FY26 Proposed Budget

To the Honorable Mayor and City Council Members,

It is my pleasure to submit Iowa City's operating and capital budget for the fiscal year ending in 2026 (i.e. FY 2026). Although Iowa Code only requires formal adoption of an annual budget, we have included a three-year financial plan (FY 2025-2027) and five-year Capital Improvement Program (2025-2029) for planning purposes. The budget is one of the most important documents the City prepares because it identifies the services provided and the mechanisms to finance those services. Any future modifications to this budget will be fully disclosed through formal City Council action at public meetings, in accordance with State of Iowa law. This budget aims to provide resources to deliver reliable and efficient municipal services, invest in critical infrastructure, further strategic plan priorities, and implement adopted master plans rooted in public input. The budget also contains prudent contingency line items and reserves which aid the City in weathering both unexpected expenditures and revenue shortfalls. The FY 2026 budget faces a challenging economic climate due to several compounding factors. Additionally, forecasts for the FY 2027-29 budgets indicate compounding financial challenges that make prudent budgeting decisions in FY 2026 even more important. Although I remain confident in the City’s financial foundation, the budget keeps discretionary expenditure growth to a minimum. Resources are prioritized to support core service levels in critical areas such as public safety, transportation infrastructure, and public utility operations, while continuing to advance the City Council’s Strategic Plan and implement adopted master plans. The current fiscal environment facing Iowa City is the most challenging since the 2008 Great Recession. State property tax reform laws passed in 2013 and 2023 have stressed the City’s ability to continue delivery of core services to a growing community while maintaining investment in value-add activities and external partner organizations. At the same time, the City’s growth in taxable valuation is not keeping pace with inflationary impacts on our services and infrastructure maintenance efforts. While the City’s past prudent financial strategies have provided the City some flexibility in navigating the recent challenging environment, the effects are expected to continue to compound over the next few years. It is critical to understand these pressures and how the FY 2026 budget responds to short-term needs and positions for long-term fiscal stability. The largest impacts to the Iowa City’s financial position are fueled by significant property tax reforms enacted by the State. These reforms affect the City’s ability to continue providing critical public services. In 2013, the legislature adopted a major reform to reduce the taxability of multi family properties over 11 years from 100% of the assessed property value to the annual residential rollback rate, which is 47.4% for FY 2026. As a result, the taxability of multi-family property more than halved with a cumulative loss of more than $30 million in revenue to Iowa City. The change also means that around 82% of the City’s total assessed valuation is now subject to annual volatility of the residential rollback rate. That rollback rate reached a near record low in FY 2025 and will remain at a historically low rate of 47.4% in FY 2026. Fiscal Environment

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