The Iowa Legislature has slowly been eroding local government’s ability to govern themselves.
Multiple bills have been introduced that restrict or prohibit local boards and
council from making decisions based on the wants and needs of their citizens. The bills
range from not being able to prohibit golf carts on city streets to making municipal
elections partisan. However, the most damaging bills affect municipalities’ ability to
raise necessary revenues.
Two years ago, HF 718 was signed into law. This bill restricted the growth of property
valuations, which was already restricted by other means, and began the elimination of
multiple levies cities and counties used to meet the needs of citizens. The effect is that
cities, already operating at the bare minimum, are forced to make further cuts, cuts that
will reduce services.
SSB 1117 would limit annual sewer rate increases to 2% or the CPI, whichever is less.
SSB 1190 does the same thing for garbage collection rates. These essential functions of
cities are operated as enterprise funds, meaning that they support their operations through
fees charged for those services. The problem with the bills is that increases beyond 2%
are often needed to meet capital needs or to compensate for operational costs that exceed
either 2% or even the CPI. For example:
Cities face mandated sewer regulations. This may require the building of new
facilities or large upgrades to the collection system. Several communities in Iowa
built combined sanitary and storm sewers a hundred or more years ago. They are
now mandated by the EPA to separate those systems. This has and will continue
to cost tens of millions of dollars that can only be financed through borrowing of
funds. Rate increases are necessary to pay the debt and will be more than 2%.
A city cannot control outside costs for garbage collection. Whether the city
operates or contracts for pick up, costs for fuel and dumping can change
unexpectedly. In Keokuk, the city operated collection is going up $1/month every
July 1 st for several years in order to meet the increase in landfill fees and capital
equipment costs. Ottumwa contracts for collection but must pay a surcharge for
increased fuel costs and landfills fees outside of the contract. The surcharges can
change from month to month and those cost will need to be recovered in higher
fees. It is also highly unlikely that a garbage hauler would sign a contract with
increases capped at 2% or less.
The Legislature continues to propose additional constraints on local government’s largest
revenue source, property taxes. HF 600 would limit property taxes levies to an increase of 102% of the levy’s five year average. Sounds reasonable until you do the math. Cities
are allowed to levy as much as needed for property/liability insurance, police and fire
retirement, Social Security/IPERS retirement, other employee benefits, and debt service.
If this bill was law for the upcoming fiscal year, Ottumwa could not meet the premium
increases for property insurance, and our statutory requirements for police and fire
retirement, and Social Security/IPERS.
The limits set in HF 600 do not allow for large cost increases beyond the control of the
city. After the 2020 derecho, property insurance rates increased by double digits for the
two years after the storm. Under HF 600, cities would have been forced to lower
coverages and/or raised deductible which could lead greater costs down the road.
To make ends meet, cities have turned to the only other source of revenue the legislature
has given them, utility franchise fees. The fee can be up to 5% on the sales of gas,
electric, and cable in a community. The purpose of the fee is to charge the utility for
using public right of way to make a profit. However, the courts have ruled that franchise
fees are a tax that can be passed along to the customer. The public is charged the rent on
public property so the utility can make a profit.
SSB 1181 eliminates franchise fees starting July 1, 2025. For the City of Ottumwa, this
would cut $1.6 million from our budget. We are already facing a $1 million shortfall
requiring probable cuts to services. The loss of the franchise fee would require us to
provide essential services only. Gone would be parks, library, code enforcement, among
others. Economic development would be almost nonexistent.
I have attended several conferences over the years where speakers cited polls that show
when a business is looking at a location, taxes and utilities are fourth to fifth on the list of
what they are looking for in a site, What ranks higher is quality of life aspects that can
attract and retain a work force. A poll by the Greater Des Moines Partnership shows
similar results for residents.
If the State continues to erode local government’s ability to fund the services its citizens
want and need, Iowa will suffer. Rural cities struggle to grow while growing
communities struggle to keep up. The Legislature makes these decisions on our revenues
with no contemplation of the effects on service delivery. The State and local
governments should be partners, not adversaries. Local government officials have long
expressed this sentiment and, more often than not, have received a cold shoulder from the
Legislature.
Cole S. O’Donnell
Finance Director
