Cities Hold Rates Constant, But Collect More Revenue | 5.12.17

 

 

Local governments have completed their budgets for the coming year that begins July 1, 2017 (also known as fiscal year 2018).

Everyone wants to know what’s happened with property tax rates in the new budgets.  Have they gone up or down?  How much?

The table below shows city tax rates for last year and this year, and the percent change in taxable valuation and property tax revenue.  Of the 16 cities monitored, nine kept the rate the same; four increased the rate; and three – Ankeny, Bondurant and Norwalk – reduced it.

In truth, however, whether or not the rate has stayed the same is not especially relevant.  The bigger question is what’s happened with taxable valuation (upon which rates are applied) and the extent to which local governments, through their rates, have either captured increases in valuation in their budgets, or compensated for decreases in valuation.

This year the majority of cities experienced taxable valuation growth above five percent, and in keeping the rate constant, most “captured” the increase in property taxes it generated.

Within this broad summary, however, there is much variation.

At one extreme, Waukee is seeing an increase in taxable value exceeding 20 percent.  In keeping its tax rate constant (for the 18th year!), the city will raise 19.5 percent more property tax revenue for this year’s budget.  Waukee may need 19.5 percent more revenue next year, but it’s a big number to assume is needed.  It may alternatively have represented an opportunity for a reduction in the property tax rate, but that will never be known because explicit direction was given to keep the rate constant.  Ironically, Waukee does a great job in being transparent in its budget; it has some of the best budget documentation in the entire metro area.

At another extreme, the City of Des Moines is seeing only a 1.8 percent increase in the taxable valuation that’s available for general budgeting purposes.  The city is actually raising its property tax rate in order to boost revenue growth to 2.7 percent, which is closer to what is needed to cover growth in salary and benefit commitments.  Presumably, given the changes in collective bargaining law that were passed this session, future expense growth can be prevented from outpacing revenue growth.

Des Moines also illustrates the effect of tax increment financing (TIF) on local budgets.  Des Moines’ valuation in TIF districts is growing by 7.8 percent, but it is reserved for projects associated with development in the district (either as infrastructure or as rebates back to the developer) and is not available for the general budget. Most of downtown is in a TIF district, so it will be some years before the growth being observed now will translate into dollars for the budget or for general property tax relief.

As cities prepare their budgets next year, the taxable valuation increases they will be working with will be even greater than this year, averaging around eight percent.  It’s not too early to begin asking our elected officials what they plan to do with such extraordinary increases – and to create an expectation that a reduction in the rate be considered.

 

 

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