iowa league of cities property tax update september 24, 2015

Iowa League of Cities

Property Tax Update

September 24, 2015

IOWA’S PROPERTY TAX SYSTEM

Assessments / Valuations

• Property Assessed in Different Classes• Agricultural• Commercial• Industrial• Multi-Residential• Railroad/Utility• Residential

• Valuation determined by assessors

• Assessment limitation or Rollback is applied

Rollback Numbers – FY 2016

Agricultural – 44.7021%

Commercial – 90%

Industrial – 90%

Railroad – 90%

Residential – 55.7335%

Rollback History

• State property tax rollback• Assessed values reduced by set percentage for tax purposes

Recent Changes

• Residential/agricultural property growth now capped at 3% (previously 4%)

• Coupling provision still in place

• Commercial, Industrial, Railroad now have separate rollback

Recent Changes

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-2448%

50%

52%

54%

56%

58%

60%

62%

64%

52.8%

54.4%

56.5% 56.5%

58.5%57.9%

59.9%59.1%

61.0%59.8%

61.6%

52.8%

54.4%

55.9%55.4%

56.8%55.7%

57.0%

55.7%56.9%

55.2%56.3%

Residential Rollback Estimated Trends (FY14-24)Iowa League of Cities

*Note assumptions: estimates incorporated (including statewide evalua-tion growth and new construction rates) follow those used in League

Property Tax Model, available online at www.iowale

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Projected rollback – 3% cap

Recent Changes

• New rollback for commercial, industrial, and railroad property• 95% in Assessment Year 2013

• 90% in Assessment Year 2014 (and beyond)

• State backfill (commercial & industrial only) – capped at FY 2017 appropriation

• Backfill (standing appropriation from state legislature)

Recent Changes

• New multi-residential property class• 8 year rollback schedule• NO BACKFILL

Assessment Year Rollback Percentage

2015 86.25%2016 82.5%2017 78.75%2018 75%2019 71.25%2020 67.5%2021 63.75%2022 and beyond Equal to residential

Property Tax / Budgeting

• City accounting based on segregated funds• General fund, special revenue fund, TIF, debt service,

capital projects, permanent, proprietary

• Local/unique factors include: • property classification breakdown• growth trends• valuation• level of services demanded• capital projects• % exempt property, etc.

IMPACT TO CITY BUDGETS

Property38.1%

Corp., Bank, & Insurance4.1%Pers. Income & Inherit.

25.2%

Gambling/Other2.4%

Motor Vehicle Fuel3.7%

Sales & Use26.6%

What are the major sources of state and local tax revenues?

Data Source: Iowa Legislative Services Agency, 11/2014

Distribution of Major State and Local Tax SourcesActual FY13

Review of City Revenues• Property Tax (General Fund Levy $8.10/1,000 in valuation)

• Other City Taxes

• Licenses & Permits

• Use of Money & Property

• Intergovernmental• Includes the Road Use Tax Fund (RUTF)• Federal, state and local grants & reimbursements

• Charges for Fees & Services• Includes city utilities and proprietary operations

• Special Assessments

• Proceeds of Debt & Capital Asset Sales

City Revenues by Fund

City Revenues by Category

General Fund Levies

• $8.10 General Fund Levy• Unchanged since 1975• 795 cities at $8.10 limit

• Emergency Levy (up to $0.27/$1,000 taxable value)• 394 cities using levy (334 at limit)

• Increasing trend

General Fund Levies

• Each city has its own circumstances, use of general fund voted and non-voted levies

• Non-Voted Levies:• Publically owned transit; aviation authority; contract for use

of bridge; civic center; sanitary disposal project; levee improvement fund; liability, property & self insurance costs’ support of local emergency management commission

• Voted Levies:• Instrumental groups, memorial building,

symphony/orchestra, cultural and scientific facilities, county bridges, Mississippi or Missouri River bridge construction, aid to transit company, city emergency medical district, public library support, unified law enforcement

Special Revenue Levies

• Emergency Levy of $0.27/1,000 (if general fund is at $8.10/1,000)

• Police & Fire Retirement (funds toward 411 may also be budgeted from the general fund)

• FICA & IPERS (if general fund is at $8.10/1,000)

• Other Employee Benefits Levy

• SSMID (for applicable cities)

City Revenues / Budget (Cont.)

• TIF Special Revenues

• Debt Service Levy

• Capital Projects Levy

• Proprietary Operations (municipal utilities, water)

Who Pays and Receives Property Taxes?

Review of City Expenditures

• City Expenditures Classifications: • public safety• public works• health & social services• culture & recreation• general government• community & economic development• debt service• capital projects• proprietary

• Public safety is largest expenditure for most cities (by far)

City Expenditures: All Populations

City Expenditures: Population Matters

City Expenditures: Population Matters

City Expenditures: Population Matters

City Expenditures: Population Matters

City Expenditures: Population Matters

Review of City Expenditures

• Staffing, Wages and Benefits• Large expense for most cities• Pension costs (mostly cities’ control)• Health insurance

• Normal Operating• Daily expenses to run the city (electric/gas, supplies,

telecommunications, maintenance, postage, etc.)

