Proposed legislation would allow cities offering fee-based services to cut general fund levy in half

Des Moines city officials are asking state lawmakers for legislation that would for the first time allow cities to charge owners of tax-exempt property for police and fire protection and in return cut the general fund levy to support city services in half.

The legislation, believed to be the first of its kind anywhere in the United States, was unveiled last week to Des Moines’ legislative delegation by City Councilwoman Christine Hensley and City Manager Eric Anderson. The city’s legislative committee, chaired by Hensely, drafted the proposal tying fee-based service to property-tax relief after the council worked to close a $14 million budget shortfall for the fiscal year that begins July 1.

“We’re looking at everything in a much different light,” Hensley said. “We’re looking at a solution that has not been tried in the past.”

The issue could be debated yet this session in a climate that is increasingly more receptive to property tax reform, said Senate President Mary Kramer, R-West Des Moines. “There are lots of ideas about property tax and this is one of them,” Kramer said. “At this point, we’re willing to entertain them all, look at the consequences and [weigh] public reaction. This is a session where we seem willing to at least discuss lots of new ideas.”

Kramer said the state, which owns the Capitol complex and other government installations around the city, could have to pay a hefty bill for police and fire protection. That could be a deal-killer because county, state and federal governments all have a significant presence in the city and are, like Des Moines, trying to make up budget shortfalls.

“A lot of people believe that all of that non-taxable property creates excellent jobs, so they don’t see a reason for Des Moines to be so unhappy about the percent of non-taxable property,” she said. “But I think one of the things a proposal like this does is make clear the cost of service provision.”

Though owners of non-taxable property provide important economic development opportunities in the central city, they’re often some of the biggest users of the service, said Sen. Matt McCoy, D-Des Moines. “We need to determine what’s fair for reimbursing the city of Des Moines for those services,” he said. “The city has a $14 million operating deficit that’s only going to get worse every year, and we need to determine if some of these non-profits are capable of paying for their police and fire protection.”

McCoy said he sensed some members of the delegation are reluctant to require churches and religious institutions to pay for the costs of local government, but he thinks it’s a “legitimate debate that needs to happen.”

“It’s not easy to address, but at the same time, I’m prepared to talk about it,” he said.

The proposed legislation attempts to correct what Anderson said are structural deficits in the property tax formula as it is applied to cities. First, the 51 percent state-ordered rollback on residential property means cities can’t collect taxes on the full assessed value. Second, more than a third of the real estate in Des Moines is tax-exempt, which causes other property taxpayers to shoulder the burden for city services.

Under the proposed legislation, cities would be allowed, but not mandated, to impose fees to pay for police and fire protection. In exchange, the city would be required to cut to $4.05 per $1,000 taxable valuation the current $8.10 levy to support its general fund operations. In Des Moines’ case, a fee-based approach would be revenue-neutral, but would establish a clear link between the users of the service and its cost, Anderson said. Fees would initially be set by the council and subsequent increases exceeding the Consumer Price Index would be subject to a referendum, making users responsible for establishing the level of service in the community.

It’s estimated the average taxpayer in Des Moines, which currently has the highest tax levy among all metropolitan governments at $17.05 per $1,000 taxable valuation, would save about 15 percent in tax payments if police and fire protection costs were spread evenly among all property owners. Anderson said it’s estimated the owner of a home valued at $100,000 to $125,000 would pay about $35 a month for police and fire services.

“It’s not a ton of money in a real sense,” Anderson said. “Very few people know the number of dollars of property tax they’re currently paying for those services.”

Fees would be based on the assessed value of structures only and would not include real estate. Because valuations don’t currently exist for the tax-exempt properties, those would have to be established in a process that could take up to 18 months. Even if the Legislature approves the bill this session, it would be fiscal year 2006 or fiscal year 2007 before the fee-based approach would take effect, Anderson said.