Author: Sarah Curry, DBA

Property Tax Increases Take Center Stage on March 5th Special Election Ballots

Posted on by Sarah Curry, DBA

Some local governments say if you vote to renew a levy, taxes won’t go up.

But it’s like finishing paying for a car and then buying another with the same monthly payment. This hides the option of saving money instead!

The March 5, 2024, special election in 13 school districts and one county will put property tax increase questions before voters. The school districts are looking for increases in their physical plant and equipment levies (PPELs), which generate local property tax dollars for infrastructure and equipment repairs, and one district is also asking for an increase of its debt service levy (i.e., for bonds). Louisa County is asking voters for a 15-year tax increase to fund emergency medical services (EMS).

How Much Will Property Taxes Increase?

If these public measures were to pass, the total would increase next year’s property tax collections by $12.1 million. Even worse, these property tax increases are scheduled to last for 10 years or more. The total taxpayer commitment would be more than $137.4 million — and that is a conservative estimate because nobody can predict property valuation increases a decade from now.

The following table provides the details for each public measure.

What Is PPEL?

PPEL stands for “physical plant and equipment levy.” The Iowa Legislature created the tax in the early 1990s as a local funding stream to support school district facilities and equipment. One type of PPEL allows annual school board approval, while the other, including those listed above, requires public votes. Voted PPELs can be authorized for a maximum of 10 years and $1.34 per $1,000 of taxable value and are distinctive because school boards may issue bonds against them and repay the debt with interest from the revenue.

PPEL funds may only be used for maintenance projects and equipment. For the current fiscal year, 49 districts do not use this property tax levy, while 100 districts are at the maximum rate of $1.34. The statewide average tax rate is 81 cents, and it generates $206.7 million per year.

Not Telling the Whole Truth

Anytime government agencies hold a vote to increase spending or keep it the same, the burden on taxpayers increases because home values continue to go up year after year. Some districts are forthcoming about the effect on taxpayers and admit they are asking for more money; others use careful wording to convince voters the tax increase doesn’t exist.

One of the most common statements school districts will use is, “This will not cause an increase in the school district property tax rate.”

The claim is that the current tax rate includes a PPEL, and if voters agree to keep it the same, then taxes do not go up. The principle is similar to paying off a car only to run out to buy a new one at the same monthly payment. The continuing payments disguise the alternative: saving the money.

Another way to say the same thing points to a second misleading aspect, “The district believes this will not cause an increase in the school district property tax rate. This will extend the voter PPEL the district currently has for an additional 10 years. The district has had a voter PPEL since 1992.” Over time, keeping the rate the same produces inevitable increases as property values rise. Since 1992, Iowa residential property valuations have increased 274%, meaning the district has been effectively raising taxes for 30+ years.

Some districts go so far as to deploy scare tactics against voters like, “If the PPEL is not renewed, the district would need to use general fund or SAVE money to support building upkeep, transportation, and technology, delaying potential projects planned from SAVE funding.” Translation: the school would have to budget and spend money on its planned projects. State Secure an Advanced Vision for Education (SAVE) money is already earmarked for infrastructure purposes, so using it is not unreasonable.

Another common tactic is to claim, “The current PPEL rate is $0.67 per $1,000 of taxable property value. We are asking voters to consider raising that to $1.34. Despite the increase, the district is positioned financially to make changes that allow the district’s overall tax levy rate to remain flat, meaning an increase of the voted PPEL will not raise taxes.” Notice the details. The district is positioned to make changes, which doesn’t mean it will. Total spending will likely increase, meaning the burden on property owners will also increase.

Voter Resources

Click on your school or county in the table above or use the menu at the top of this page to visit your community's page to learn more about its property taxes and spending.

What Is a Revenue Purpose Statement?

What Is a Revenue Purpose Statement?

Posted on by Sarah Curry, DBA

Simply put, if the voters of your district do not approve of a Revenue Purpose Statement (RPS), your property taxes will be lower. If they approve an RPS, your school district can spend more money and keep taxes higher. All school districts receive the corresponding funds from the state regardless of RPS status; the question is where the money goes.

