FY2024 Proposed Budget

rollbacks imposed by the State which significantly reduced the taxable portion of residential and multi-residential properties. Prior to assessment year 2013 (Fiscal Year 2015), multi-residential properties were classified as commercial and taxed at 100% of assessed value. Since then, the taxable percentage of multi-residential properties has dropped 3-4% annually and in Fiscal Year 2024, the taxable percentage will drop 7.26%. Going forward, multi-residential properties will be taxed at the same rate as residential properties. While the property tax reform legislation has clearly provided significant benefit to multi-residential property owners, it places additional strain on the City’s budget. For context, the multi-family rollback will result in Iowa City losing over $146 million in taxable value in Fiscal Year 2023 alone and that number will likely double in Fiscal Year 2024.

Taxable % of Residential Properties

40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024

With multi-residential properties now being collapsed into the residential tax rate, more of the City’s tax base will be riding on the residential rollback rate set annually by the State. This rate has been as low as 44% in past years and has more recently been in the mid-fifties. Fiscal Year 2023’s 2.3% reduction in the residential rollback rate equated to a loss of about $1.6 million in direct revenue to the City. Due to the significant number of multi-residential properties in Iowa City, any fluctuations in this rollback rate from year to year could result in significant swings in tax revenue. Furthermore, multiple state legislators have identified property tax reform as a priority for the 2023 Session, which will likely further threaten property tax revenue cities rely on for service delivery. For Fiscal Year 2024, the taxable valuation of property subject to all levies in Iowa City increased slightly by 2.3% and assessed values grew only incrementally by 1.7%. The larger growth in taxable valuation is due to recovery from the residential rollback drop in Fiscal Year 2023. While new construction and higher property values in recent years have been sufficient to make up for the reduction in the taxability of residential and multi-residential properties, the Fiscal Year 2023 and 2024 budget years mark a juncture in this trend with rollback rates and inflation outpacing the assessed growth. It is important to remember that tax valuations occur in a two-year cycle. Typically, the City experiences a larger boost in taxable value in valuation years (odd years). However, Fiscal Year 2023 deviated from that trend and the taxable valuation actually decreased – again due largely to a reduction in the taxable percentage of residential properties (including multi-family). These rollback impacts, combined with stagnant valuations and inflation reducing Taxable % of Multi-Family 100.00% 95.00% 90.00% 86.25% 82.50% 78.75% 75.00% 71.25% 67.50% 63.75% 56.49% Taxable % of Residential 52.82% 54.40% 55.73% 55.63% 56.94% 55.62% 56.92% 55.07% 56.41% 54.13% 56.49%

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