Franchise fee information: This cannot be explained in a 30 second sound bite so please bear with me as you read this.
I’d like to explain the need for this fee (tax) something that probably should have been done when we started talking about the need several months ago. To clear up any misunderstanding about this tax, it would start Oct. 1 at 2 percent (actually a net 1 percent because the LOST tax currently collected on your gas and electric bill would go away). Then April 1, 2016, would increase to 3 percent (a net 2 percent), April 1, 2018, to 4 percent (net 3 percent) and finally on April 1, 2020, to 5 percent (net 4 percent).
First, city budgets are not the easiest thing to understand. There are levy limitations on salary money spent for police, fire and some other salaries. This is called the $8.10 levy and the money received for this is currently $1,761,000. The one cent sales tax (LOST) is limited to one half of the revenue going to property tax relief and one half going to streets and sewer repair and construction. LOST funds cannot be used for salaries to supplement the $8.10 levy. The franchise fee can be used for salaries.
The city currently supplements Road Use Tax Funds (RUTF) with LOST funds to do as much as possible to keep the streets in as good of shape as they are in. RUTF comes from the state and is paid for with state fuel taxes. This has not been raised since 1989 and the city receives nearly the same amount that it did many years ago about $800,000 which was not supplemented with LOST funds but which during the early years was enough to keep streets in an adequate condition.
Hotel/Motel funds: The city of Creston currently receives $135,000 from the hotel/motel tax. One half of this money must be spent on tourism related activities, and the other half may go to the general fund, but again, cannot be spent on salaries for police, fire etc. Some of the tourism related items paid for this year are: fireworks, tourism, visitor center, park and rec advertising, farmers’ market promotions, Crest Area Theatre, holiday lights and more. The total of these tourism related items are more than half of the hotel/motel taxes received, so some of these will have to be cut in order to help out the general fund.
The general fund is what you pay for in your property taxes. As I mentioned earlier only $8.10 per thousand dollars of valuation may be paid for salaries for police, fire and some others. One of the reasons that city employees enjoy decent benefits is that they can be paid for outside of this $8.10 levy. In other words, we can’t give much of a raise, but we can give better benefits. Almost every city in Iowa uses up the $8.10 levy and has for a number of years.
Our current general fund levy is $13.95 per $1,000 of assessed property value after rollback for residential. The money received from the general fund has remained mostly stagnant for the past 4 or 5 years.
As many of you know, the Iowa State Legislature passed Senate File 295 on the last day of the 2013 legislative session basically in the dark of night. This is billed as the largest property tax cut in Iowa history. The problem with this is that it is the cities, counties and schools who rely on property tax for their general fund money. This law rolls back all commercial and industrial property taxes 10 percent. Currently the state back fills most of this, but the provision says: “If the amount appropriated (by the legislature) is insufficient to pay all replacement claims, the director of revenue shall prorate the payment of claims.” There are at least two instances of the state failing to appropriate funds that were promised, one being the homestead exemption and two being the $3.9 million that were promised annually to help with the fire and police retirement fund (the so-called 411 fund). Senator Joe Bolkom from Iowa City and an opponent of this rollback is quoted as saying in February 2014, “I think there’s concern about the state revenues softening some and our ability to backfill our commitments to local governments,” he said. “We should be cautious in voting out more mandates on local governments. It sounds real good to pass tax cuts to homeowners and veterans. The Legislature hasn’t done a good job historically in actually keeping its promises for those tax credits.”
SF 295 also included the provision that property tax on all multi-family residential (a new property classification) properties with 3 or more units will be rolled back in yearly increments to 95 percent, 90 percent, 86.25 percent, 82.5 percent, 78.75 percent, 75 percent, 71.25 percent, 67.5 percent, 63.75 percent and then to the residential amount currently 54 percent in the year 2022. This is not backfilled by the state and will cost the city a considerable amount of funds. Properties in this classification have not been identified yet, so an exact dollar figure is not available but it does include every apartment building, assisted living facility, nursing home and many other facilities with three or more units.
The third part of this is that for business and industry, the first $145,000 of property valuation will be taxed not at 100 percent of valuation, but at 54.4 percent of valuation, the same as residential. This takes effect Jan. 1, 2017, and is supposed to be backfilled by the state. My comment here is the same as for the 10 percent rollback, and I quote Senator Bolkom, “I think there’s concern about the state revenues softening some and our ability to backfill our commitments to local governments,” he said. “We should be cautious in voting out more mandates on local governments. It sounds real good to pass tax cuts to homeowners and veterans. The Legislature hasn’t done a good job historically in actually keeping its promises for those tax credits.”
A gripe of mine with the 2013 legislature passing SF 295 which can only hurt cities and other property tax revenue dependent entities is that at that time SF 295 was passed the state was sitting on nearly one billion dollars in rainy day funds along with nearly one billion dollars in surplus dollars. Iowa ranks very high in income tax rates, and I believe that they should have lowered those rates instead of picking on us. The cities and counties are the governments closest to the people so it is we who bear the brunt of citizen’s ire when we need to receive more funds to do our jobs.
There have already been significant budget cuts such as removing any new lawn mowers, pick-ups, police car, and other needed equipment. The city council is meeting (or has met depending upon when you read this) on Tuesday, Jan. 27, at 6 p.m. to discuss further budget cuts. Your input is welcomed during the public forum.
There is information available that puts us in very good light as far as comparative city taxes and operating expenses and information on the Iowa Department of Management that contains information in spreadsheet format, if you would like more information on city taxes.
The gas and electric franchise documents and revenue purpose statement are located on the Creston city website crestoniowa.gov, click on council agenda.
I welcome your civil comments and suggestions.