Details

A Revenue Purpose Statement (RPS) is a ballot measure describing how a school district will spend sales tax funds the State of Iowa has dedicated to public schools through a program called Secure an Advanced Vision for Education (SAVE). State law mandates that all SAVE money must be used to pay for local property tax relief or school infrastructure needs. If a district wants to utilize its SAVE funds on infrastructure projects by spending that money or bonding against it, officials must ask voters to approve an RPS allowing them to forgo property tax relief.

Importance

Simply put, if the voters of your district do not approve of a Revenue Purpose Statement (RPS), your property taxes will be lower. If they approve an RPS, your school district can spend more money and keep taxes higher. All school districts receive the corresponding funds from the state regardless of RPS status; the question is where the money goes.

How Property Taxes Are Lowered

If a school district does not have an RPS, the SAVE revenue generated from the sales tax must be used to reduce specific local property tax levies. The only exception is if voters previously approved an RPS and the district used it for revenue bonding, then that debt must be paid off before SAVE revenue can be directed towards tax relief. The district must apply the money in the following order:

  1. To any debt service levy for general obligation bonds until it is reduced to zero. The maximum rate is $4.05 per $1,000 of taxable valuation.
  2. To any board-imposed physical plant and equipment levy (PPEL) until it is reduced to zero.
    The maximum rate is $0.33.
  3. To any voter-approved physical plant and equipment levy (PPEL) and income surtax until it is reduced to zero. The maximum rate is $1.34 and income surtax is 20%.
  4. To any public educational and recreational levy (PERL) until it is reduced to zero. The maximum rate is $0.135.
  5. To any authorized school infrastructure purpose.

Use the menu at the top of this page to see how much your district is spending.

RPS on the Ballot

Every March and September a handful of districts submit RPSs to voters. Voters should pay attention to why a district wants an RPS and what it intends to do with the proceeds.

Glenwood CSD, for example, failed to win approval of a general obligation bond in November, and officials have been very open about their plan to leverage SAVE money to build some of the facilities voters turned down last fall.  By using SAVE dollars this time around, they can bypass voter approval. Woodward-Granger CSD simply wants to extend its RPS because the current one is expiring. Meanwhile, Williamsburg CSD has listed examples of its past SAVE spending to imply how it will use funds moving forward.

The following table puts the seven pending RPS questions in context of whether the district placed a bond initiative on the November 2023 ballot as well as the growth (or decline) of local property taxes and student enrollment.

Misleading Comments by School Districts

Leading up to an election, school district officials attempt to make the case for their intentions, but their statements can sometimes be misleading.

The most common example is that “renewal of the district’s RPS will not lead to a property tax increase and will not extend an existing tax.” This is disingenuous because absent an RPS, the district’s property taxes would be decreased if all revenue bonds have been paid off. By enacting an RPS, the district extends its current property tax burden into the future. Variations on this misleading statement are that the RPS is “not endorsing a new tax burden” or that “the revenue generated has been used to meet our evolving needs while minimizing the burden on local taxpayers.”

Another misconception is that failure to approve an RPS means the district cannot access the SAVE funds. One example: “[we] ask voters to approve our Revenue Purpose Statement, a resolution necessary for districts to access sales tax revenue for a variety of purposes.” Districts receive SAVE funds with and without RPSs, it is only the use of those SAVE dollars that might be limited.

Revenue Purpose Statement Expiration

Legislation in 2019 set all RPSs voted on before July 1, 2019, to expire on January 1, 2031. For districts to continue spending SAVE funds as they wish, each must secure new RPSs approved by voters. Any new RPS will stay in effect through December 31, 2050, unless amended or repealed. For more information on the use of SAVE funds and Revenue Purpose Statements, click here.

County Tax Relief Is Not Deprivation

County Tax Relief Is Not Deprivation

Posted on by Sarah Curry, DBA

Counties are cashing in on hefty property taxes from high assessments, and reducing rates won’t halt financial gains.

You might hear your county officials complaining they are facing dire straits this year because of the new property tax law. The truth is that too many counties have been cashing in on hefty property taxes from rapidly increasing assessments, and redirecting some of these financial gains toward rate reductions shouldn’t affect the services they offer.

