Iowa City Manager Wants Lower Tax Rate to Help Attract Businesses

By Gregg Hennigan, Reporter

IOWA CITY, Iowa – The city manager here wants to lower Iowa City's property tax rate to try to make the town more economically competitive with neighboring communities.

Tom Markus is recommending a property tax rate for next fiscal year of $16.81 per $1,000 of taxable value, down from the current $17.27.

That would still leave it above the current rates of Coralville, North Liberty, Cedar Rapids and Davenport, but it would be a 2.64 percent decrease for Iowa City property owners.

Tax rates are a consideration when companies look for a place to do business, Markus said.

"The disparity (between Iowa City and its neighbors) is more significant than I think it needs to be," he said Wednesday.

The property tax rate is part of a $217 million budget proposal from Markus for fiscal year 2014, which starts next July 1.

The City Council will begin its deliberations on the budget in early January, and a public hearing and council vote to adopt a budget are to be held in March.

At the proposed property tax rate, the owners of a $100,000 home would pay about $888 in city taxes next fiscal year, up $12 from this year. The increase is primarily attributable to the state-set rollback, which is the percentage of a property subject to taxation.

The residential rollback has been trending upward is recent years and will be 52.8 percent next fiscal year, compared with 50.8 percent now.

Commercial and industrial properties are taxed at 100 percent, so a rate decrease would lower property taxes for Iowa City businesses.

Markus said there are several reasons Iowa City's taxes have been higher than most other Iowa towns. For one, it offers more services than smaller towns and, unlike Coralville and North Liberty, has the costs that come with staffing a paid fire department.

Other towns have casinos that put money in city coffers and a special sales tax dedicated to property tax relief and not flood projects, like Iowa City. Cedar Rapids also has no casino and a primarily flood-related sales tax, but Markus said Cedar Rapids does not have as large a percentage of tax-exempt property as Iowa City does with the presence of the University of Iowa.

Mayor Matt Hayek shares Markus' goal of a lower tax rate.

"People in business have a choice in terms of where they reside, and Iowa City has a lot to offer. But we have to be competitive," he said.

Lowering property tax rates would be viewed favorably by the existing business community as well as those looking to locate here, said Nancy Quellhorst, president and CEO of the Iowa City Area Chamber of Commerce. She also said it would join other recent initiatives that show Iowa City is becoming more business friendly.

"Iowa City has really done a fine job demonstrating their willingness to work with the business community," she said.

Potential property tax reform throws some uncertainty into local governments' planning. Gov. Terry Branstad, a Republican, wants commercial and industrial properties to pay less in taxes, but city and county officials have said that could hurt their budgets. State lawmakers have not been able to agree on a plan.

Also, Markus acknowledged that neighboring towns could lower their tax rates and offset any gains Iowa City would see.

The rollback, favorable health insurance rates, debt restructuring, some fee increases and staff reductions are among the reasons Iowa City could lower its tax rate, Markus said.

The budget calls for the equivalent of 620 full-time employees next fiscal year, which is four fewer than this year and would be 18 fewer than two years before. Those cuts have mostly occurred through attrition.

None of the eliminations for next year would require layoffs, Markus said.

The budget calls for the addition of three police officers, with two of the positions funded in part by a federal grant.
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