Placing assessment limitations for property tax purposes on commercial child care facilities, and including effective date, applicability, and retroactive applicability provisions

Description

House File 991 provides for property tax parity with resident property in for-profit commercial child care centers or facilities. Under the Bill, assessed valuation of all commercial property used for child care centers and facilities, including valuation above $150,000, is eligible for the assessment limitation applicable to residential property. The Bill also makes conforming changes to reflect the child care facility assessment limitations.

The Bill requires eligible child care centers to apply to their respective assessors no later than July 1 of the assessment year (AY) for which a center is first requesting the residential assessment limitation rate.

The Bill takes effect upon enactment and applies retroactively to assessment years beginning on or after January 1, 2025, and applies to property tax payments to local governments for fiscal years beginning on or after July 1, 2026 (FY 2027).

Background

Under current law, all commercial property, including commercial property used for child care centers and facilities, is subject to the two-tiered assessment limitation whereby valuation up to $150,000 receives the assessment limitation applicable to residential property. Pursuant to Iowa Code section 237A.1, “child care center” is defined as a facility providing child care or preschool services for seven or more children, except when the facility is registered as a child development home. “Child care facility” is defined as a child care center, preschool, or registered child development home.

All qualifying child care centers or child care facilities in Iowa that do not meet the threshold for religious, charitable, or educational owned property tax exemptions are taxed at the commercial property tax classification rate under Iowa Code section 441.21. 2022 Iowa Acts, House File 2552 (Department of Revenue Omnibus Act), Division XI, replaced the former Business Property Tax Credit with a two-tiered assessment limitation that applies to all commercial, industrial, and railroad property, including commercially classed child care center and child care facility properties. This two-tiered assessment limitation allows the portion of a property’s assessed value that does not exceed $150,000 to be subject to the residential property tax rate. For businesses that have an assessed property value that exceeds $150,000, valuation above $150,000 is subject to the 90.0% commercial assessment limitation. House File 2552 took effect in AY 2022.

Assumptions

• The Bill will become effective with AY 2025, and its first fiscal impact will occur in FY 2027.
• Based on the total property taxes derived from property in Iowa (from property taxes by class of property) as of FY 2025 and the total taxable value of property (from taxable valuation history by class) as of AY 2023, property in Iowa was subject to an average levy rate of $32.34670 per $1,000 of taxable valuation in FY 2025. It is assumed that this average levy rate will remain steady through subsequent years.
• Commercial property in Iowa has been subject to a 90.0% rollback from AY 2014 through AY 2023; also during this time, residential property in Iowa has been subject to a rollback of approximately 47.4316%. It is assumed that these rollback percentages will be applicable each year through AY 2028/FY 2030.
• According to the Department of Health and Human Services’ Care Centers and Preschools Licensing Standards and Procedures, as of FY 2024, there are estimated to be 1,500 licensed commercial child care centers and facilities in Iowa. Of these centers, 250 are estimated to operate in schools or churches and are not affected by this Bill. This number does not include day care providers who provide child care in their own homes and/or who care for five or fewer children. For purposes of this estimate, the number of commercial child care centers in Iowa is assumed to increase by 2.3% annually.
• The average assessed value of commercial child care centers in Iowa is assumed to be $698,000 in AY 2025. This value is assumed to increase by 2.0% annually moving forward.
• The total assessed valuation of commercial child care centers in Iowa is estimated to be $871.9 million as of AY 2025. Therefore, the estimated total assessed valuation for AY 2025 that will receive the commercial assessment limitation of 90.0% for commercial child care centers in Iowa under current law is estimated to be $684.4 million. This amounts to a total taxable valuation of $563.9 million under current law.
• Assuming a levy rate of $37.0004 per $1,000 of taxable valuation, estimated property tax revenues associated with commercial child care centers and facilities will amount to $29.6 million in FY 2027 under current law. Under the Bill, these revenues will be $3.0 million less at $26.6 million.
• By operation of the School Foundation Aid Formula, the estimated impact to the General Fund equates to $5.40 per $1,000 of the reduced taxable value. The estimated impact on local jurisdictions equates to $32.3004 per $1,000 of this exempted taxable value. The above information and assumptions are summarized in Figure 1.

Figure 1 — Baseline Assumptions for HF 991

Fiscal Impact

House File 991 is estimated to reduce local property tax revenues and, by operation of the School Foundation Aid Formula, increase the total General Fund appropriation. Statewide property taxes are estimated to decrease by $2.6 million in FY 2027, $2.6 million in FY 2028, $2.7 million in FY 2029, $2.7 million in FY 2030, and $2.8 million in FY 2031. However, by operation of the School Foundation Aid Formula, it is assumed that the General Fund will backfill the first $5.40 of the levy rate applied to the reduced taxable property valuation. The General Fund appropriation for the School Foundation Aid Formula is estimated to increase by the following amounts:

• FY 2027 = $431,000
• FY 2028 = $440,000
• FY 2029 = $448,000
• FY 2030 = $457,000
• FY 2031 = $467,000

Sources

• Department of Health and Human Services
• Department of Revenue