Every county is supposed to be allowed a maximum general services property tax levy of $3.50 per $1,000 in valuation, with another $3.95 for the rural area of the county.[1] Over time, special provisions in state law have given counties ways to exceed those rates. To make the property tax structure easier to understand and more predictable for taxpayers, the new law consolidates some levies and requires counties gradually to reduce their top rate to the $3.50 and $3.95 maximums.

Counties Raised Their Rates

While the legislation was working its way through the system before being enacted in May 2023, county officials knew it would eventually become law. In their final budgets before implementation, many counties made changes to hedge against future cuts.

They certainly had room to do so. Iowa property valuations increased as much as 22% above the prior year in some areas, so counties have no need for increased levy rates, given these extraordinary assessment bumps. Many of them were already enjoying the advantages of rates above the supposed maximums.

In fiscal year 2023 (FY23), 30 counties charged more than the maximum general services rate of $3.50, and three of them were above $3.95 for rural services.

For FY24, the number above the maximum for general services jumped to 40 counties, with rural rates above the maximum in five counties. The statewide average general county services rate rose over the same period from $3.55 to $3.78. Growth of the average rural addition was from $3.18 for FY23 to $3.27 for FY24.

To put that into perspective, Decatur County has the highest general services rate, and it jumped 12 cents to $6.71 for FY24. On the rural side, Audubon has the highest rate, which increased another 2 cents, to $5.38 on top of the general services rate in that county. Even so, Audubon comes nowhere near the highest total rate. The combined basic rate (general services and rural) in Clarke County is $9.64 for FY24.

Another key statistic is the county with the largest increase over the one-year timeframe; Lee County raised its general services rate from $3.50 to $5.85, a $2.35 jump in one year, which was the largest in the state.

Keep in mind that counties impose other levies on taxpayers, too, pushing total tax rates even higher. The highest-taxed residents in the state at the county level are currently the rural residents of Winnebago, who pay $15.52 per $1,000 of property, all in.

How the Legislation Works

The recent legislation reduces property tax levies by requiring counties to apply new growth toward lowering their levy rates. If a county experiences growth in property valuations, it can no longer keep the entire windfall but must adjust its rates.

Triggers vary this requirement based on the non-TIF taxable valuation growth.[2] If a county’s non-TIF taxable growth is 3% or less, it can maintain its current levy rate and collect the increase. If a county’s non-TIF taxable valuation growth is between 3% and 6%, it must reduce its total property tax collections by 2% by adjusting its rate downward. If a county’s tax base grows at 6% or more, the mandatory reduction is 3%.

For simplicity, the following examples consider only the general services levy:

  1. County A has a general services levy rate of $3.50, and its non-TIF taxable valuations increase from $1.00 billion to $1.02 billion, which is up 2% year-over-year.
    a. The county can keep its tax rate and all property tax growth that year.
  2. County B has a general services levy rate of $4.50, and its non-TIF taxable valuations increase from $1.00 billion to $1.04 billion, which is up 4% year-over-year.
    a. The county is required to reduce its total tax dollars collected by 2% while keeping the rest of the increase.
  3. County C has a general services levy rate of $4.50, and its non-TIF taxable valuations increase from $1.00 billion to $1.07 billion, which is up 7% year-over-year.
    a. The county is required to reduce its total tax dollars collected by 3% while keeping the rest of the increase.

How Much in Savings?

From 2017 to 2023, county valuations went up an average of 4.3%. Every county saw its valuations grow by at least 3% during one of those years, and 70 saw valuations increase by more than 6%. In rural areas, the average growth across the state from 2017 to 2023 was 4.2%. Again, every county’s rural property values went up by at least 3% during one of those years, and 78 saw valuations increase by more than 6%.

The new county tax rate restrictions will lower property taxes statewide. Exactly how great an effect taxpayers see depends on how much the general and rural tax bases of each county grow from FY25 to FY28. The benefit will be most substantial in the 40 counties currently above $3.50 for general services and five counties currently above $3.95 for rural services, but any county with a big increase in property values will enjoy a tax reduction from what their taxes would otherwise have been.

