Relating to local government funding by modifying school district funding provisions, property assessment provisions, and bond issuance requirements, and including effective date and applicability provisions

Summary

House File 718 is composed of 14 divisions related to taxation, fees, and local government budgeting, including:

• Division I creates new limits on county property tax rates.
• Division II creates new limits on city property tax rates.
• Division III eliminates future Public Education and Recreation Tax Levy (PERL).
• Division IV strikes a county sheriff fee report.
• Division V creates a new homestead exemption for homeowners aged 65 and over.
• Division VI increases the Military Property Tax Exemption and eliminates the State General Fund reimbursement to local governments that finances a portion of the exemption.
• Division VII places restrictions on new commercial and residential property tax abatements within the Urban Revitalization program.
• Division VIII relates to funding for city of Des Moines transit programs.
• Division IX relates to annual county property tax value reports.
• Division X relates to city, county, and school district budgets. The Division also requires that county auditors mail individual statements to each property owner or taxpayer.
• Division XI creates a new fee for driver’s license and identification cards issued to persons who are not residents of, or do not own property within, the issuing county.
• Division XII relates to county writing fees.
• Division XIII relates to bond elections.
• Division XIV relates to county and city debt authority.

Note on Property Tax Rates

All property tax rates used in this document are reflected as rates that are applied per $1,000 of taxed property value. Taxed property value is the value determined through the assessment process, adjusted (reduced) for any rollback for the property class, and after property tax exemptions have been applied.

Division I — County Levy Rates

Division I Background

Iowa Code chapter 331 (County Home Rule) provides the authority for counties to tax real property, with additional authority provided in Iowa Code chapter 422D (Optional Taxes for Emergency Medical Services) and Iowa Code chapter 28E (Joint Exercise of Governmental Powers). Certain county tax levies apply to all taxed property within the county (general levies), while other levies apply only to property that is outside of incorporated cities (rural levies). Properties located in cities are only subject to the general levies, while rural properties are subject to both general and rural levies.

Current law authority for county general levies includes:

• Iowa Code section 331.423(1) — The authority for general services is limited to a maximum of $3.50.
• Iowa Code section 331.426 — The authority for additions to the $3.50 general county services levy is unlimited, but use of the additional levy requires a finding of one or more of the following seven circumstances:
• An unusual increase in population.
• A natural disaster or other emergency.
• Unusual problems related to major new functions required by State law.
• Unusual staffing problems.
• Unusual financing required to permit the continuance of a program that provides substantial benefit to county residents.
• An unusual need for a new program that provides substantial benefit to county residents.
• A reduced or unusually low growth rate in the county property tax base.
• Iowa Code section 331.424(1) — If the general services levy and additions are not sufficient, supplemental general services levies are allowed for any of nine enumerated services, including:
• Charges the county is required to pay by statute for inpatient and outpatient substance abuse and for certain persons attending special schools and hospitals.
• Court-ordered foster care.
• Elections and voter registration.
• Employee benefits.
• Tort liability and other insurance.
• Maintenance and operations of courts.
• Court-ordered costs associated with domestic relations conciliation.
• A joint county indigent defense fund pursuant to an agreement with one or more other counties.
• Maintenance and operation of an emergency management agency.
• Iowa Code section 331.424B — A general levy of up to $0.0675 is available for the repair and maintenance of cemeteries.
• 2019 Iowa Code section 331.424A(6) — A former (repealed) general levy used to fund the County Mental Health and Disabilities Services Fund. Funding for this function is now provided through a State General Fund appropriation.
• Iowa Code section 331.422(3) — A general levy for debt service payments.
• Iowa Code section 422D.5 — A general levy of up to $0.75 for emergency medical services (voter-approved).

Current law authority for county rural services levies includes:

• Iowa Code section 331.423(2) — The authority for the rural services levy is limited to a maximum of $3.95.
• Iowa Code section 331.426 — The authority for additions to the $3.95 rural services levy is unlimited, but use of the additional levy requires a finding of one or more of seven unusual circumstances listed above as additions to the general services levy.
• Iowa Code section 331.424(2) — If the rural services levy and additions are not sufficient, supplemental rural services levies are allowed for two enumerated services, including:
• Employee benefits associated with rural services employees.
• An aviation authority.
• Iowa Code section 28E.22 — If approved by voters, a levy of up to $1.50 is available for the purposes of a 28E agreement related to unified law enforcement.

