Category: Cities

The True Cost of Property Taxes

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Many city, county, and school governments seem to disregard Iowans’ struggle to achieve when their only focus is more taxpayer money to spend on their special projects.

According to a recent WalletHub article, Iowa has one of the highest property tax burdens in the country. The 1.49 percent of their home’s value Iowans pay in property taxes yearly ranks as the 10th highest in the country.

Real-Life Impact

ITR recently heard about a woman’s journey trying to improve her life. She escaped her abusive husband, and after living in her car, under bridges with her three children, she ended up in a homeless shelter. With the shelter’s support, she got back on her feet and went back to school. She now has a degree in counseling and works full-time at the homeless shelter. Her kids are all good students, and her sons are now volunteer firefighters in the community. One of the things she is most proud of now is that she is a homeowner.

She worked hard to own a house but now is coming to grips with the property tax burden that comes with it. Her city, school, and county governments seem to disregard her struggle to achieve when their only focus is more taxpayer money to spend on their special projects.

The government needs to quit taking so much.

Property taxes were an unnecessary hurdle for her. Rent increases because landlords have no choice but to pass on that expense. Businesses struggle to afford leases because of tight profit margins. For homeowners, do they even own their own homes?

Think about your grocery bill, your gas bill, everything else. Expenses increase, and affordability decreases.

Paying 1.49 percent of your home value yearly for property taxes is simply too much. It needs to come down. Reducing our collective tax burden is better for us economically, but these things impact every Iowan at a fundamental level and change how people live their lives.

Property tax bills are determined right now.

Next year’s local government’s proposed budgets will soon be finalized. Many county supervisors have been lashing out at legislators and policies as simple as the assessment rollback. They point the finger at everyone but themselves because they have a tight budget and lose sight of the fact that Iowans don’t want to pay this much.

Local officials cannot see Iowans are overtaxed on their property taxes. Their entire paradigm is based on their local budget and what it means for them.

We’ve heard from many state legislators who are sick and tired of being lectured by city and county officials. The legislature gets it and knows how upset Iowans are because they go door to door and hear it from voters. Remember, last year’s property tax relief bill passed with only one dissenting vote.

Upset city councilmen and county supervisors try to blame and lecture those dastardly legislators of both parties who simply stood up for their citizens when their local government wouldn’t do it anymore.

The vast majority of these local governments are just flat wrong when complaining about cuts. Revenue was not cut; the legislature just limited their growth. Simply put:  Property tax revenue collected by cities and counties will continue to increase.

Only in government is slowing the growth of spending seen as a cut. Cal Thomas once said:

“It’s funny that government can never afford to cut taxes or spending, but taxpayers are never asked whether they can afford higher taxes.

When your city council, county board of supervisors, or school board chooses to increase spending and raise property taxes, they need to clearly explain why the government needs the money more than you do.

Take Action!

Use the menu at the top of this page to see how your community’s property taxes have grown compared to inflation, population, and school enrollment. Use this information to learn more about your local government budgets, share it with your neighbors, and start a conversation with your elected officials.

Keep an eye on your mailbox. Property tax public hearing notices will be mailed in March. ITR will keep you updated and provide information for you to share when you attend.

November 7 Election Bond Questions Exceed $1.7 Billion

November 7 Election Bond Questions Exceed $1.7 Billion

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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.

City Per Capita Spending

City Per Capita Spending

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When your city council creates a budget and decides how much to spend, they also set the rate, which determines the city’s portion of your property taxes, which is the second largest part of your total bill behind school districts.

School District Spending

School District Spending

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When your school board creates a budget and decides how much to spend, they also set the rate, which determines the school district portion of your property taxes, which is the largest part of your total bill.

The Iowa Department of Education states, “Per pupil expenditure amounts, while informative, provide an incomplete framework in which to understand statewide, district, or school expenditure levels. A wide range of per pupil expenditure values exist as the result of a multitude of district and school differences statewide.

School District Property Tax Rates

School District Property Tax Rates

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When your school board creates a budget and decides how much to spend, they also set the rate, which determines the school district portion of your property taxes, which is the largest part of your total bill.

The table below shows the underlying rates that comprise a district’s total levy rate. The Iowa Department of Management is the source of this data.

Most property tax levies for Iowa’s public schools are set by the state’s funding formula. However, the levies highlighted in blue and marked with an ” * ” are set by each district’s school board. Ask your board members about these levies and where they are spending your money.

FY 2024 amount paid for each $1,000 of taxable value. Click on a column heading to sort.

County Property Tax Rates

County Property Tax Rates

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When your county supervisors create a budget and decide how much to spend for county services, they also set the rate, which determines the county portion of your property tax bill.

The table below shows the underlying rates that comprise a county’s total levy rate. The Iowa Department of Management is the source of this data.

FY 2024 amount paid for each $1,000 of taxable value. Click on a column heading to sort.

City Debt

City Debt

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Debt can crowd out other priorities from the budget. A temporary increase for a good reason is understandable, but constant, high levels of debt put the taxpayer on the hook for more interest payments in the future. City Council members should pay off debt in a timely manner without taking on additional burdens.

The map below shows each city’s population and a four-year history of debt per capita.

All Iowa cities included. Click on a column heading to sort.

City Property Tax Rates

City Property Tax Rates

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When your city council creates the budget and decides on how much to spend for city services, they also set the rate, which determines your property tax bill.

The table below shows the underlying rates that comprise a city’s total levy rate. The Iowa Department of Management is the source of this data.

All Iowa cities included. FY 2024 amount paid for each $1,000 of taxable value. Click on a column heading to sort.

Iowa Government Debt Increase Largest in Nearly a Decade

Iowa Government Debt Increase Largest in Nearly a Decade

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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 countycity, and school district debt pages.

City Budget Reserves and the Impact on Taxpayers

City Budget Reserves and the Impact on Taxpayers

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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.

© 2023 Iowans for Tax Relief and ITR Foundation