 [1] Certain county property tax levies apply to all taxed property within the county; these are called general levies, while other levies apply only to property that is outside of incorporated cities, which are called rural levies. Properties located in cities are only subject to the general levies, while rural properties are subject to both general and rural levies.

[2] This refers to the taxable valuation growth outside of specially designated districts with tax increment financing (TIF) programs. 

Assessment Rollback Protects Your Property Tax Bill

Assessment Rollback Protects Your Property Tax Bill

Posted on by Sarah Curry, DBA

How much did your assessment increase?

Many people saw the value of their home increase by 20% or more, but that does not mean their property taxes are going to increase by 20% thanks to a law on Iowa’s books called the rollback.

The rollback percentage is adjusted each year by the Iowa Department of Revenue. Last year, the rollback rate was 54.6501%. This year, due to the growth in valuations across the state, the rollback rate dropped to 46.3428%.

The rollback percentage is a form of assessment limitation that helps keep property taxes from growing too fast.

The example below shows how the rollback is used to limit the property taxes paid by taxpayers when there are large increases in the assessed value.

As you can see from the above example, the property's assessment increased, but the tax bill decreased because of the rollback.

So, even though many properties across Iowa saw record assessment growth, taxes should not increase that much. However, many jurisdictions will choose to increase the levy rate to make you pay more.

The rollback was first applied in 1978, permitting a 6% growth in the taxable value of residential property. From 1980 through 2012, the allowable growth rate was reduced to 4%. Beginning in 2013, the growth limit is 3% statewide.

Below is a full history of Iowa’s residential rollback percentage. The steep drop from 2022 to 2023 shows that the rollback is reacting to the inflationary pressures on home values, which is what it is intended to do -- to protect property taxpayers.

November 2023 Local Bond Election Results

Posted on by Sarah Curry, DBA

Iowa counties, cities, and schools put forward bond questions for the election yesterday across 50 counties, covering 75% of the state’s population and totaling a potential $1.72 billion in new spending. The decision facing taxpayers was whether or not they wanted to saddle themselves with new debt and higher property tax bills during a time of rising inflation and national economic uncertainty. Statewide, 366,488 ballots were cast, representing 16.68% voter turnout.

Results

A total of 45 bonds were on the ballots for six counties, four cities, and 35 public school districts. Only 22 of the bonds met the 60% threshold to pass. As shown in the following table, these results translate to $951.9 million in new spending, with the largest from the Polk County bond for Des Moines Airport.

Voters responsible for Cedar Rapids Community School District (CSD) overwhelmingly defeated the largest school bond proposal in state history. Other large requests, such as those from Dubuque CSD and Lewis Central CSD, received majority support but failed to achieve the supermajority of 60% to pass.

Many of the school districts whose bond proposals failed yesterday have experienced declining enrollment over the last 10 years. However, some with declining enrollment still found a way to win over taxpayers: Durant CSD, Harris-Lake Park CSD, Mid-Prairie CSD, and North Tama CSD. The school districts in the Des Moines metro area with increasing enrollment overwhelmingly approved their bond measures.

City bonds in Linn, Story, and Marshall County failed, leaving Burlington as the lone winner. Turning to counties, four will be receiving new jails and law enforcement centers, but Webster County failed to receive the supermajority to fund a new jail proposal.

Overall, the proposal with the strongest support was Van Meter’s CSD bond, at 86%, while the bond with the least support was Schaller-Crestland CSD’s, with only 35.5% support.

Effect of a New Property Tax Law

Earlier this year, the state government enacted a wide-ranging package of property tax reforms, with one major provision restricting bond elections to November each year. The intent was to increase voter turnout for issues that have a direct effect on property taxes. Governments that choose to try again for any bonds that failed yesterday must wait a calendar year before they can put them before voters again.

Another new requirement in the legislation is direct notification about bond elections. The commissioner of elections or auditor for each county conducting a bond election must mail every registered voter a notice that includes the full text of the public measure to be voted on days prior to election day.

The Secretary of State reported the city and school election for the first time, allowing taxpayers to watch in real time as results were posted. Future years of November bond elections with statewide reporting and data will allow for better analysis for local governments and taxpayers alike.

