FY26 Proposed Budget

provision and capital projects and a challenging interest rate environment. Overall, expense in the General Fund is held to 3.5% growth, well below the status quo cost of personnel and operations. Despite expenditure reductions, the 3.5% growth outpaces the growth in property tax receipts for the fifth consecutive year. Finally, the budget focuses resources on continuing progress towards City Council’s Strategic Plan goals and adopted Master Plans, despite the strong financial headwinds anticipated in the next few years. Iowa City benefits from a strong local economy anchored by the presence of the University of Iowa and University of Iowa Health Care. The local economy consists of a diverse set of successful industries that help sustain one of the most consistent stretches of low unemployment rates in the nation. The City of Iowa City has a long tradition of responsible budgeting policies which has created a strong financial foundation that helped the community weather recent budget challenges and economic downturns while sustaining top-notch service delivery. In 2024, Moody’s Investors Service reaffirmed its highest quality bond rating (Aaa) for the City’s general obligation debt. Moody’s noted factors that could negatively impact the City’s bond rating include a substantial and sustained reduction in reserve funds or large growth in debt leverage. Iowa City’s bond rating is the product of “ exceptional budget management practices, policy credibility and effectiveness, and transparency and disclosure ” (Moody’s Credit Opinion May 2024). Ultimately, our strong financial position lowers the cost of borrowing and ensures more of our dollars go towards service delivery and Strategic Plan priorities, rather than interest payments. Iowa City was one of only 3 cities in Iowa and among 11% of cities nationwide to receive a Aaa Moody’s rating in 2023. Iowa City has many attributes that attract new residents to our city. A strong job market, good schools, world class healthcare, and diverse cultural amenities all contribute to the desirability of our area for families, retirees, and young professionals to make their permanent homes. New residents, including students, bring a social and economic vibrancy that defines Iowa City. However, population growth has a profound effect on service delivery, land use, and housing affordability. Growth creates additional service demands and stresses transportation and utility infrastructure. All of these challenges must be acknowledged and managed for Iowa City to retain its attractiveness and competitiveness. Prior to the pandemic, strong growth in our tax base allowed the City to absorb the necessary expenditure increases that accompany population growth and devote significant resources to new programs while weathering the implementation of the State of Iowa’s 2013 ten-year property tax reform legislation. This shifted somewhat in fiscal years 2023 and 2024 when the City’s tax base shrank due to a plateau in post-pandemic development activity, large valuation rollbacks, the elimination of State backfills, removal of property tax levies, and creation of new and expanded homestead tax exemptions. Taxable valuation growth caps put into place in the 2023 property tax reform bill also make it unlikely that the City will be able to achieve enough growth to offset State mandated property tax levy reductions as it had in the past. These pressures will compound through FY 2029 as the 2023 property tax reform law is fully phased into the budget. Fiscal Health and Outlook

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