SSB 1124

Description

Senate File 356 relates to property tax levies and the number of county seats in a county. The Bill has five divisions:

• Division I — County Budgets and Levy Rates — Applies to FY 2025 and after.
• Division II — City Budgets and Levy Rates — Applies to FY 2025 and after.
• Division III — Public Education and Recreation Tax Levy (PERL) — Applies to FY 2028 and after, except where noted.
• Division IV — Brucellosis and Tuberculosis Eradication Fund Levy — Applies to FY 2025 and after.
• Division V — County Seats — Effective upon enactment.

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 Budgets and 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 subject to only 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 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.
• 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 amount of 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 level for all rural purposes decreased from $3.36 to $3.22. During the period, two law changes occurred that directly impacted the revenue side 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% reduction in the taxable value of commercial and industrial property began a phase-out 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, additions to general/rural county services, and supplemental levies.
• Creates additional limits on the maximum allowed general and rural county services tax rates.
• Lowers the dollar amount threshold requirements for counties to enter into leases, lease-purchase contracts, loan agreements, and bonded indebtedness without an election following a petition. Thresholds are lowered by 30.00%.
• Requires a county’s Annual Financial Report to include a list of bonds, notes, and other obligations.

The Bill creates new county-specific general services tax rate limits for FY 2025 that are based on FY 2024 rates, and for future years, county-specific tax rates are based on growth in county taxed value and county tax rates. Fiscal year 2025 general services tax rates may not be higher than the rates established for the same purposes for FY 2024. For FY 2026 and succeeding years, the application of new county general service levy limits will fall into one of three groups depending on the situation in each county:

• Group 1 — Counties with a current year tax rate of $3.50 or lower and with budget year tax base growth in excess of 3.25%: Through a formula, counties in this group will have the growth in their budget year maximum property tax revenue dollars reduced by 3.25 percentage points. A county will have the ability to access tax base growth above 3.25% for the year.
• Group 2 — Counties with tax base growth above 2.50% that are not included in the first group (their tax base growth does not exceed 3.25% or their current year tax rate is above $3.50 or both): Through formula, counties in the second group will have the growth in theirNumber 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

budget year maximum property tax revenue dollars reduced by 2.50 percentage points. They will retain tax base growth above 2.50% for the year.

• Group 3 — Counties with a tax base growth of 2.50% or less: Counties in this group will be able to utilize all growth in the property tax base, and if their current year rate is below $3.50, they may also raise their budget year general services rate 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 levy rate, with references to the $3.50 tax rate changed to $3.95. Year-to-year, individual counties may and often will fall into a different group depending on their budget year tax base growth and current year tax rate. Regardless of the group a particular county occupied in a previous year, its maximum general or rural services tax rate returns to $3.50 if the county’s applicable tax base growth does not exceed 2.50% for a year. At any time, a county may establish a tax rate below the calculated maximum. However, doing so will reduce the county’s maximum tax rate should it fall within the first or second group the following year.

Division I Assumptions and Fiscal Impact

County General and Rural Services

Actual statewide general services tax base growth between FY 2017 and FY 2023 exceeded 3.25% for each of the six years. Additionally, the FY 2023 statewide average general services levy is just above $3.50 at $3.55. However, there is considerable variation in tax rates and tax base growth rates, and only four counties have an FY 2023 general services tax rate, including the cost of courts, of $3.50 or lower and also experienced growth in their tax base of more than 3.25% for each of the six years.

Actual statewide rural services tax base growth between FY 2017 and FY 2023 exceeded 3.25% for each of the six years. Additionally, the FY 2023 statewide average rural services levy is well below $3.95 at $3.18. Of the 99 county rural services levies, including rural services additions, the rates of only three counties exceed $3.95. Three-quarters of counties experienced at least one year of rural tax base growth below 2.50% over the six years. This statistic means that under the Bill, most counties will be occasionally allowed to increase their rural services levy to as high as $3.95.

The fiscal impact of the new levy rate limits is examined in this Fiscal Note through examples based on historical annual growth rates of nine counties as well as the FY 2023 general and rural services tax rates of those counties.