In addition to the above general and rural levies, Iowa Code section 331.425 allows voter-approved additions to levies otherwise specified.

Figure 1 provides a breakdown of the total revenue raised and the number of counties utilizing the property tax levies available to counties. Information is provided for FY 2017 and FY 2023. From FY 2017 through FY 2023, the statewide average total countywide levy for all purposes decreased from $6.35 to $5.94, and the average rural levy for all rural purposes decreased from $3.36 to $3.22. During the period, two law changes occurred that directly impacted the revenue portion of county budgets. Funding for the County Mental Health and Disabilities Services Fund was transferred to the State General Fund, and the State General Fund appropriation to counties to backfill the property tax reduction that was the result of a 10.00% decrease in the taxable value of commercial and industrial property began a phaseout period. Figure 1

Division I Description

The Bill makes the following changes:

• Consolidates several county functions that are currently financed through a combination of general county services, rural county services, and additions to general/rural county services levies. The consolidation first occurs for FY 2025.
• Repeals the authority for additions to county basic levies (Iowa Code section 331.426).
• Creates additional limits on the maximum allowed general and rural county services tax rates. The new limits apply to FY 2025 through FY 2028 and will be specific to each county.
• Establishes maximum general county and rural county services rates for FY 2029 and after that will apply to all counties. The maximum rates for FY 2029 and after are $3.50 for general county services and $3.95 for rural county services.
• Restricts the use of voter approved additions allowed under Iowa Code section 331.425 to the general services and rural services levies.
• Removes “(a)ny other purpose which is necessary for the operation of the county or the health and welfare of its citizens” from the definition of the term “general county purpose” as that term is used in Iowa Code chapter 331, part 2 (County Levies, Funds, Budgets, and Expenditures).

The new county-specific general services tax rate limits for FY 2025 are based on rates in place for FY 2024, including the consolidation within the general or rural services levies of any IowaNumber Number Levy FY 2017 of Counties FY 2023 of Counties General Services Levy 532.7$ 99 682.9$ 99 General Services Levy Additions 13.3 26 20.7 30 General Services Supplemental 258.4 95 355.3 93 Cemetery 0.3 20 0.3 19 Mental Health/Disabilities Services 87.9 97 0.0 0 Emergency Medical Services 0.0 0 0.6 1 Debt Service 82.3 61 116.3 74 Total General 974.9$ 1,176.1$ Rural Services Levy 205.0$ 99 253.4$ 99 Rural Services Levy Additions 1.1 5 0.9 3 Rural Services Supplemental 2.7 9 3.1 8 Unified Law Enforcement 0.5 1 0.5 1 Total Rural 209.3$ 257.9$ Total General and Rural 1,184.2$ 1,434.0$ County Property Tax Levies — FY 2017 and FY 2023

Dollars in millions

Code section 331.426 levies utilized by the county during FY 2024. For four fiscal years (FY 2025 through FY 2028), maximum county-specific tax rates are based on growth in county taxed value and county tax rates. For FY 2025 though FY 2028, the application of new county general service levy limits will fall into one of three categories depending on the situation in each county each year:

• Category 1 — Counties with general services tax base growth that exceeds 3.00% but is less than 6.00%: A county in this category will have its maximum property tax dollars reduced by 2.00 percentage points for the budget year through a reduction in the maximum tax rate.
• Category 2 — Counties with general services tax base growth that equals or exceeds 6.00%: A county in this category will have its maximum property tax dollars reduced by 3.00 percentage points for the budget year through a reduction in the maximum tax rate.
• Category 3 — Counties with general services budget year tax base growth of 3.00% or less: Counties in this category will be able to utilize all growth in the property tax base, and if the county’s current-year rate is below $3.50, the county may raise the budget year general services rate to $3.50.

For FY 2029 and after, the maximum county general services rate for all counties is limited to $3.50.

Rural county services tax rates are limited in the same manner as discussed above, but the limit is based on the rate of growth in a county’s rural tax base and the current year’s rural county services tax rate, with references to the $3.50 tax rate changed to $3.95. For FY 2025 through FY 2028, individual counties may and often will fall into a different category depending on their budget year tax base growth and current year tax rate. Regardless of the category a particular county occupied in a previous year, its maximum general or rural services tax rate returns to at least $3.50/$3.95 if the county’s applicable tax base growth does not exceed 3.00% for a year. At any time, a county may establish a tax rate below the calculated maximum. However, doing so for FY 2025 through FY 2027 will reduce the county’s maximum tax rate if the county does not fall within category 3 the following year.

