Cities have completed their budgets and it’s always interesting to look at updated property tax rate comparisons and changes from the prior year.
Property tax rates and property taxes do not tell the whole story about relative efficiency among communities. Here are just a few of the reasons why:
- Cities vary in their level of dependence on property taxes vs. other sources of revenue.
- Some communities are more or less “property rich” (more taxable value per capita) than their neighbors.
- Cities are in different stages in their life cycles, causing variation in spending needs, debt service requirements, and growth in valuation from new development.
- The use of Tax Increment Financing varies among communities.
- The extent of employee unionization varies among cities.
- Citizens have varying expectations of their local governments.
Yet there are long-term trends suggesting at least some of the differences are the result of deliberate attention to holding the line on property taxes, and varying degrees of success in getting the most from every tax dollar.
The tables below show property tax rates, by community, for the fiscal year 2015 (which starts on July 1, 2014). One of the tables shows the rates without considering debt service. The latter gives a better indication of the property taxes that are used for annual operating purposes.
The tables also show the net change in taxable valuation, including the valuation on which the State reimbursement/”backfill” formula will be based. When considering what’s going on with property tax rates it is always important to look at what’s going on with taxable values, because it is the combination of rates applied to taxable value that yields property tax revenue. A constant rate can generate huge increases in revenue if the taxable value of property is rising.
Overall, six of 15 cities are increasing their tax rate. If the levy for debt service is excluded (leaving just the levies for operating budgets), 10 of 15 cities are increasing their rates. This means that in some cases reductions in debt service levies are being offset by increases in operating levies.
Why so many increases in operating levies?
Many cities point to last year’s state legislation that: (1) Reduced the percent of commercial and industrial property assessed value that can be taxed from 100 percent to 95 percent (and to 90 percent next year); (2) Changed the statewide limit on residential re-valuation from +4 percent to +3 percent; and (3) Changed the basis of taxation of apartments. Yet, in the case of commercial property, the State is reimbursing cities for the “lost” revenue. And with respect to residential valuation, the changes mean the percent of assessed value that can be taxed is rising by three percent rather than four percent. Any growth from new development would be on top of that. It is therefore difficult to see how or why the state law changes should be a reason for a rate increase. There has been no “loss” in revenue, just a slight reduction in the rate of growth.
Looking at the column showing the net increase in taxable value, including the valuation that will generate reimbursement from the State, shows that in fact all cities did see a net increase. The column basically represents the increase in property tax revenue (plus state backfill/reimbursement) that would come from the application of a constant rate. These increases varied from 1.3 percent to as high as 10.1 percent. When Waukee and Grimes talk about holding the line on property taxes, it is important to keep in mind they are still getting a 7.4 percent or 7.8 percent increase in property tax revenue through their valuation increase. No doubt some of this is needed to serve new development, but it’s still a substantial increase.
Des Moines and Windsor Heights had by far the lowest net growth in taxable valuation plus backfill, 1.4 and 1.3 percent, respectively. Already Des Moines has the highest property tax rate of any of the 15 communities (and third highest in the state), so it does not have a lot of flexibility to raise rates. Des Moines continues to face pressure in funding required pension contributions, now at 30.4 percent of salary for police and fire staff. Pension contributions for all staff now equal 19 percent of all property taxes. Des Moines offset a reduction in its debt service levy with an increase in its operating levies. Budget cuts were still necessary because Des Moines’ “built-in” increases continue to exceed its increase in revenue.
Windsor Heights has the highest property tax rate in the metro area when debt service is excluded. Its small size and geographic limits on growth will place continuing stress on the property tax rate, which is increasing $1.45 this year, second only to Indianola which is increasing by $1.50. Most of the proceeds will be used for street maintenance.
Altoona is raising its overall property tax rate by 80 cents, all of which is for its operating budget. This increase will cause Altoona to lose its distinction of having the lowest property tax rate in the area.
Bondurant is reducing its property tax rate by 5 cents per thousand, representing the eighth consecutive year it has done so. It still has one of the highest tax rates in the metro area, though, and saw a 10.1 percent growth in taxable value.
Clive is holding its rate constant, working within only a small increase in net taxable value (two percent).
Johnston is increasing its tax rate, but only by the amount needed (19 cents) for debt service on the new public safety building. Its operating levies are the second lowest in the metro area. The overall rate is only five cents higher than it was two years ago, as there was a substantial reduction last year. Johnston is one of the few communities that will reduce its property tax rate whenever possible, even knowing it may have to rise again in the following year. The 19-cent increase should be viewed in this context.
West Des Moines is holding its rate constant, as it has for many years. The City saw a 5.2 percent net increase in taxable valuation, enabling it to add 13 new positions including seven that will require police and fire pension contributions from the City.
Urbandale continues to have the lowest property tax rate in the metro area, but even its property tax rate is going up in order to handle its public pension obligations. A seven-year, ten cent per year increase in the property tax rate is in progress in order to fully absorb the pension costs associated with public safety staff expansions. Urbandale is creating 10 new full-time positions this coming year, including five public safety staff.
Ankeny is reducing its tax rate by 13 cents per thousand. It is the only community showing a decrease in its operating levies, making its rate without debt service the third lowest in the metro area. Basically Ankeny is using its 6.8 percent net increase in taxable value to reduce property taxes rather than to add a significant number of new staff.
The coming year shows a mix of situations among the cities in the metro area. In spite of numerous references to the impact of state law changes, the reality is these changes have little net impact on city property tax revenue. In some cases, significant staff expansions are planned which may reflect pent-up demand after several years of budgetary challenges. With low growth in property valuations and high share of non-profit property, Des Moines continues to struggle to stay within its already-high property tax rate.