Local government officials are miffed at Iowa lawmakers over passage of a bill that adds steps to the budget-setting process and in some instances requires a supermajority of elected officials to approve proposed property tax rates.

Senate File 634 was passed in late April by the Iowa Senate and House. The original Senate version of the bill capped at 2% the increased amount of property tax revenue cities and counties could collect. Outrage over that plan prompted changes to the final version of the bill.

Under the bill, signed by Iowa Gov. Kim Reynolds on Thursday, if no changes are made in the amount of revenue raised from property taxes from one budget year to the next, no new steps must be taken.

However, if additional revenue is raised, a public hearing must be held, which is a new step in the budget process. Also, elected officials must vote on the maximum property tax rate that could be levied. If the revenue raised by property taxes increases 2% or less than what the jurisdiction currently collects, a simple majority of elected officials must approve the rate. If revenue raised by the property tax increases more than 2%, two-thirds of elected officials must approve the rate. 

Jurisdictions – which include city and county governments – must also publish notices about the public hearing and property tax rate proposal on their websites and social media platforms. 

After the local jurisdictions hold the public hearing on the property tax rate, a second public hearing must be held on the budget, something cities and counties now do.

“This shines a light on property taxes in a way that people can understand [and it] puts a step in the process that requires that disclosure,” said Gretchen Tegeler, president of the Taxpayers Association of Central Iowa. “There continues to be a lot of confusion surrounding the bill because originally there was a cap.

“This bill does not do that. I can’t emphasize that enough. What this final version of the bill has are some provisions relating to greater transparency around cities’ and counties’ intentions on property taxes in their budgeting process,” she said. 

During debate on the bill, Rep. Dustin Hite, R-Oskaloosa, said local officials often tout that they haven’t raised property taxes. Yet, he said, the amount of revenue raised from property taxes frequently goes up because of increases in assessed valuations. Higher valuations often mean more revenue for taxing jurisdictions even though property rates stay the same, he said.

If city and counties are going to receive an increased amount of revenue from property taxes, “they ought to take a vote,” he said during the floor debate.

In four of the past five fiscal years, West Des Moines has seen its revenue generated from property taxes increase more than 2%, data from the city shows. Requiring the city to garner a two-thirds vote by the city council approving the rate increase is an unnecessary step, said Tim Stiles, the city’s finance director.

“We go through such a vetting process before it gets to the point [of setting a property tax rate] that most concerns have already been addressed,” Stiles said. “I’m not sure why the two-thirds vote is needed.”

Alan Kemp, executive director of the Iowa League of Cities, said that while gaining approval from two-thirds of a governing body is “a higher bar, most city budgets are approved by unanimous counts anyway.

“Largely, cities feel these are all unnecessary steps,” Kemp said.
Hite, during the floor debate, talked about the two-thirds majority requirement, saying the Iowa Code requires a supermajority in several other areas. Increasing the amount of revenue generated from property taxes “is one of those important votes,” he said.

The purpose of the bill, say its supporters, is to increase transparency about the amount of revenue raised annually by property taxes. The bill’s detractors say they already are transparent.

“What’s ironic to me is that our budgets are all posted on the state of Iowa website, and they’re the ones saying that we’re not being transparent,” Stiles said.     
Jen Schulte, Des Moines’ director of government relations and communications, aired similar concerns. Des Moines “already has a tremendously transparent budget process that provides more than two opportunities for public input,” she wrote in an email.  

Said Sara Kurovski, Pleasant Hill’s mayor: “We already operate in the way the bill is asking municipalities to follow. We provide multiple steps for the public’s input, and they can see the entire budget on our website.”

Concerns also exist over whether the bill could affect the Iowa Public Employees’ Retirement System and the Municipal Fire and Police Retirement System of Iowa. Currently, cities and counties fund the systems through a supplemental trust and agency levy. Under the bill, the levy will be funded through cities’ and counties’ general budgets.

Rep. Monica Kurth, D-Davenport, during the floor debate, raised concerns over whether local government officials, faced with tight budgets, would be forced to cut workers or services in order to fund the levy.

“This creates new competition for those general fund dollars,” she said. Kurth proposed an amendment that would have kept funding of the pensions a separate budget item instead of moving it into the general fund. The amendment failed to pass on a 49-51 vote.

State Treasurer Michael Fitzgerald, a Democrat, also opposes the move. In a letter to the editor that appeared in several Iowa newspapers, Fitzgerald wrote that “funds used to pay employee pension benefits for firefighters, police, and other valuable public servants should not be pitted against funds to repair roads.”

A Facebook group called “Don’t Touch my IPERS” is urging its more than 10,000 followers to ask Reynolds to veto the bill.  

Tegeler said that under Iowa law, local governments must fund the two pension systems. 

“In a tough budget cycle, could cities have to make a decision about where in their budgets to cut to fund IPERS? Yes,” Tegeler said. “But this is already the case with or without the bill. This doesn’t impact IPERS.”
On its website, IPERS wrote that the bill “does not alter the employers’ obligation to pay the employer portion of IPERS’ contributions annually. … This bill does not affect a member’s or retiree’s pension.”