Division I Assumptions and Fiscal Impact

General and Rural County Services

Actual statewide general county services tax base growth between FY 2017 and FY 2023 exceeded 3.00% for each of the six years, but did not exceed 6.00% for a year over the period. The average of the six annual statewide tax base growth rates was 4.3%. All 99 counties experienced general services tax base growth above 3.00% for at least one of the six years and 70 counties experienced tax base growth in excess of 6.00%.

The FY 2023 statewide average general county services rate is just above $3.50 at $3.55, and general county services levies in 30 counties exceed $3.50 (see the top portion of Figure 2). Figure 2 Actual statewide rural services tax base growth between FY 2017 and FY 2023 exceeded 3.00% for each of the six years, but did not exceed 6.00% for any year over the period. The average of the six annual statewide tax base growth rates was 4.2%. All 99 counties experienced rural services tax base growth above 3.00% for at least one of the six years and 78 counties experienced tax base growth in excess of 6.00%.

The FY 2023 statewide average rural services rate is well below $3.95 at $3.18. The three counties with an FY 2023 rural services rate exceeding $3.95 and the levy amounts above $3.95 are listed in the bottom portion of Figure 2.

For four fiscal years, the new county-specific rate limits will reduce the maximum allowed general and rural county services tax rates in any county where tax base growth exceeds 3.00% for one or more of the four years. For counties with a general or rural county services tax base that grows more than 3.00%, the maximum tax rate for the next year is lowered by either two or three percentage points, with counties experiencing tax base growth in excess of 6.00% subject to the three-percentage point rate reduction.

The fiscal impact of the county tax rate restrictions will reduce statewide property taxes paid for county services and property tax revenue received by counties. The magnitude of the fiscal impact is not projectable as the impact on property taxes will depend on the FY 2025 through FY 2028 growth in the general tax base and rural tax base of the individual counties. While the most observable impact will be in the general services levies of the 30 counties currently above $3.50 and the rural services levies of three counties currently above $3.95 (Figure 2), there will also be a projected tax reduction in any county where the tax base grows by more than 3.00% for any of the FY 2025 through FY 2028 period.

The property tax reduction fiscal impact will continue for FY 2029 and future years when all counties will be subject to a maximum general services tax rate of $3.50 and a maximum ruralCounty Rate County Rate County Rate Allamakee 0.35$ Guthrie 0.50$ Lucas 0.57$ Appanoose 1.30 Hamilton 0.45 Pottawattamie 0.19 Clarke 1.25 Hardin 1.50 Ringgold 1.00 Clayton 0.58 Henry 1.33 Washington 0.60 Clinton 0.65 Humboldt 0.60 Wayne 0.54 Davis 1.43 Jasper 0.95 Winnebago 0.85 Decatur 3.09 Jefferson 0.21 Winneshiek 0.78 Emmet 0.30 Jones 0.15 Woodbury 0.28 Fremont 0.25 Keokuk 0.30 Worth 0.75 Greene 0.20 Louisa 0.91 Wright 0.70

County Rate County Rate County Rate

Audubon 1.41$ Winnebago 0.44$ Wayne 0.17$ FY 2023 General County Services Basic Levy in Excess of $3.50 In dollars per $1,000 of taxed value FY 2023 Rural County Services Basic Levy in Excess of $3.95 In dollars per $1,000 of taxed value services tax rate of $3.95. While the two maximum rates are what is allowed under current law, authority under Iowa Code section 331.426 for additions to the general levies will no longer be available to counties. For FY 2023, a total of 32 counties utilized additions to the general services, rural services, or both levies and the total additional property tax raised $21.6 million. Division II — City Levy Rates

Division II Background

Iowa Code chapter 384 (City Finance) provides the authority for cities to tax real property with additional authority provided in Iowa Code section 357G.8 (City Emergency Medical Services Districts) and chapter 24 (Local Budgets). City tax levies apply to taxable property located within the boundary limits of the city, although in limited cases, particular classes of property are excluded from the levy.