School Districts Seek $1.2 Billion Amid Declining Enrollment

School Districts Seek $1.2 Billion Amid Declining Enrollment

Posted on by Sarah Curry, DBA

At a time when the economic environment is forcing families to budget for gasoline and groceries while property taxes keep climbing, school districts would do well to focus on projects directly related to the education of children.

On November 7, 2023, 34 school districts will ask voters to approve bond questions totaling more than $1.2 billion across 50 counties in Iowa. Many districts claim the new debt will be revenue neutral from a taxpayer perspective, or only increase the property tax a little, but most Iowans want their taxes to go down, not stay the same or increase.

Half of these districts, 17, have overseen property tax increases of more than 40% in the last decade. At the same time, 15 of the 34 districts have experienced declines in enrollment over the same period. Only 10 have seen enrollment increase by double digits, mostly in the Des Moines metro area in Dallas and Polk Counties.

While some of the proposed projects are likely necessary in districts with increasing enrollment and/or aging facilities, many are not so obviously a wise decision for taxpayers given the current economic environment. For example, it is understandable that Adel-Desoto-Minburn Community School District (CSD) is proposing a bond to build a new high school and renovate its middle school, given an enrollment increase of nearly 44%. The same goes for Van Meter CSD, where enrollment has increased nearly 55%, potentially justifying $18 million to build new classroom additions and expanded parking.

In contrast, the Beaman-Conrad-Liscomb-Union-Whitten (BCLUW) School District has seen an enrollment decline exceeding 20% over the last decade, yet is asking voters to fund additions to the elementary and high school buildings. Easton Valley CSD wants to build a new athletic fieldhouse despite a 10-year decline of over 16%.

Some districts are returning to voters asking for more money mere months after a March 7 election that included bond questions. The Irwin-Kirkman-Manilla-Manning (IKM-Manning) CSD won a bond approval in March but now is back for more despite a 5.8% enrollment decrease over the last decade. Others, including Durant CSD, North Tama CSD, West Sioux CSD, and Clarinda CSD, lost their bond requests but are trying the same questions again, as detailed in the following table.

The nature of each project is also important to consider. Especially in an economic environment forcing families to budget for gasoline and groceries while property taxes keep climbing, school districts would do well to focus on projects directly related to the education of children. While sports are a valuable component of children’s educational experience, their value is worth examining when measured against adequate classroom space or essentials like functioning HVAC, electrical, and plumbing systems.

Nonetheless, 14 of the bond questions entail building or enhancing athletic facilities. These projects range from new baseball and softball complexes to tennis and pickleball courts to expansion of wrestling practice rooms. New facilities are on the ballot for an indoor batting/hitting area, a swimming pool, and a new concession/ticket booth, among others. These may be nice amenities to have, but at a time of high interest rates and declining enrollment are they reasonable to put on the back of the taxpayers?

For worthwhile projects, communities can always look to other sources of funding than bonds. Not only do they have property taxes to pay for infrastructure, but they also receive a penny of every dollar subject to the sales tax through the Secure and Advanced Vision for Education (SAVE) fund. In fiscal year 2022, total SAVE expenditures across the state amounted to more than $880 million. These sources are in addition to Physical Plant and Equipment Levies (PPELs) school boards impose.

As the facts highlighted above illustrate, voters in these districts must educate themselves. School finance is difficult even for those who work in the public policy world, which is why the Iowans for Tax Relief Local webpage has been enhanced with new information to help voters make informed decisions when it comes to local government spending.

Visit itrlocal.org to explore your community’s spending, debt, and property tax collections.

November 7 Election Bond Questions Exceed $1.7 Billion

November 7 Election Bond Questions Exceed $1.7 Billion

Posted on by Sarah Curry, DBA

75 percent of Iowans will see a bond question on their November 7th ballot.

The November 7, 2023, election ballots in 50 Iowa counties will have bond questions that total $1.72 billion in potential new spending statewide. A majority of the state’s people, 75%, live in counties with bond referenda next month, and these residents face their local governments saddling them with new debt. In fact, some November 7 ballots will include additional questions related to property tax increases specifically tied to the proposed debt.

