A proposed phaseout of property tax backfill money going to cities, counties and school districts would cause slashed services or higher taxes, officials said.
“It’s not going to be a painless process if we have to cut $3.8 million from our budget over the next couple of years,” said Scott Overland, a Cedar Rapids City Council member and chairman of the finance and administrative services committee.
The issue could see debate in the Senate on Saturday.
When Iowa lawmakers passed a massive commercial property tax cut in 2013, they promised to backfill local government coffers to partially compensate for the loss of revenue.
But the Senate Republicans proposed Thursday a gradual elimination of the $152 million annual commitment.
Growing cities and counties — where property tax valuations top a five-year statewide average — would see their backfill funding eliminated over three years starting in 2020.
Communities where valuations lag behind the statewide average would see their payment whittled over six years.
Cedar Rapids is getting $3.84 million this year in backfill, which is about 3.2 percent of the city’s $121 million budget. If those funds were phased out over two years, the city would have to scale back on some services or increase property taxes, Overland said.
“I’m not in favor of raising taxes unless it’s absolutely necessary,” he said. “But there is not a lot of extra money around. There’s little or no control around so many budget items. The citizens expect a certain amount of services.”
Iowa City’s annual backfill payment of $1.54 million is equivalent to about 15 public safety positions or funding for all three city pools, the animal shelter and forestry operation combined, City Manager Geoff Fruin told The Gazette in March.
“If we were to raise property taxes to compensate for the loss of the backfill, our tax levy would increase approximately 44 cents per $1,000 of taxable value,” he said.
Nearly all of Iowa’s 99 counties, including Linn and Johnson, already are charging the maximum general service levy of $3.50 per $1,000 of taxable assessed value, the Iowa Department of Management reported last fall.
With special exceptions, counties can exceed the $3.50 and 26 counties are doing that for this year, with the highest rates in counties on Iowa’s southern border. Decatur County has the highest rate at $7.50 per $1,000.
Of Iowa’s 943 cities, more than 800 are at their maximum general fund levy rate of $8.10. Cities can add an emergency levy of up to 27 cents per $1,000, and 367 cities are using that to the full extent for fiscal 2018.
Iowa school districts also would suffer if the backfill payments are cut.
The Cedar Rapids Community School District received $2.44 million this year that went into the general fund.
“The loss of state revenues would force the district to consider replenishing these losses with additional property tax revenues in (fiscal year) 2020 in the General Fund, Management Fund and Debt Services Fund,” District Finance Director Steve Graham wrote in an email Friday to The Gazette.
The district wouldn’t be able to replace lost funds in its Physical Plant and Equipment Levy fund, which would force $275,000 in reduced spending on “needed infrastructure and maintenance,” Graham said.
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