M-8 - Budget Special Report - FY 2024-2025

Moving to the 2023 legislation, several sections will have a direct impact on city budgets. First, a new Combined General Fund Levy (CGFL) is required to be used by cities that replaces the regular general fund levy. A variety of levies that had been previously available to city governments, including several that were approved by voters at the local level, were eliminated. There is also a mechanism in place that can automatically force a city’s CGFL to decrease for those that experience certain levels of taxable property valuation growth. More details can be found in the following section. The 2023 bill also expanded upon the Homestead Tax Credit by providing a new Homestead Exemption for property owners 65 and older as well as an expansion of the Military Service Exemption. The new Homestead Tax Exemption is not funded by the state. The entire Military Service Tax Credit, including the expansion and the portion that used to be partially state funded, is also not funded by the state. The impact is a lower taxable value on such properties. New restrictions were put in place for property tax abatement programs by requiring the use of minimum assessment agreement for commercial properties. Such agreements must contain specified information, including a minimum actual value for the completed improvements, and must be certified by the assessor. This applies to revitalization areas created in FY 2025 and after, and for first-year exemption applications in existing revitalization areas filed on or after July 1, 2024. Another important piece of the 2023 legislation restricted when city governments can put forward a referendum to voters for certain types of general obligation bonds. Such referendums can now only be held at November elections – previously, cities had the ability to schedule special elections for these types of bond referendums. Finally, the 2023 changes altered the budget adopting and filing process in several important ways that will take effect immediately. Please read the Budget Calendar section in this report for the full details and to see a revised recommended budget adoption schedule. <table> <tr> <th>Property Class</th> <th>FY 2025</th> <th>FY 2024</th> <th>FY 2023</th> <th>FY 2022</th> </tr> <tr> <td>Agricultural</td> <td>71.8370%</td> <td>91.6430%</td> <td>89.0412%</td> <td>84.0305%</td> </tr> <tr> <td>Commercial</td> <td>90%*</td> <td>90%*</td> <td>90%</td> <td>90%</td> </tr> <tr> <td>Industrial</td> <td>90%*</td> <td>90%*</td> <td>90%</td> <td>90%</td> </tr> <tr> <td>Railroad</td> <td>90%*</td> <td>90%*</td> <td>90%</td> <td>90%</td> </tr> <tr> <td>Residential</td> <td>46.3428%</td> <td>56.4919%</td> <td>54.1302%</td> <td>56.4094%</td> </tr> <tr> <td>Multi-Residential</td> <td><i>Class eliminated, matches residential</i></td> <td><i>Class eliminated, matches residential</i></td> <td><i>Class eliminated, matches residential</i></td> <td>67.5%</td> </tr> </table> *The first $150,000 of taxable valuation on commercial, industrial and railroad properties is subject to the current residential rollback; any value over is subject to the 90% rollback Both separately and together, the recent legislation has greatly impacted local revenues and budgets. As always, it is crucial for city officials to understand the overall property tax system and analyze its ability to fund needed services. The League offers a variety of resources to help cities better understand the property tax system, including how assessments are done, analysis of levies that are utilized by cities and more. Please visit www.iowaleague.org to access these helpful resources.