Current law authority for city general fund purposes includes:

• Iowa Code section 384.1 — The authority for the general fund levy is limited to a maximum of $8.10. That maximum rate applies to all classes of property, with the exception of property classified as agricultural. The tax rate that applies to agricultural property is limited to $3.00375.
• Iowa Code section 384.12 — The authority for additions to the $8.10 general fund levy extends to 21 enumerated purposes. Some of the purposes have rate limits, and others are unlimited. Additions to the $8.10 general fund levy are available to do the following:
• Support instrumental or vocal music groups (voter-approved, rate limited to $0.135).
• Develop, maintain, and operate a memorial building or monument (voter-approved, rate limited to $0.81).
• Support a symphony orchestra (voter-approved, rate limited to $0.135).
• Operate a cultural or scientific facility (voter-approved, rate limited to $0.27).
• Construct a county bridge (voter-approved).
• Aid a company constructing a highway or combination highway/railroad bridge across a boundary river of the State where the bridge has a terminus within the city (voter-approved, rate limited to $1.35).
• Purchase a bridge that is a highway or combination highway/railroad bridge across a boundary river of the State where the bridge has a terminus within the city (voter-approved, rate limited to $3.375).
• Carry out the terms of a contract to purchase a bridge (rate limited to $0.675).
• Aid a public transportation company (voter-approved, rate limited to $0.03375).
• Support operation and maintenance of a municipal transit system or regional transit district (rate limited to $0.95).
• Lease a civic center building or complex.
• Support operation and maintenance of a civic center (rate limited to $0.135).
• Plan a sanitary disposal project (rate limited to $0.0675).
• Support an aviation authority as provided in Iowa Code section 330A.15 (rate limited to $0.27).
• Finance a levee improvement fund (authority limited to special charter cities located on a river, rate limited to $0.0675).
• Maintain an institution received as a gift or devise (voter-approved, rate limited to $0.205).
• Finance city insurance costs.
• Finance a medical service district under Iowa Code chapter 357G (voter-approved with a 60.0% requirement, rate limited to $1.00 with an option for an unlimited additional rate).
• Exceed any levy limit specified in Iowa Code chapter 384 (voter-approved).
• Support a public library (voter-approved, rate limited to $0.27).
• Support a local emergency management commission established under Iowa Code chapter 29C.
• Iowa Code section 384.4(1) — A general levy in the amount necessary for debt service payments.
• Iowa Code section 384.6(1) — A general levy in the amount necessary to pay pension and other employee benefits.
• Iowa Code section 384.7(1) — A general levy of up to $0.675 for the financing of a capital improvements reserve fund (voter-approved).
• Iowa Code section 384.8 — A general levy of up to $0.27 for the financing of an emergency fund.
• Iowa Code section 24.48 — Allows a city to appeal to the State Appeal Board for approval of suspension of statutory property tax levy limitations under the following specified circumstances:
• Unusually low growth in the property tax base.
• A reduction in the property tax base or an unusually low growth rate for any of the following reasons:
• An unusual increase in population.
• A natural disaster or other emergency.
• Unusual problems related to major new functions required by State law.
• Unusual staffing problems.
• Unusual financing need to permit continuance of a program that provides substantial benefit to county residents.
• Unusual need for a new program which will provide substantial benefits to county residents.
• Iowa Code section 28E.22 — A levy of up to $1.50 is available for the purposes of a 28E agreement related to unified law enforcement (voter-approved).

Figure 3 provides a breakdown of the revenue raised and the number of cities utilizing the available property tax levies. Information is provided for FY 2017 and FY 2023. From FY 2017 through FY 2023, the statewide average total city levy decreased from $13.90 to $13.66. During the period, a law change occurred that directly impacted the revenue side of city budgets. The State General Fund appropriation to cities to backfill the property tax revenue decrease that was the result of a 10.0% reduction in the taxable value of commercial and industrial property began a phaseout period.

Figure 3Number Number Levy FY 2017 of Cities FY 2023 of Cities General Fund ($8.10) 705.3$ 945 913.3$ 940 General Fund Additions 67.9 674 85.6 698 General Fund Agland 1.3 826 1.7 765 Emergency Levy 9.3 408 11.9 438 Debt 246.8 421 300.1 417 Employee Benefits 249.9 626 318.4 656 Capital Improvements 1.4 21 1.8 24 Total 1,281.9$ 1,632.8$ City Property Tax Levies — FY 2017 and FY 2023

Dollars in millions

Division II Description

The Bill makes the following changes:

• Consolidates current law authority for the city general fund ($8.10) levy, 16 of 21 additions to the city general fund levy (Iowa Code section 384.12), the emergency levy (Iowa Code section 384.8), and any levy increases that are the result of the suspension of statutory levy