Review of City Expenditures

• Capital Improvements• Generally defined as permanent/long-lasting items

(buildings, roads, some equipment)

• Debt Service• Municipal debt has risen recently – tight budgets, low

interest rates, and unfunded mandates/change

Review of City Expenditures

• Mandated City Costs (often outside city control)• Examples:

• shortfalls in transportation funding• water infrastructure upgrades• continually changing EPA & DNR infrastructure requirements• pension obligations• public safety (training and township levies, workers

compensation formula)• rising personnel costs (healthcare, collective bargaining,

continuation of group health insurance for early retirees)• publication costs• mandated commissions and boards• tax-exempt property• city audits• delinquent utility charge liens• others

ECONOMIC TRENDS

Iowa Demographics

• 11 cities over 50,000 in population• Approx. “500 under 500”

• 86% rural and 14% urban (2010 Census Thresholds) • 4% shift to urban since 2000

• Population Density: 64% Iowa population resides in an urban area, and 36% in a rural area• 3% shift to urban since 2000

Economic Trends

• What does Moody’s Investor Services say? (3/2015)…• Fewer financial weaknesses than in many other states

• Less impacted by foreclosures than greater Midwest, nation• Pensions

• Labor market expanding

• Areas of potential challenge: aging population, impacts of health care, pension benefit funding, debt loads, infrastructure needs, ag sector, impacts and potential for natural disaster

Other Economic Trends in Iowa

• Declining unemployment rate since 2009 spike

• Payroll growth, adjusted average wages, and per capita income increasing (slightly outpacing nation trend, not adjusted for inflation)

• Poverty rate significantly lower than nationwide, but increasing trend over the last decade• National rate has increased, but Iowa’s has increased

faster

Other Economic Trends in Iowa

• Doubly challenged: Property Tax• Legislative change• Fiscal trends

• Uncertainty

BUDGET PLANNING & FORECASTING

Property Taxes: SF 295

• Impacts of SF 295 Implementation:

• Residential growth limitation 4% to 3%

• State reimbursement for commercial and industrial property

• Multi-residential property (new class)• Significant impact on its own

• Telecommunications property exemption

Multi-Residential Impact

• ?????????????

• Valuation reports first come out in October

• Significant in some cases (no backfill!)

Property Tax Backfill Funding

• FY 2015 – 100% ($78.3 million)

• FY 2016 – 100% ($161.1 million)

• FY 2017 - ???• *FY 2017 appropriation is cap for future

years

Property Tax Backfill Funding

• Model designed to provide rough projections of the going-forward impact of Division II, SF 295

• Semi-custom (info by individual city)• Can easily be tailored to each city’s own growth

estimates

• Updated annually in Nov/Dec

Sample: Using the League Property Tax Model

City Impact (Statewide - All Cities Combined)

*Note: Projections included are forward projections only. The model cannot compare past years on cumulative scale because the assumptions will have changed.

Remember that all figures noted are non-cumulative.

Assumptions: LSA and DOM Revaluation Growth Rates, 2012-13City Revaluation Growth Rate same as Iowa Average (2012-13)New construction estimates included (LSA/DOM, 2012-13) *note, costs attributable to additional services associated with new construction have not been includedGrowth cap at 3% for residential and ag property classes, beginning FY15Levy rates held constant (FY15); Valuations for FY15 (DOM records as of 11/14/14)Commercial, Industrial, and Railroad properties rolled back to 90% (phased-in over 2 years at 5% per year)Backfill may lower as multiresidential property class will not be eligible for backfill (currently classed commercial), backfill excluded for railroad propertyBackfill projections are not noted above for commercial and industrial properties. Recall the "freeze" to backfill estimates occurs in FY17. See notes above.

NOTES

Commercial

*NOTE: SF295 indicates State annual appropriation to backfill losses due to commercial and industrial rollback change. This is indicated as a 100% backfill for those properties until FY17, at which point it will be frozen.Also note that this "commercial" section still includes apartments, etc. as of 11/14/14. Therefore, this does NOT account for eligible properties' conversion to multi-residential property classication that will occur soon. Thus, backfill amounts would be less.

