Tax fix throws wrench in local government budgets

DES MOINES — Legislators in the Iowa House passed a bill Wednesday afternoon fixing an error in the state’s rollback calculations for certain property taxes. The bill, already approved by the senate, is expected to receive a quick signature from Gov. Kim Reynolds.

While the change may seem small — reducing rollbacks on multi-residential properties from about 56.49% to 54.65% — local government officials said the last-minute adjustment left them high and dry. A fiscal note from the Iowa Legislative Services Agency said error inadvertently overshot statewide allocations to schools and local governments by about $133 million, although the said the true figure was likely lower.

For Washington County, the difference represents about $1 million in tax revenue, according to budget officials’ rough internal estimates.

"Taxing authorities compiled their budget, based on thinking they were going to be able to levy on evaluations that were sent to them through the auditor’s office,“ Washington County Budget Director Cyndie Sinn said. ”It’s kind of throwing everything in an upheaval, not just for the county, but for the cities, and the schools, the assessor, all down the line.“

The bill included language that extends local governments’ budget deadlines by a month, but officials said the sudden change of expectations would undo progress on financial planning efforts that began as early as November.

Sinn said the county was informed of the error in mid-January of this year.

“We didn’t know until pretty much in the middle of the work sessions that those tax bases were going to change,” she said. “We were well into the process.”

In Washington — where municipal authorities expect a $70,000 revenue drop from the change — City Administrator Deanna McCusker said the change of plans was unfair, and gave local governments two unpopular options: raise taxes to make up the difference, or move previously agreed-upon items to the chopping block. For many communities, the choice will be the latter.

“It affects the general fund, which pays for our fire and our police and our parks and our library, or cemetery,” she said. “If we get less money, something in there is going to have to be reduced … it could come down to, ‘We can’t buy a squad car this year that we were planning to.’”

The change has already factored into some local government debates. In the southern tip of Washington County, the city of Brighton had projected its budget to end up just $14 in the black next fiscal year. Among other factors, one council member said the last-second recalculation added too much uncertainty to commit more money to the volunteer fire department.

“I don’t know what’s going on at the state level right now that is going to affect property tax,” Council Member Cathy Rich said at the already-tense meeting. “I am a little concerned that whatever’s going on there right now may further reduce the revenues that we’ve got coming in.”

One proposed solution from State Rep. David Jacoby, a Democrat from Johnson County, would have corrected for the error, but made up the difference to local governments using the state’s taxpayer relief fund, a state account filled largely by excess tax revenue in previous years. As of September, its balance was over $1 billion, according to a state news release.

Jacoby said the payout would prevent hardship while keeping planned tax reductions on track.

“What better way to protect Iowa taxpayers than using the (relief) fund to cover a mistake that was not local government’s fault,” he said before proposing the amendment Wednesday. “I’m really here for the Iowa taxpayers, so they don’t see an increase in their property tax due to a mistake in Des Moines.”

The amendment failed on a 36-63 party-line vote. Opponents said the change would delay notification to the tax-collecting entities across Iowa. A similar amendment failed during the bill’s senate vote on Feb. 1.

“I believe there was zero chance the amendment would have been accepted by the Senate or the governor, so if it would have passed it would set up a multiple week negotiation that would have ended with the same result,” said a statement from State Rep. Heather Hora, who voted against the amendment. “The only thing that would have accomplished would be to eat into the additional time we allotted to the cities, and we wanted to be sure they had as much time as possible.”

State Rep. Jeff Shipley, whose District 87 includes all of Van Buren County plus parts of Henry and Jefferson, said the amendment wouldn’t have reduced the overall impact on taxpayer dollars.

“It doesn’t make sense to keep playing this shuffle game between state and local governments,” he said. “This is not meant to take away from local governments, because this is money they should not have been receiving to begin with.”

Others, including District 88 Rep. Helena Hayes, said they’d heard limited feedback about the bill, and that most of it concerned deadlines for entities rerunning their numbers. That issue was addressed by the bill’s 30-day extension for budget certifications.

Local officials said they were frustrated with the amendment’s failure, including members of the Washington County Board of Supervisors, all of whom are fellow Republicans. One of them, Marcus Fedler, compared the state’s choice to “Smaug, sitting on top of the pile of gold.”

Another Washington County Supervisor, Richard Young, said he was confused and frustrated by the vote’s outcome.

“I didn’t understand, talking to them in Des Moines … why that amendment was defeated,” he said. “I still don’t understand. Nobody will answer that question.”

At a forum in Kalona Feb. 10, Sen. Dawn Driscoll — a Republican who represents the counties of Washington, Iowa and part of Johnson — said local governments weren’t owed money because of the mistake.

“We caught it as fast as the Department of Revenue could, and that was not your money to begin with,” Driscoll said to representatives from the city of Washington. “As far as those couple of months, you didn’t levy for those taxes … you’re cutting programs from money that was never supposed to be there in the first place, because there was a mistake that was made.”

Still, local governments said it would have been irresponsible not to plan around the state’s initial estimates.

”We were told, ‘This is the rollback amount, these are the assessed values,’“ McCusker said. ”Why we would not think that was our money, and plan for that?“

Andy Hallman also contributed to this report.

Comments: Kalen.McCain@southeastiowaunion.com