• The future growth in the tax base of individual counties is not known. For this analysis the actual annual tax base rate of growth for each of the nine example counties from FY 2017 through FY 2023 is used to model future tax base growth patterns for the counties. For each county, the tax base rate of growth for FY 2018 is assumed for FY 2025, and the FY 2019 tax base rate of growth is assumed for FY 2026, etc.
• The first year of the new tax rate limits is based on FY 2024 actual tax rates. Since FY 2024 rates are not available, FY 2023 rates are used in this analysis and assumed to be the FY 2024 rates.
• The FY 2024 general services tax rates become the FY 2025 rate limits, and the FY 2024 general services tax rate is the sum of:
• The basic general services tax rate of $3.50.
• The basic general services additions tax rate.
• The portion of the general services supplemental tax rate that represents the maintenance and operation of courts. For the analysis of the examples, the FY 2023 budgeted court expenditure total for each county is converted to a property tax rate, with the result added to the general services levy only for those counties utilizing a general service supplemental levy for FY 2023.
• The FY 2024 rural services tax rates become the FY 2025 rate limits, and the FY 2024 rural services rate is the sum of:
• The basic general services tax rate of $3.95.
• The basic rural services additions tax rate (if any).

Example Counties — General Services Levy Figure 2 provides general services tax rate and tax base statistics for nine example counties.

• The left portion provides a projection of the FY 2024 general services tax rate limit that is based on FY 2023 actual rates and on a calculation of the portion of each county’s supplemental levy that represents maintenance and operation of courts.
• The right portion provides annual average tax base growth, low annual tax base growth, and high annual tax base growth for each of the counties.

Figure 2 The following analysis of counties uses current tax rates and historical annual tax base growth for each county to produce examples of how the new tax rate limits may work given differing situations that could occur in the various counties. Future growth will not be the same as past growth, so the results should not be used to make conclusions about how the additional tax rate limits included in this Bill might impact any specific county.

The general tax base of Dickinson County expands more than 3.25% for each of the six years (average annual rate = 4.59%), and the county general services tax rate is below $3.50 ($2.45) for FY 2024. This places the county in Group 1 for all years of the projection, which means that the maximum general services tax rate is reduced for FY 2026 through FY 2030 and the rate is projected to equal $2.09 for FY 2030. Over the six projection years, the county general services tax base expands 30.87% and property tax revenue increases 11.53%.Total Average Basic Additions Estimated General Annual Lowest Highest General To General Court Services Tax Base Tax Base Tax Base County Services Services Supp. * FY 2024 Growth Growth Growth Dickinson 2.45135 0.00000 0.00000 2.45135 4.59% 3.97% 5.11% Dallas 2.76505 0.00000 0.00000 2.76505 8.03% 5.25% 11.72% O'Brien 3.50000 0.00000 0.05641 3.55641 8.29% 4.63% 10.01% Clay 3.50000 0.00000 0.01543 3.51543 2.61% 0.54% 5.30% Marion 3.50000 0.00000 0.05453 3.55453 4.77% 0.76% 12.22% Lyon 3.50000 0.00000 0.00000 3.50000 3.76% -0.28% 6.22% Decatur 3.50000 3.09251 0.08106 6.67357 3.87% 0.92% 7.70% Winnebago 3.50000 0.85074 0.01514 4.36588 2.77% 0.69% 5.13% Scott 3.50000 0.00000 0.43182 3.93182 3.87% 2.82% 5.75% * Court supplemental levy is an estimate based on FY 2023 court budget and supplemental levies. Tax rates in dollars per $1,000 of taxed value Actual FY 2023 rates are assumed FY 2024 rates Example Counties — General Services Levy

Tax Rates Tax Base Growth

The general tax base of Dallas County expands more than 3.25% for each of the six years (average annual rate = 8.03%), and the county general services tax rate is below $3.50 ($2.77) for FY 2024. This places the county in Group 1 for all years of the projection, which means that the maximum general services tax rate is reduced for FY 2026 through FY 2030 and the rate is projected to equal $2.36 for FY 2030. Over the six projection years, the county general services tax base expands 58.92% and property tax revenue increases 35.44%.

