwise might have been covered under the general fund.
Swenson also questioned why legislators landed on 2 percent as a trigger. “That’s nothing but an arbitrary number. It makes no sense. It has no relationship either to the rate and pace of growth of the cost of public services in Iowa or the inflation rate. In and of itself, the 2 percent is just a number somebody pulled out of a hat as far as I am concerned,” he said.

Conversely, Gretchen Tegeler, a former director of the state Department of Management now associated with a central Iowa taxpayers’ group, endorsed HSB 165 as a helpful way to “put growth in check.”

She said — unlike Swenson’s conclusions — that property taxes have gone up much faster than personal income, inflation or population.

Shifting attention from the tax rate to overall revenue will increase transparency, she said. She also supported the reverse referendum that would allow taxpayers to overrule local governments’ tax decisions.

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“I think there are probably cases where the growth might be lower if there was a requirement to justify why it’s needed. It’s very easy to keep the rate constant, generate the increase in revenue and talk about holding the line on taxes,” she said.

Lucas Beenken, public policy specialist for the Iowa State Association of Counties, said his association is opposed to the measure. Robert Palmer of the Iowa League of Cities warned legislators during a House subcommittee meeting that limiting revenues with a one-size-fits-all approach could restrict services that constituents “require, want and need.”

On one hand, 682 Iowa cities lost population between 2010 and 2017. On the other, some counties and cities saw significant population growth.

“Two percent growth is too low,” said Beenken. “Growing counties need the revenue for rising populations and increased needs. A statewide arbitrary growth limitation doesn’t take into account the needs of our 99 counties. It would also limit investments that might need to be made for future growth. We don’t want to force counties into borrowing rather than budgeting if such investments are needed.

“The cost of plowing and patrolling the roads, prosecuting and jailing criminals, and providing the services that the people of Iowa want and depend on does not go down or even remain steady.” he added. “The local elected officials should be able to make that determination, and if their constituents don’t agree they can have their say at the ballot box.”

• Comments: (515) 243-7220; rod.boshart@thegazette.com

B.A. Morelli of The Gazette contributed to this report.

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