Trends in Iowa Property Taxes Past and Future

Trends in Iowa Property Taxes: Past and Future Peter Fisher Research Director, Iowa Policy Project Professor Emeritus, University of Iowa

Property taxes have become a less important source of local revenue in Iowa and in the U. S. 40% 35% 34. 2% Iowa 28. 8% 30. 7% 25% U. S. 20% 15% 10% 27. 0% Percent of total revenue of all local governments, 1977 -2016 5% 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 02 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 0%

Property taxes have declined even more as a share of own-source revenue 70. 0% 60. 0% 57. 8% Iowa 50. 0% 44. 4% 50. 4% 40. 0% U. S. 40. 2% 30. 0% 20. 0% 10. 0% Percent of own-source local government revenue, 1977 -2016 (state and federal grants excluded) 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 02 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 0. 0%

Property taxes and grants have become less important, while charges and sales taxes have grown 100% 90% 80% 34. 7% 32. 9% 32. 2% 29. 8% 28. 8% 70% 60% 50% 34. 4% Percent of Total Revenue of all Local Governments in Iowa State grants 40% Property taxes 30% Fees, Fines and Charges 17. 3% 17. 5% 20% 14. 1% 10% 6. 3% 7. 4% 6. 4% 3. 5% 5. 0% 3. 4% 3. 0% 1997 2016 0% 1977 Other taxes & miscell Sales Taxes Federal grants

For counties, property taxes have become more important 100% 90% 80% 44. 3% 43. 3% 46. 6% 70% Percent of total revenue of County Governments in Iowa 60% Property taxes 50% 40% 34. 3% State Grants 30. 1% 35. 4% 30% 20% 10% 0% 7. 6% 6. 1% 1977 Charges & utility revenue 12. 3% 9. 5% 6. 5% 5. 2% 4. 9% 1997 2012 7. 7% Other taxes & miscell Sales taxes Federal grants

County revenues, FY 2017 100% 90% 80% 70% Property Taxes 49. 9% Intergovernmental 60% Other taxes 50% 40% 32. 7% 20% 10% 0% 7. 8% 5. 8% 3. 9% Licenses, permits & charges Other

City share of property taxes rose, school share declined, county share stable, 1977 -2012 100% 80% 46. 1% 56. 8% 60% 29. 8% 40% 20. 0% 24. 1% 23. 3% 0% 1977 1982 1987 1992 1997 2002 2007 2012 School City County

Local government funding in Iowa has been pretty stable: It has fluctuated around 7. 5% of personal income for the past 40 years 9. 0% 8. 5% U. S. 8. 0% 7. 5% 7. 0% Iowa 6. 5% 6. 0% 5. 5% Own source revenue of local governments as a percent of state personal income, 1977 -2016 19 7 7 19 8 7 19 9 8 19 0 8 19 1 8 19 2 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 94 19 9 19 5 96 19 9 19 7 9 19 8 9 20 9 0 20 0 0 20 2 0 20 4 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 1 20 0 1 20 1 1 20 2 1 20 3 1 20 4 1 20 5 16 5. 0%

Future Trends in Local Finance in Iowa • What is likely to happen with non-property tax revenues? – Intergovernmental grants – Fees, fines, and charges – Local option taxes • What constraints will we see on property tax growth?

Intergovernmental Revenue • Will the emphasis on tax cutting at the state and federal levels continue? If so …. • Federal aid likely to continue to fall in real terms, but already only 1. 5% of total county revenue • State aid likely to fall in real terms? – RUTF — tax is per gallon, not tied to price increases – Gas tax was stuck at 20 -21 cents per gallon 1989 -2015; over that period state grants to local governments in Iowa remained at about 31% of all revenue – Property tax backfill — likely to end; currently equal to about 2. 7% of county property taxes levied

Fees, Fines, and Charges • Experience in California replicated here – When property taxes limited, local governments seek out ways to charge for services – Charges have grown substantially for Iowa cities, but not for counties – Currently not much help to counties — about 5% of revenue • Constraints in Iowa – Can’t collect more than needed to finance the service in question – Is there much room for growth? What can counties do beyond park fees?

Local Option Taxes • Sales Taxes – Only 5% of county revenue – Only 4 counties (Polk, Johnson, Clark and Osceola) do not have LOST; all others levy the maximum 1% – But will the sales tax base grow more slowly than the property tax base? • Will the 2018 tax bill stem the loss on internet sales? • Hotel-Motel Tax – 19 counties impose this tax, most at 7% – Limited base in unincorporated areas

The Property Tax Base • Growth in residential and ag “actual” value ? • Rollbacks on residential and ag property • 55%-57% for past 5 years • Growth in commercial and industrial property ? • Continued decline in multi-residential rollback, from 71. 25% for 2019 to residential fraction for 2022 – But only 2. 3% of the tax base statewide • Over the past 14 years the state average county general fund levy rate has been remarkably constant, at around $6. 50, while the base has grown 3 -4% per year.

Property Tax: Other Issues • Continued expansion of TIF by cities • Levy rate limits remain while the growth cap adds a new constraint • Incentives to increase borrowing – Debt service has no rate limit and is outside the growth cap – Debt service is exempt from TIF

County revenue growth statewide has exceeded 2% every year since 2002

Over time a 2% growth cap could force a growing county to drastically cut the tax rate to reduce revenue $ 18, 000 $ 16, 000 $ 14, 000 $ 12, 000 $ 10, 000 By the tenth year, rate would have to fall 25% Revenue grows with tax base at 5% $ 8, 000 $ 6, 000 Revenue limited to 2% growth $ 4, 000 $ 2, 000 $- 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Where the Growth Cap Could be a Problem • Supermajority: How many counties have a 5 -person board? – 38 • In how many of those did property tax revenues grow by more than 2% per year on average from 2010 to 2017? – 34 • In how many did property taxes growth more than 2% in at least 4 of the past 7 years? – 32 • In how many of those did property tax revenues grow by more than 2% at least twice in the past 7 years? – 38

Five-supervisor counties with average growth in property tax revenue > 2% (2010 -2017) GUTHRIE 7. 6% WINNESHIEK 4. 3% CASS 7. 1% JOHNSON 4. 2% ADAIR 7. 1% WASHINGTON 4. 1% OSCEOLA 6. 7% CRAWFORD 3. 9% POCAHONTAS 6. 3% CLAY 3. 8% LYON 6. 1% SCOTT 3. 6% CEDAR 5. 2% POLK 3. 6% O’BRIEN 5. 2% WOODBURY 3. 4% JONES 5. 2% MUSCATINE 3. 3% POTTAWATTAMIE 5. 1% ADAMS 3. 3% MONTGOMERY 4. 8% EMMET 3. 3% DICKINSON 4. 8% PALO ALTO 3. 2% PLYMOUTH 4. 8% WEBSTER 3. 2% SIOUX 4. 6% HUMBOLDT 3. 1% IOWA 4. 4% BUENA VISTA 2. 7% CHEROKEE 4. 4% BLACK HAWK 2. 5% CHICKASAW 4. 3% LEE 2. 4%