The general tax base of O’Brien County expands more than 3.25% for each of the six years (average annual rate = 8.29%), and the county general services tax rate equals $3.56 for FY 2024. Due to a tax rate above $3.50 for FY 2024 and FY 2025, the county would fall into Group 2 for FY 2026, but with a projected tax rate below $3.50 for FY 2026, the county would fall into Group 1 for the remaining four years of the projection, which means that the maximum general services tax rate is reduced for FY 2027 through FY 2030 and the rate is projected to equal $3.05 for FY 2030. Over the six projection years, the county general services tax base expands 61.28% and property tax revenue increases 38.45%.

The general tax base of Clay County expands more than 3.25% for the first three years of the six years (average annual rate = 2.61%), and the county general services tax rate equals $3.52 for FY 2024. Due to a tax rate above $3.50 for FY 2024 and FY 2025, the county would fall into Group 2 for FY 2026. The county is then projected to be part of Group 1 for FY 2027 before low tax base growth in each of the final three years of the projection makes it part of Group 3. Group 3 counties may set a general services tax rate of up to $3.50. Over the six projection years, the county general services tax base expands 16.73% and property tax revenue increases 16.22%.

The general tax base of Marion County expands more than 3.25% for three of the six years (average annual rate = 4.77%), and the county general services tax rate equals $3.55 for FY 2024. Due to low tax base growth for FY 2026, the county would fall into Group 3 for that year. The county is then projected to be part of Group 2 for FY 2027 before ending the projection period in Group 1. For FY 2030, the general services tax rate is projected to equal $3.17, and over the six projection years, the county general services tax base expands 32.24% and property tax revenue increases 18.07%.

The general tax base of Lyon County expands more than 3.25% for five of the six years (average annual rate = 3.76%), and the county general services tax rate equals $3.50 for FY 2024. Due to a tax base decrease for FY 2026, the county would fall into Group 3 for that year. The county is projected to be part of Group 1 for the remaining years of the projection. For FY 2030, the general services tax rate is projected to equal $3.08, and over the six projection years, the county general services tax base expands 24.78% and property tax revenue increases 9.80%.

The general tax base of Decatur County expands more than 3.25% for two of the six years (average annual rate = 3.87%), and the county general services tax rate equals $6.67 for FY 2024. Due to a tax base increase of less than 2.50% for FY 2030, the county ends the projection period in Group 3 and therefore would be allowed a maximum general services tax rate that is the higher of $3.50 or the county’s tax rate from the previous year. For FY 2030, the general services tax rate is projected to equal $6.20, and over the six projection years, the county general services tax base expands 25.61% and property tax revenue increases 16.64%. The general tax base of Winnebago County expands more than 3.25% for two of the six years (average annual rate = 2.77%), and the county general services tax rate equals $4.37 for FY 2024. Due to a tax rate above $3.50 through FY 2029, the county is part of Group 2 for all projection years. For FY 2030, the general services tax rate is projected to equal $3.96, and over the six projection years, the county general services tax base expands 17.78% and property tax revenue increases 6.71%.

The general tax base of Scott County expands more than 3.25% for three of the six years (average annual rate = 3.87%), and the county general services tax rate equals $3.93 for FY 2024. Due to a tax rate above $3.50 through FY 2029, the county is part of Group 2 for all projection years. For FY 2030, the general services tax rate is projected to equal $3.48, and over the six projection years, the county general services tax base expands 25.59% and property tax revenue increases 11.00%.

Example Counties — Rural Services Levy Figure 3 provides rural services tax rate and tax base statistics for nine example counties.

• The left portion provides a projection of the FY 2024 rural services tax rate limit that is based on FY 2023 actual rural services tax rates.
• The right portion provides annual average rural tax base growth, low annual rural tax base growth, and high annual rural tax base growth for each of the counties. Figure 3

The following analysis of counties uses current tax rates and historical annual tax base growth for each county to produce examples of how the new tax rate limits may work given differing situations that could occur in the rural areas of various counties. Future growth will not be the same as past growth, so the results should not be used to make conclusions about how the additional tax rate limits included in the Bill might impact any specific county. The rural tax base of Dickinson County expands more than 3.25% for all six years (average