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

Property Tax Levies Prior to FY 2025, cities could levy up to $8.10 per $1,000 of taxable value on residential, commercial and industrial property and up to $3.00375 per $1,000 on the taxable value of agricultural property for their general fund (Code of Iowa Section 384.1). In 2023, the Iowa Legislature approve legislation that will significantly reduce the levies available for use and implements a Combined General Fund Levy (CGFL) that may result in revenue reductions for most cities. A key provision establishes a system that automatically reduces a city’s CGFL if it exceeds certain annual non-TIF taxable property valuation growth thresholds. The system utilizes FY 2024 as the base year and then has two non-TIF taxable value growth thresholds – 3% and 6%. If a city’s annual non-TIF taxable value exceeds the thresholds, its CGFL will be reduced as detailed below. <table> <tr> <th>Annual Non-TIF Taxable Value Growth = Less than 2.99%</th> <td>CGFL is not impacted, but if rate is above $8.10 it becomes the maximum</td> </tr> <tr> <th>Annual Non-TIF Taxable Value Growth = 3%-5.99%</th> <td>CGFL revenue growth reduced by about 2%</td> </tr> <tr> <th>Annual Non-TIF Taxable Value Growth = 6% or Higher</th> <td>CGFL revenue growth reduced by about 3%</td> </tr> </table> The formula used for these calculations is based on the city’s non-TIF taxable valuations, which are provided by the county assessor. The total for each year is utilized to determine the growth figure on a year-over-year basis (with the FY 2024 values serving as the base year). As such, the first step is identifying the non-TIF taxable values and calculating the annual growth. For cities that exceed the 3% or 6% thresholds in a given year, their CGFL will be reduced accordingly for the next annual budget and fiscal year. This is done through a formula established in state code. The Iowa Department of Management has a tool that includes the formula as required by the state code and calculates the resulting change, if necessary, to a city’s CGFL. The legislation requires cities to utilize the CGFL for FY 2025-2028. It is possible for cities that begin with a base CGFL over $8.10 to continue to be above $8.10 if they do not exceed the 3% taxable value growth threshold. Importantly, the law restricts a city’s maximum CGFL to its previously established highest level within the four-fiscal year period, even if its taxable valuation growth is less than 3% in a particular year. In data provided by the Legislative Services Agency, nearly all cities exceeded 3% taxable valuation growth at least once in the past six years and therefore most cities can expect to have its CGFL reduced at some point over the next four fiscal years. Finally, the legislation places a firm maximum on the CGFL at $8.10 beginning in FY 2029 for all cities – regardless of taxable valuation growth or decline, past CGFL levels (including those that were above $8.10) or other budgetary considerations.