“Backfill” may be a construction term, but in Iowa political lingo it means filling the financial hole the Legislature created for cities, counties and schools while approving what proponents called the largest tax cut in state history.
The portion of a commercial property’s assessed value that could be taxed was reduced from 100 percent to 90 percent in 2013. Property taxes on multifamily residential housing are gradually being reduced from 100 percent of assessed value until equivalent to residential property. Residential levels, meanwhile, increased from 54.40 percent of assessed value in 2013 to 56.94 percent last year.
Then-Gov. Terry Branstad projected $4.4 billion in property tax relief over 10 years and $90 million annually in income tax savings, triggering increased development and more local property tax revenue.
It wasn’t going to happen overnight. So legislators established “backfill” funding to help cover property tax revenue losses. The law lacked a sunset provision to terminate payments, but that lurks on the horizon — another testament to Republican tax predictions gone awry.
Back in 2013, the Legislative Services Agency envisioned cities and counties in 2017 would lose $17.1 million and schools $8.8 million — even with the backfill. Its crystal ball was cracked. The amounts were $84.7 million for cities and counties and $22.5 million for schools.
Because of that shortfall, many cities enacted a gas and electric utility franchise fee to make up the difference. Waterloo adopted a 2 percent fee in 2013, raised it to 3 percent in 2014 and just boosted it to 4 percent.
The Legislature promised to allocate $152 million in backfill funds for the coming year. Last year Waterloo received about $1.6 million and Cedar Falls $580,000.
Now the Legislature is considering reneging on its vow as it deals with a $52 million budget shortfall and proposals for a massive income tax cut.
House Study Bill 678 would lower the backfill payment to $100 million for the next fiscal year, which begins July 1, then $75 million in 2020, and $50 million in 2021 — capped thereafter at $25 million.
Senate Republicans have proposed reductions by one third in each of the next two budget years, while eliminating the backfill entirely by 2020-21.
Rep. Pat Grassley, R-New Hartford, the House Appropriations Committee chair, is “fairly confident” backfill legislation will advance this year.
But Senate President Jack Whitver, R-Ankeny, recently stated on Iowa Public Television’s “Iowa Press,” “I believe there is general agreement in the Legislature that we don’t want to touch that for the current fiscal year” after local governments have certified their budgets.
He added, “Ultimately, that’s $150 million that we’re paying to the cities and counties that we’d like to phase out.”
Gov. Kim Reynolds didn’t include a backfill reduction in her state budget or tax reform plan. She said changes shouldn’t happen until local leaders are “at the table.”
“They also need to look for efficiencies in providing services. We’ve done that at the state level, so it’s incumbent on them to do the same thing so we can do everything we can to keep property taxes low.”
As if most cities, counties and schools aren’t already cash-strapped.
The potential loss of backfill funding, said Waterloo Mayor Quentin Hart, affects “the ability for us to be able to properly police our streets, the ability to be able to provide the essential services.”
Waterloo Police Capt. Joe Leibold said during the budget process a 2.5 percent cut in the police tax asking could have reduced the force of 123 sworn officers by seven, eliminating the Violent Crimes Apprehension Team and Safe Streets Task Force, which took almost 400 firearms “out of the hands of people who shouldn’t have them. They’ve prevented shootings … (and) criminal culture at the street level.”
Many cities would have to slash public safety positions. Coralville’s backfill funding surpasses its fire department budget. North Liberty would lose a quarter of its police budget. Iowa City would choose between staffing a fire station or 15 police positions.
Cedar Falls, which didn’t include backfill money in its budget, forgoing a property tax cut, is an anomaly in a state with 94 of 99 counties and 808 cities at their maximum levy, including 367 cities that added a full emergency levy.
Local governments and schools shouldn’t be victimized by the Legislature’s ongoing forays into tax reduction, which have yet to meet expectations. Meanwhile, the state budget repeatedly has been awash in red ink requiring legislators to slash funds previously allocated for programs it oversees, including universities, community colleges, courts, human services and prisons.
Iowa had $927 million in reserves in 2013, but just $625.1 million last year.
Basic community services such as police, fire and education shouldn’t be eviscerated by a Republican-controlled Legislature seeking to make local governments pay for its budget miscalculations.