The bond questions cover all variety of local governments: Six are for counties; four are for cities; and the remaining 35 are for public school districts. The largest request is Polk County’s proposal to build a new terminal at the Des Moines International Airport for $350 million. The smallest is the City of State Center’s proposal to build a municipal fire station and emergency medical service (EMS) building for $1,500,000.

School Districts Asking for Bonds… Again

For some school districts, next month’s bond questions are their second this year. A March 7 election also included bond questions, and voters in the Durant Community School District (CSD), North Tama CSD, West Sioux CSD, and Clarinda CSD all said “no.” Nonetheless, these school districts have decided to bring the same questions up for a second-chance vote, some with more money added. In the case of the Irwin-Kirkman-Manilla-Manning (IKM-Manning) CSD, voters approved a bond in March, but the district is back asking for more money anyway, despite its declining enrollment.

Effect of a New Property Tax Law

Earlier this year, a wide-ranging package of property tax reforms passed through the Iowa State Capitol (HF 718) with overwhelming bipartisan support in both legislative chambers. One of the major provisions of the legislation is the restriction of bond elections to November each year. The intent was to increase voter turnout for issues that have a direct effect on property taxes.

Another new requirement in the legislation is direct notification about bond elections. The commissioner of elections or auditor for each county conducting a bond election must mail every registered voter a notice that includes the full text of the public measure to be voted on not less than 10 days or more than 20 days prior to election day.

Voter Education

To ensure efficient, accountable government, voters in these districts must educate themselves about public projects and spending in their communities. Public finance is difficult even for those who work in the public policy world, which is why Iowans for Tax Relief has revamped and expanded its ITR Local webpage with information to help you make an informed decision this November.

Visit itrlocal.org and explore your community’s spending, debt, and property tax collections.

Local Governments Have No Reason to Increase Rates

Local Governments Have No Reason to Increase Rates

Posted on by Sarah Curry, DBA

With exceptional valuation growth over the years, it is time to force local governments to cut back and live within their means.

Property taxes are, without a doubt, the most hated tax in Iowa. Rightfully so, as the bill goes up year after year and the services Iowans receive do not equate to the increase. Iowa currently has the 10th highest property tax when measured on a national scale, resulting in $6.7 billion in collections.

However, given all this, many local government advocates still insist property tax collections must increase over time in response to inflation and population growth.  That may be a fair point to consider, but the reality is the property tax system is already designed to accommodate both inflation and population growth.  In a nutshell, property taxes are the product of the tax rate multiplied by the taxable value of each piece of real estate.  This means as more properties are added to the tax base, or as those properties become more valuable (valuations are inevitably increased to reflect the impact of inflation), a tax rate that is held constant would generate more revenue for a local government. 

Before we go into historical trends, let’s make it clear that the only property tax number you should really be concerned about is your final bill.  Don’t get caught up in assessed value, taxable value, rollback, or rate.  Simply focus on how the bill you received in August changed from last year.  Now, if you don’t like how your bill changed since last year, there are a few items you can dig into further.

The Department of Management provides property tax data for each local government entity dating back to FY77. This makes it easy to observe long-term trends.

For the most part, taxable valuations in Iowa have increased almost every year since 1977, except in 1988, when personal property was removed;  in 2000, when gas and electric utilities were excluded; and in 2004, after a national recession. In those three instances, consolidated levy rate increases made mathematical sense, given the reduction in valuations; governments still had expenses to pay. However, such unusual circumstances do not justify the average consolidated levy rate increase from $22.82 in 1977 to $32.18 in 2023. That’s a 41% increase on top of a taxable valuation increase of 380%.  In other words, raising the levy rate at the same time that valuations are growing is doubling down on tax increases for property owners.

It's easy to see from historical data that local governments have not only collected the natural (and expected) growth in property tax revenue from inflation and population but have also increased the rate as a way to collect and spend more. In the most recent year, home values jumped an average of 22% statewide further illustrating that local governments can keep their levy rates the same while collecting more dollars. There is no reason to keep increasing the rate.