PREVIOUS LAWAssessment Fiscal Growth Due ToGrowth Due To City Comm City Comm Tax Revenue

Date Year 100% Actual RevaluationNew ConstructionRollback Taxable Tax Rate Taxes Est. Growth Rollback Taxable Tax Rate Taxes Growth Impact Est.*1/1/2013 2014-15 $718,091,275 100.00% $718,091,275 $11.90 $8,545,286 90.00% $646,282,148 $11.90 $7,690,758 ($854,529)1/1/2014 2015-16 $736,043,557 0.25% 2.25% 100.00% $736,043,557 $11.90 $8,758,918 2.5% 90.00% $662,439,201 $11.90 $7,883,026 2.5% ($875,892)1/1/2015 2016-17 $767,325,408 2.00% 2.25% 100.00% $767,325,408 $11.90 $9,131,172 4.3% 90.00% $690,592,867 $11.90 $8,218,055 4.2% ($913,117)1/1/2016 2017-18 $786,508,543 0.25% 2.25% 100.00% $786,508,543 $11.90 $9,359,452 2.5% 90.00% $707,857,689 $11.90 $8,423,506 2.5% ($935,945)1/1/2017 2018-19 $833,699,056 3.50% 2.50% 100.00% $833,699,056 $11.90 $9,921,019 6.0% 90.00% $750,329,150 $11.90 $8,928,917 6.0% ($992,102)1/1/2018 2019-20 $856,625,780 0.25% 2.50% 100.00% $856,625,780 $11.90 $10,193,847 2.8% 90.00% $770,963,202 $11.90 $9,174,462 2.8% ($1,019,385)1/1/2019 2020-21 $912,306,456 4.00% 2.50% 100.00% $912,306,456 $11.90 $10,856,447 6.5% 90.00% $821,075,810 $11.90 $9,770,802 6.5% ($1,085,645)1/1/2020 2021-22 $941,044,109 0.25% 2.90% 100.00% $941,044,109 $11.90 $11,198,425 3.2% 90.00% $846,939,698 $11.90 $10,078,582 3.2% ($1,119,842)1/1/2021 2022-23 $1,008,328,763 4.25% 2.90% 100.00% $1,008,328,763 $11.90 $11,999,112 7.1% 90.00% $907,495,886 $11.90 $10,799,201 7.1% ($1,199,911)1/1/2022 2023-24 $1,040,091,119 0.25% 2.90% 100.00% $1,040,091,119 $11.90 $12,377,084 3.2% 90.00% $936,082,007 $11.90 $11,139,376 3.2% ($1,237,708)

SF 295

Sample: Year, Valuation, Growth Assumptions

Commercial

PREVIOUS LAWAssessment Fiscal Growth Due To Growth Due To

Date Year 100% Actual Revaluation New Construction1/1/2013 2014-15 $718,091,2751/1/2014 2015-16 $736,043,557 0.25% 2.25%1/1/2015 2016-17 $767,325,408 2.00% 2.25%1/1/2016 2017-18 $786,508,543 0.25% 2.25%1/1/2017 2018-19 $833,699,056 3.50% 2.50%1/1/2018 2019-20 $856,625,780 0.25% 2.50%1/1/2019 2020-21 $912,306,456 4.00% 2.50%1/1/2020 2021-22 $941,044,109 0.25% 2.90%1/1/2021 2022-23 $1,008,328,763 4.25% 2.90%1/1/2022 2023-24 $1,040,091,119 0.25% 2.90%

Sample: Rollback, Formula Prior to SF 295

PREVIOUS LAWCity Comm

Rollback Taxable Tax Rate Taxes Est. Growth100.00% $718,091,275 $11.90 $8,545,286100.00% $736,043,557 $11.90 $8,758,918 2.5%100.00% $767,325,408 $11.90 $9,131,172 4.3%100.00% $786,508,543 $11.90 $9,359,452 2.5%100.00% $833,699,056 $11.90 $9,921,019 6.0%100.00% $856,625,780 $11.90 $10,193,847 2.8%100.00% $912,306,456 $11.90 $10,856,447 6.5%100.00% $941,044,109 $11.90 $11,198,425 3.2%100.00% $1,008,328,763 $11.90 $11,999,112 7.1%100.00% $1,040,091,119 $11.90 $12,377,084 3.2%

Sample: Formula Incorporating SF 295

City Comm Tax RevenueRollback Taxable Tax Rate Taxes Growth Impact Est.*90.00% $646,282,148 $11.90 $7,690,758 ($854,529)90.00% $662,439,201 $11.90 $7,883,026 2.5% ($875,892)90.00% $690,592,867 $11.90 $8,218,055 4.2% ($913,117)90.00% $707,857,689 $11.90 $8,423,506 2.5% ($935,945)90.00% $750,329,150 $11.90 $8,928,917 6.0% ($992,102)90.00% $770,963,202 $11.90 $9,174,462 2.8% ($1,019,385)90.00% $821,075,810 $11.90 $9,770,802 6.5% ($1,085,645)90.00% $846,939,698 $11.90 $10,078,582 3.2% ($1,119,842)90.00% $907,495,886 $11.90 $10,799,201 7.1% ($1,199,911)90.00% $936,082,007 $11.90 $11,139,376 3.2% ($1,237,708)

SF 295

Non-cumulative

League Property Tax Tracking Project• Tracks SF 295 impact over long-term

• 21 cities participating of all demographics

• Uses reported AFR and budget data, and local data and observations

• Monitors estimated staffing levels, hours of operation, services provided

• So far?

Thank you!

• For more information, contact:

• Erin Mullenix: erinmullenix@iowaleague.org

• Mickey Shields: mickeyshields@iowaleague.org