When lawmakers return to Des Moines next week for the start of the 2018 legislative session, they will be greeted by a $131 million revenue gap to close.
One of the state’s largest single expenses is backfill payments sent to Iowa cities, school districts and county governments. These payments began in 2015 to help local governments make up for loss in revenue after former Gov. Terry Branstad’s 2013 commercial property tax cuts went into affect.
But the backfill was never meant to be permanent, and with the state budget squeeze, some lawmakers are putting the future of these payments in doubt.
For Iowa’s small towns, like Monroe, rescinding the backfill would mean an approximately $13,000 loss in revenue. Iowa’s larger communities stand to lose a lot more. Newton, for example, received $318,806 from the backfill program in FY 2017.
“Any time you take away money, it’s concerning,” said Kim Thomas, Monroe city clerk. “The $13,000 we could make up in other areas. It wouldn’t be nearly as hard compared to other cities that get $1 million or more.”
According to data from the Iowa Department of Management, in fiscal year 2017 the state paid cities nearly $53.5 million in backfill. That number is expected to increase to $53.6 million in FY 2018.
Other Jasper County cities received varying amounts of backfill. Baxter received $3,641 in FY 2017 and Prairie City received $9,853 last year and $13,039 in 2016.
If backfill payments to Iowa’s counties, school districts and townships are factored in, the state reports payouts of $153.11 million in FY 2017. That’s a sizable chunk of Iowa’s general fund for legislators who are trying to make up for a $131 million revenue shortfall.
The backfill may not be permanent, but there was no language in the legislation ending the payments. Cities were expecting the legislature to slowly taper the payments as the budget cycle approaches. Some Iowa cities warn getting rid of the backfill could cause local governments to cut services.
Sen. Chaz Allen, D-Newton, was mayor of Newton while the property tax rollback was in development, and sat on Branstad’s property tax study committee in 2012. He said rolling back property taxes and making up the difference using money from state income taxes has never made sense to him. In an interview Friday, Allen said he’s always been an advocate for ending the backfill payments, but over time to put less of a burden on local governments.
“We’ve left everyone out there when we could have had a plan in place from the beginning. I think it’s our responsibility as senators to find a way for cities to fund themselves. “ Allen said. “It’s obviously going to be discussed (this session). Whether it happens or not is a different question. The governor said she’s not interested in talking about it this year.”
Thomas said Monroe has an advantage to other towns its size. Due to a developing residential subdivision, new housing starts increased the city’s property tax revenue last year.
Rep. Greg Heartsill, R-Columbia, represents Iowa House District 28 which includes Monroe and parts of rural south and southeastern Jasper County. The three-term Republican, who sits on the House Local Governments Committee, noted in a December interview with Monroe Legacy that some cities have increased their property tax revenue since the backfill took effect in 2015. He also acknowledged that is not the case with every Iowa municipality, but conversations among his colleagues indicate some lawmakers see tax backfill as a big expense which could be eliminated.
“The question has been circulating, did we ever intend for (backfill) to go on into perpetuity? I don’t think anyone ever expected that,” Heartsill said. “There are two sides. One says that was supposed to go on forever or long-term and there’s the other side that says this was just to make sure we’re not pulling the rug out from our local municipalities.”
But for cities fighting a lagging bottom line, eliminating or even reducing the backfill could pose a bigger issue. Nancy Earles is the Colfax city clerk and formerly served the same role at the City of Prairie City for more than 20 years.
Colfax is in the second year clawing its way out of a general fund deficit, which at its height hit $900,000. Earles said the $17,133 in backfill Colfax received in 2017 becomes harder to recoup when it’s compounded over several fiscal year budgets.
Earles said she’s “very concerned” the backfill could go away. Since she’s been a clerk, Earles has seen state money for cities dry up, including the elimination of municipal assistance and the machinery and equipment tax payments.
The general levy Iowa cities can tax on residential property values has been capped at $8.10 for years, which Earles says ties cities’ hands to collect new revenue, especially if the backfill goes away.
“Costs keep going up, where are we going to get (the money)? I understand the state is in debt, but maybe they need to take a little piece from everybody and not just target the cities,” Earles said
Earles said city governments will be heavily lobbying legislators this session to protect backfill payments, or at least come up with a compromise which would work for local governments. One such plan some larger cities like Waukee are proposing is to freeze the commercial and multi-family dwelling rollback currently deducted from cities’ level rates. This could lessen the sting for Iowa towns.
Contact Mike Mendenhall at firstname.lastname@example.org