Fairfield City Administrator Aaron Kooiker updated the council Monday about a bill in the Iowa Legislature designed to limit property tax growth.
The Cedar Rapids Gazette-Lee Des Moines Bureau reported that a Senate committee voted 10-7 Thursday to move Senate Study Bill 1260 to the full chamber for debate. The bill would apply a “soft cap” of 2 percent annual revenue growth for local taxing entities, with an added “hard cap” yearly increase of 3 percent, available only after obtaining support from two-thirds of the local board. The board must publish how it would use this extra 1 percent.
Under the bill, voters also could petition for a reverse referendum to challenge property tax decisions. Sen. Randy Feenstra (R-Hull), chairman of the Senate Ways and Means Committee, said the bill was designed to rein in local property tax increases while providing some exemptions to aid growing communities in meeting service demands.
Sen. Pam Jochum (D-Dubuque), pushed unsuccessfully to hold off for a year to give a study panel time to assess Iowa’s complex property tax system and come up with research-based solutions.
“I think the law of unintended consequences could run rampant with this bill,” said Sen. Herman Quirmbach (D-Ames). “It’s not ready for prime time.”
In addition to limiting property tax growth, SSB 1260 would eliminate several small levies by combining them into the general fund levy. Levies absorbed into the general fund would include those on liability insurance costs, ag land, emergency, capital projects and other employee benefits.
Kooiker was at the capitol Thursday to hear debate on SSB 1260. After examining how the bill would affect Fairfield’s finances, he came away with a negative impression of it. In particular, he didn’t understand why the bill would limit property tax growth without regard for whether property tax valuations had risen.
Kooiker gave the council a spreadsheet showing how the bill would have limited the city’s revenue growth if it had been in place a few years ago. For instance, from Fiscal Year 2016 to Fiscal Year 2017, the city’s revenue grew 6.9 percent, then another 7.4 percent the year after that. SSB 1260 would have prevented increases of that size.
“We would be in a bit of trouble funding our budget under the new system,” Kooiker wrote in a memorandum to the council.
Kooiker added that it would be hard for the city to meet its budget by reducing salary growth, since “our employees have been working at the bottom salary range for comparable cities,” and that if their salaries continue to lag behind, they might look for jobs elsewhere.
Kooiker, along with Mayor Ed Malloy and Councilor Michael Halley, wrote a letter to Rep. Jeff Shipley asking him to oppose the bill. Halley said the decision to pick 2 percent as the soft cap seemed arbitrary, not based on projected growth in valuations or any other metric. Malloy said the city is already transparent, and remarked that people rarely show up to oppose the council’s budgets.
“The way we budget does not need fixing,” Malloy said.
Malloy said the city is making its budget to provide the services people expect. He said it would be a powerful statement if the entire council signed a letter opposing the bill. The council voted 6-0 to prepare such a letter. Those voting in favor were councilors Halley, Katy Anderson, Doug Flournoy, Martha Rasmussen, Paul Gandy and Tom Twohill. Councilor Tom Thompson was absent.
The Ledger reached out to local legislators for their view on the bill. Sen. Mariannette Miller-Meeks (R-Ottumwa), who represents Senate District 41, which includes Fairfield, said the bill has changed from SSB 1260 to Senate File 634, known as the “Truth in taxation” bill. She said the latest bill is different from the one reviewed at the Fairfield City Council meeting, but did not elaborate on how it differed.
The Ledger reviewed Senate File 634 and found that the key part of the bill that the Fairfield City Council objected to – the soft cap of 2 percent and the hard cap of 3 percent – is still there.
Miller-Meeks defended the bill, arguing, “The state Legislature has been repeatedly asked to do something about property taxes, and this bill does not affect home rule or local control, but does require public notice and input, just like the budget, and a vote of the city council to raise taxes.”
The Ledger asked Miller-Meeks if she believed the bill would make it difficult for towns like Fairfield to retain employees.
“I do not think it will have a significant impact on the city of Fairfield,” she said.
Rep. Jeff Shipley (R-Fairfield) represents House District 82, which includes Fairfield, also responded to The Ledger’s request for comment on the bill. Shipley said the House is debating a bill along similar lines, House File 773. The House version of the bill does not have the hard cap limiting property tax growth to 3 percent annually, but like the Senate bill, it requires local governments to pass a resolution if they want to increase property taxes more than 2 percent, and provides a mechanism for residents to call a reverse referendum on property taxes.
“I think it’s a decent bill,” Shipley said of House File 773.
Shipley said he liked the fact that the council must notify the public and take a recorded vote to approve revenue growth greater than 2 percent.
“As long as the spending is justifiable in the eyes of the public, there shouldn’t be any problems, and it’s important to get our elected leaders on the record,” he said. “The threshold for the reverse referendum provision is quite high, so local spending would have to be particularly egregious for that to become an issue.”
The House bill allows for a reverse referendum if 20 percent of registered voters – or 2,000 registered voters, whichever is lower – sign a petition calling for a special election. The Senate bill allows for a reverse referendum if 10 percent of registered voters – or 1,000 registered voters, whichever is lower – call for a special election.
The Ledger asked Shipley if he supported the idea of the state trying to limit local property tax growth. He said local governments constitutionally derive their powers to levy taxes from the General Assembly. He quoted from an amendment added to the Iowa Constitution in 1968 that reads municipal corporations “shall not have the power to levy any tax unless expressly authorized by the General Assembly.”
“Given that constitutional provision, I support the state ensuring fair and reasonable taxation at the local level,” he said.
Shipley responded to concerns that Fairfield would have trouble retaining workers by saying the House bill doesn’t limit local spending, it just requires the council to vote to proceed with higher spending. He added that he did not think the bill violates the principle of home rule – the ability of a local government to exercise the powers delegated to it – because the cap is just a soft cap in the House bill.
The Ledger also requested comment from Rep. Joe Mitchell of House District 84 and Sen. Rich Taylor of Senate District 42. Neither replied to the request by deadline.