Wannamaker: Tax abatement encourages growth

MARENGO — Des Moines and former Marengo resident Rick Wannamaker told Marengo City Council members that offering 100% tax abatement would help Marengo grow.

“It encourages people to do some good things with their property,” Wannamaker said.

Marengo offers tax abatement, but it isn’t enough to entice people to the city, said Wannamaker during the April 10 meeting. It needs to be 100%, he said.

Des Moines started abating taxes for property owners with new construction to entice people to move to the city rather than fleeing to the suburbs, Wannamaker said.

Other towns followed, and the plan worked — too well in some cases.

Adel had a population of 2,400 people in 1960, and only 3,682 50 years later, in 2010.

After the city implemented a tax abatement, “They had builders and developers beating the door down,” said Wannamaker.

The population exploded in the next 10 years, jumping 67% to 6,153 in 2020. Dallas County became the fastest-growing county in the state, Wannamaker said.

Adel stopped abating taxes in 2019, and home building nearly ceased.

Residents will complain that they are paying taxes, and it’s not fair that people building new homes don’t have to, Wannamaker said.

But the taxes are abated for a set amount of time. After that, the homeowners of new construction will end up paying more than the owners of existing homes because the new construction will be assessed at a higher value.

New homes will be assessed higher and bring in more taxes than existing homes over 20 years, even with tax abatements of five to seven years, Wannamaker said.

“Houses that aren’t built don’t bring in taxes,” Wannamaker said. And even with tax abatement, cities still collect fees for the construction.

The State of Iowa no longer allows municipalities to abate school taxes, which is typically about 40% of property taxes, Wannamaker said, but the abatement of city and state taxes is enough to interest many developers to a town.

Because interest rates are high, people are looking for other ways to save money in home building. Tax abatement is one way to do that, Wannamaker said.

“We believe in tax abatements,” said City Administrator Karla Marck. “Our existing tax abatement is for improvements too,” said Marck, not for new construction only.

Wannamaker said the abatements need to be 100% for at least five years. Seven years would be better.

In Marengo, lot prices are low — about $34,000, about half the price of a lot nearer to population centers, according to Wannamaker.

But Marengo has an additional problem — a shortage of lots for new home building, council members said.

Marck said she’s doing an inventory of available lots in town, but developers aren’t looking for individual lots spread throughout town — called infill. They want large areas where they can create a development with many lots for sale, Wannamaker said.

“The problem with the north end is we’re out of sewer,” said Councilman Travis Schlabach. There’s a possibility for expansion by the cemetery, said Schlabach, but the council doesn’t know if owners of property on the town’s borders want to sell for development.

Putting in a housing development costs the city more in infrastructure, said Schlabach. The city might want to abate taxes for a longer period of time for infill projects to encourage people to build on lots that are already available.

“Housing has been a priority,” said Marck last week. Wannamaker also spoke with Marengo Community Development about it, about six months ago, she said.

Marengo currently waives $75,000 for improvements for five years, said Marck. If a resident has a property assessed at $100,000 and makes improvements that increase the property’s assessed value to $200,000, the property owner will pay taxes only on an additional $25,000, she said.

Marengo does have two developments open, said Marck, one at the northern end of Western Avenue and another off Roberts Drive on the south end of town.

From an economic development perspective, cities have to provide a workforce, day care and housing, said Marck. Every city is struggling to meet those needs, she said.

Marengo Community Development, Iowa County Economic Development and the City of Marengo have prioritized housing, Marck said.

But it needs to be affordable housing, she said. With 7% interest rates, people are priced out of new housing, and with a three-foot water table, property owners can’t add a basement to get extra square footage.

Marck admitted that the city’s tax abatement numbers are “probably a little aged” and need updated, but the city probably won’t abate 100%.