Master Proposed Book FY2023

In Fiscal Year 2024, the taxable percentage of multi-family properties will drop to match the residential taxable percentage. This has been as low as 44% in past years and has more recently been in the mid-fifties. If the residential rollback rate were to remain the same, the taxable percentage of multi-family properties could drop by as much as 9% in Fiscal Year 2024. 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. Compounding the decline in multi- residential taxability, in Fiscal Year 2023 the residential rollback rate will decrease by 2.27%, which equates to a loss of roughly $1.6 million in direct revenue to the City. This drop is the largest percentage drop in the residential rollback rate since Fiscal Year 2014. While new construction and higher property values in recent years have fortunately been sufficient to make up for the reduction in the taxability of residential and multi-residential properties, the Fiscal Year 2023 budget marks a juncture in this trend with rollback rates outpacing the assessed growth. We project similar circumstances through the next few fiscal years. In light of these financial impacts, the proposed Fiscal Year 2023 budget reflects a minor reduction of $0.04 in the property tax levy rate, marking the eleventh straight year of property tax rate decreases. It is important to remember that a property owner’s tax bill is a function of property value, the taxable percentage of the property as determined by the state, and local levy rates from all taxing bodies. Thus, despite the City’s tax levy rate reductions, many (if not most) property owners’ tax bills will increase. Nonetheless, we are unaware of any city in Iowa that has been able to implement tax rate decreases during each of the last eleven years. In recent budgets, a reduction in the debt service portion of the property tax levy has been largely achieved through recent debt restructuring and early bond retirement strategies, fueled by strong taxable valuation growth. The debt service levy remains unchanged from Fiscal Year 2022. The Emergency Levy has been modestly reduced from $.24 in Fiscal Year 2022 to $.20 in Fiscal Year 2023, which will generate approximately $850,000 for climate action activities. This allocation will provide resources to execute climate action strategies but will also begin to create new capacity in the Emergency Levy, which the state caps at $0.27. The following chart is provided for a greater historical perspective on Iowa City’s municipal tax rate and taxable property value. Tax levy rate reductions in recent years were made possible by prudent debt strategies, operational efficiencies, and valuation growth. Typically, the City experiences a larger boost in taxable valuable in valuation years (odd years). However, it should be noted Fiscal Year 2023 deviates from that trend and the taxable valuation actually decreases – again due largely to a reduction in the taxable percentage of residential properties (including multi-family) in Fiscal Year 2023. It is also important to recognize that 2022 is not a re-valuation year and thus we anticipate similarly flat taxable growth in Fiscal Year 2024.

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