Let’s put that into perspective. When we compare the most recent tax years, 2023 to 2022, we find that 436 cities (roughly half of the 936 cities in the entire state) increased their levy rates. While some outliers increased their levy rate by more than $4.00, the average levy rate increase for cities last year was still 58 cents. Even for a number of cities that chose to reduce their tax rates, which is better than an increase, the small reduction in the rates still allows local governments to collect a substantial windfall from valuation increases.

When considering the last half-century of property tax collections in Iowa, the total amount of property tax dollars collected from citizens has increased 523%, while inflation has only increased 416% over the same period, meaning total collections are $1.1 billion more today than they would have been if property taxes had only increased in line with inflation.

Lawmakers are in the right place when they look to eliminate property tax levies or consolidate others. The state has been seeing exceptional valuation growth over the last few years, so now is the time to force local governments to cut back and live within their means. History tells us they will continue to tax and spend unless the state acts.

Iowa Government Debt Increase Largest in Nearly a Decade

Iowa Government Debt Increase Largest in Nearly a Decade

Posted on by Sarah Curry, DBA

At a time when property valuations are increasing and Iowans are struggling financially from inflation, local communities must focus on paying their debt off, not finding new spending projects.

Iowa governments took on nearly 7% more debt — almost $1.3 billion — in fiscal year 2022 (FY22). The current Outstanding Obligations Report from the state treasurer shows this to be the largest increase since FY14. Iowa’s state and local governments now collectively owe $20.2 billion, which is roughly $6,320 per resident.

Especially with interest rates rising, property taxpayers should be asking their local officials — from cities, counties, and school districts — whether this is the right time to increase debt spending. Local leaders often tout spending projects as paths to prosperity for their cities and school districts, but this is simply a political assertion. Debt costs money. As interest payments, bond ratings, attorney fees, and more pile up, a pay-as-you-go approach is preferable over taking on debt whenever possible.

Among all levels of Iowa government with outstanding debt, cities currently hold the most. In FY22, cities had $7.5 billion in outstanding debt obligations, requiring $663 million in annual debt-service payments, or 7.7% of total budgeted city expenses.

Breaking down the total outstanding debt statewide by purpose, more than half of FY22 debt went toward public buildings/schools (36%) and utilities/sewer systems (24%). Smaller amounts funded transportation, housing and urban development, health care, and public safety.

Another important way to assess government debt is by the types of debt that have been issued. General obligation (GO) bonds, which voters are accustomed to seeing on the ballot, are the most familiar. This type of debt is backed by the full faith and credit of the government responsible for the bond, which typically translates into the lowest interest rates because governments can always raise taxes to pay bondholders. By voting on and approving such debt, residents have agreed to take the risk upon themselves.

Another common type of government debt is the revenue bond. This type of debt is supported by a specific revenue source, such as income from a utility (water/sewer), enterprise revenue (landfills/ garbage facilities), or a local option sales tax. In theory, the issuing government body may not be responsible for the debt if the revenue doesn’t appear, so the interest is typically higher than for GO bonds. However, defaulting on such bonds can affect the government’s bond rating and make borrowing without voter approval more expensive in the future, so officials have incentive to make bondholders whole no matter what happens.

Overall, Iowa’s debt is 46% general obligation bonds, 50% revenue bonds, 3% loans, and 1% lease-purchase agreements.

Iowa’s state constitution limits the debt of each political subdivision to 5% of the value of the taxable property within it, but this limit only applies to debt payable from property taxes, typically GO bonds. Revenue bonds or other types of debt paid from sources other than property taxes have no legal limit.

To some extent, the higher-than-normal debt in FY22 can be attributed to a carryover from the pandemic and the federal stimulus money sent to local governments, which flooded cities, counties, and school districts with cash. The combination of surging cash and record low interest rates encouraged cities to pursue infrastructure projects and refinance previously held debt.

In the new high-interest-rate environment, these activities need to change. Debt places a burden on taxpayers and can crowd other priorities out of local budgets. At a time when property valuations are increasing and Iowans are struggling financially from inflation, local communities must focus on paying their debt off, not finding new spending projects. A temporary increase for a good reason is understandable, but constant high levels of debt put the taxpayer on the hook for growing interest payments in the future.

