In 2013 the Iowa Legislature passed rollback legislation for commercial property owners, reducing the tax rate on commercial property from 100 percent to 90 percent. The legislation was tied to a backfill measure for local governments.
This backfill was intended to protect city, county and school district tax revenues from the jolt of a sudden decrease due to the rollback of commercial property taxes. Essentially, the backfill measure promised the local entities level revenue funding in order to provide vital services to their residents, such as police and fire protection, public works, parks and recreation and libraries.
When the legislature passed the commercial tax cut, the state’s coffers were experiencing a substantial surplus of about $800 million. Now, however, due to the current budget shortfall of more than $100 million, the legislature has started focusing on a de-appropriation bill in an effort to keep part of the backfill funding previously allocated for fiscal year 2017.
The current appropriation bill before the legislature includes the required backfill payments to cities, counties, schools and other local taxing authorities.
In his state of the state address Jan. 10, Gov. Terry Branstad outlined his proposed budget and de-appropriation plan, which does not include any cuts to the backfill. The legislature did pass a de-appropriation bill to adjust the expenditures with the shortfall in current fiscal year 2017 revenues without touching the backfill that was promised in 2013.
In looking forward to fiscal year 2018, local government tax revenues will decrease if any part of the backfill is removed. If city revenues decrease, city services would have to be cut back. The city of Perry would have to make hard decisions about where to cut its budget.
To maintain level revenues in Iowa cities’ and counties’ general funds, the current appropriation bill needs to maintain appropriated backfill to cities, counties, schools and other local taxing authorities. If this does not happen, Perry along with all the other cities in Iowa will see a decrease in general fund revenues.
When cities and towns experience a decrease in revenues in their general funds, they have no choice but to cut the department budgets of their police, fire, public works, parks and recreation and library.
Perry Finance Officer Susie Moorhead explained the ramifications of losing the promised backfill revenues: “Besides the loss of funds in the general fund, the city will also face decreased amounts in the benefit fund and the debt service fund. Unlike the general fund, where the city can only levy a limited amount — $8.10 per $1,000 valuation — taxing entities may levy the amount necessary to cover expenditures in the other funds. If the backfill is not appropriated, the city will still need to levy the amount necessary to pay for employee benefits and debt service payments. This means that the overall tax levy rate will increase for residential, commercial and industrial properties.”
If the state withholds the promised backfill, there will not only be a loss of primary dollars entering the city’s general fund but also a loss to the benefit fund and debt service fund. These shortfalls can only be made up by increasing tax levy rates on homes and businesses.
Perry is represented in the Iowa Legislature by Sen. Jake Chapman and Rep. Clel Baudler. They need to receive taxpayers’ input and opinions on the backfill issue and the proposals for de-appropriation.
Contact Sen. Chapman at 515-281-3371, Jake.Chapman@legis.state.ia.us, and contact Rep. Baudler at 515-281-3221, Clel.Baudler@legis.state.ia.us.
