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County and cities facing significant budget loss
On May 2 of last year, Governor Kim Reynolds signed House File 718, a new property tax agreement, into law that will take effect July 1, 2024.
The legislation was aimed at reducing property tax growth in Iowa, and has two very different outcomes.
Iowans may end up paying a smaller share on the assessed value of their homes, farms or businesses thanks to the new $6,500 homestead property tax exemption for Iowa seniors and $8,000 exemption for veterans.
Iowa also has a “rollback” rate that limits the amount property taxes can increase in a year. The “rollback” rate means homeowners will not pay property taxes based on the assessment value reported on the letter they received from county assessors last April.
The legislation accomplished this by capping levy rates for cities and counties, resulting in less money for county and city budgets. The state also eliminated the general “catch all” provision (GCP): “Any other purpose which is necessary for the operation of the county or the health and welfare of its citizens.”
Local government officials are now looking at how the property tax cuts are going to limit their ability to fund essential services, including road maintenance and construction, emergency services and law enforcement.
Supervisors and auditors from six to eight counties, including, Ringgold county board of supervisors, met with state legislators Devon Wood and Tom Shipley to voice their concern prior to legislation being passed.
“The impact is not good,” stated supervisor Steve Knapp.
“It’s not going to be good for anybody,” stated supervisor Colby Holmes, “It’s frustrating when the state decides what’s best for us.”
Counties have a cap of $3.50 per $1,000 for general services and $3.95 for rural services by 2029. Ringgold county currently operates at $4.85, and will be required to reduce to the new limit set by the state.
While it is up to counties how they step down over the next 4 years, the impact to Ringgold county would equate to a loss of approximately $430,000, if they adjusted the budget all at once.
Decatur county may see a drop in budget around $1.2 million according to Ringgold county supervisors.
The legislation is expected to negatively impact nearly a third of the state. Roughly 30 counties across Iowa currently operate above the new general services cap of $3.50. Counties that are experiencing rapid development of their communities will see their growth rate capped as well.
“It’s a community killer,” stated supervisor Knapp.
Cities will also have their general fund levy capped at $8.10 per $1,000 in taxable value, plus several existing levies will now be consolidating into the new adjusted city general fund levy (ACGFL).
Fiscal year 2024 is the baseline year for the ACGFL, and the levy limitation will begin with budget year FY25, continuing through FY 28.
Local governments are placed into three tiers based on their revenue growth, and use different formulas to determine how much of the excess revenue must be dedicated to lowering property taxes, and the process for bringing existing property tax rates down to those set maximums.
“This is the most negatively impacting legislation in 40 years,” stated Mount Ayr city administrator Brent Wise, “They let us go above the $8.10 limit for too long.”
Iowa lawmakers have stated they plan to continue working on property taxes in upcoming sessions, including finding ways for Iowa local governments to diversify their revenue sources.