The following table shows the top cities, counties, and school districts across the state of Iowa when it comes to debt levels. If you are interested in digging into the debt held by your local governments, visit ITR Local and review the county, city, and school district debt pages.

City Budget Reserves and the Impact on Taxpayers

City Budget Reserves and the Impact on Taxpayers

Posted on by Sarah Curry, DBA

Some cities may have collected more taxes than they needed and now they’re stockpiling your cash.

Why the numbers matter

During debate in the 2023 Iowa Legislature over a technical correction related to the taxable value of properties, the spotlight touched on the topic of reserve funds. The correction in question lowers the amount of taxable valuation cities and other local governments can draw from, and some claimed they would have to cut emergency management positions or other core government services to make up the difference while others said they would raise taxes. This threat led lawmakers and others to examine local government reserves to determine whether there would be enough cash on-hand to fill any perceived gaps. It also led ITR Foundation to review financial information of 936 Iowa cities to see exactly how much cities have in their coffers.

What a reserve fund is

In local government finance, reserve funds are also referred to as “ending fund balances.” Essentially, they represent the accumulation of operating surpluses a city has been able to leave untouched and available for future use. Of course, because nothing is straightforward in government finance, many different types of reserve funds exist, but the one considered a true reserve fund is the General Fund Unassigned Fund Balance. Local governments aren’t restricted in how they can spend “unassigned” dollars. They can stabilize cash flow during the first few months of a fiscal year before receiving property tax payments, provide cushions for unexpected expenditures or unforeseen dips in revenue, or apply them to any other uses that state or local rules don’t forbid.

Statewide numbers

The following map shows the 100 largest cities in Iowa and their reserve funds as a percentage of their expenditures — that is, how much of their budgets they could fund with no revenue at all. A good governance rule of thumb suggests a responsible and reasonable ending balance target would be somewhere between 15 and 30 percent of annual General Fund Expenditures. Unassigned General Fund dollars, or reserves, beyond that range may be considered excessive.

For fiscal year 2022, Iowa cities had more than $1.1 billion in their Unassigned General Fund balances, compared with around $1.9 billion in General Fund expenditures. The average percent of unassigned general fund dollars in comparison to general fund expenditures for all 936 cities came to 125 percent, well above the reasonable range.  This means many cities may have collected more taxes than they needed and now they're stockpiling your cash.

In the details

There are 121 cities that have zero reserves, the largest is Fort Dodge. That means if there was some unforeseen event that caused these cities to need additional funds, they would either have to cut somewhere else or raise taxes. And while having zero reserve funds is not a good situation to be in, having negative reserve funds is even worse. There are 36 cities with negative reserve funds, which means they are either overspending or they have an accounting problem. For FY2022, all the cities with a negative reserve figure have an average of negative 71.8 percent of annual General Fund Expenditures and are below the 2,000-population threshold requiring an audit.

Cincinnati (pop. 283) has the least reserves, with negative $540,938, or -1,003.4 percent of annual expenditures on hand. Osterdock (pop. 44) has the highest percentage, with 2,279.4 percent, and Cedar Rapids (pop. 136,429) has the largest balance overall, at $152.1 million.

In total, 640 cities are holding more than 30 percent of their expenditures in unassigned fund balances, with 346 of them over 100 percent of expenditures. Only 88 of Iowa’s 936 cities are within the 15-30% range.

Where to find this information

Details for your city can be found directly from our source: 2022 Annual Financial Reports from Iowa Department of Management. If you decide to look at the data yourself, keep in mind that cities use different accounting methods: cash accounting and accrual, or Generally Accepted Accounting Principles (GAAP), accounting. While this distinction doesn’t make a big difference to most of us, it matters significantly when digging into cities’ budgets and aligning tax collections and expenditures. Thirty-two cities use GAAP while all the others use non-GAAP or cash basis accounting.

To see the data ITR Foundation collected from the Department of Management and the US Census Bureau, click here.

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    About ITR Local

    ITR Local is a joint project of Iowans for Tax Relief and ITR Foundation.

    When local elected officials choose to increase spending and raise property taxes, they need to clearly explain why government needs the money more than the people they represent.

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