Tax reform by the legislature forced city staff to present two budgets to the council as they continued to play what was described as “whack-a-mole” in covering revenue cuts from the state and inflation.

Friday was the first of four budget meetings before final budget approval can take place during their meeting on Feb. 14.

City manager Steve Schainker said this is the first time in his 40-year tenure as Ames city manager that he has to present a budget on taxes and valuations, knowing in about a week, those numbers will be completely different.

“Many of the local governments asked if they could put this off until next year or give us a series of years to ratchet it down,” Schainker said. “I don’t believe that’s going to be the case. I believe, you’ll see, that we will lose $775,000 from the budget I am showing you today.”

Mayor John Haila said there are ongoing discussions to change additional tax laws that could cost the city another million dollars.

“If someone asks me now, ‘What keeps you up at night?’ I’d have a long story to tell them,” Haila said.

Ward 2 Rep. Tim Gartin said the ongoing situation did not have to be this way, and the legislature cannot expect the city not to make cuts if this is the way they are going to operate.

“One of the things that’s so frustrating about the conversation today is that if the legislature wanted to signal a major change in which we’re doing business, why in the world do we only find out about this now?” Gartin said.

Property Tax

A 2021 property tax law is impacting the budget by eliminating the multi-family rollback category and eliminating a backfill of another tax cut, adversely affecting the budget by $412,104.

The Iowa legislature is in the process of correcting an error in that law that would cost the City of Ames $775,242 this year. The initial law gave no direction on how to calculate the residential rollback rate with the multi-family property category eliminated, and if corrected, would lower the residential valuation in Ames by $77 million.

“Now I’d like to say that’s all that’s before us, but I can tell you the bills are coming fast and furious, and there could be a lot more that are going to affect this budget,” Schainker said.

The rollback was set at 56.5% when it would have been 54.6% if the category remained. Despite the Legislative Services Agency notifying the Iowa Department of Revenue in November, the state did not notify cities to use the lower rate in budgets.

If the bill correcting the error is passed, the budget proposed a 3.66% increase to the total tax levy or a $0.36 increase per $1,000 taxable valuation, and if not, the budget proposed a 1.36% increase or $0.13 increase per $1,000 taxable valuation. Due to state law, both proposals have residential properties compensating for decreases in commercial and industrial properties.

“[The legislature has] taken a lot of action in the past to help commercial and industrial, but that puts a certain percentage of the burden on residential,” Schainker said. “It’s going to be very difficult for people to maintain quality of life for all the cities of Iowa that we expect to attract people to.”

Ward 1 Rep. Gloria Betcher said from the perspective of her 10 years on the council, this is a historic increase in the levy rate.

“Residents need to understand that we are not typically in the business of raising the levy rate, and more often we’re lowering the levy rate, and this is being possibly forced upon us by the legislature,” Betcher said.

Ames Director of Finance Corey Goodenow said that while Ames has done a good job with its finances, the issue comes when the city reaches the levy rate cap in five or six years and there is no more flexibility.

According to city documents, Ames currently has the lowest general levy rate of the 13 most populous cities in Iowa at $5.51 per $1,000, well below the cap at $8.10 per $1,000.

Gartin said the city would already have to be increasing the levy rate without any action by the legislature because of inflation, to which Schainker called the situation a double whammy.

“Our goal always is only to collect the amount of money we have determined to be a reasonable amount to continue the level of services to our customers,” Schainker said.

General Fund

According to Schainker, the general fund part of the budget proposal consists of additional funds from departments, and Ames does not operate in a “you don’t spend it, you lose it” manner. He said the projects listed in the general fund budget do not raise taxes because they have already been paid for.

The proposed projects are adding funds to the Alternative Response for Community Health (ARCH), Community Diversity Equity and Inclusion (DEI) plan, City Hall carpet, City Hall auditorium HVAC, the Council Priorities fund and constructing a soccer field.

Schainker said ARCH is a very successful program and helps aid mental health emergency calls with social workers and EMTs instead of police. However, Gartin questioned whether this was the right program to fund if it won’t be funded next year due to budget cuts.

“As much as we like this, is this something we should be putting $154,000 to when we don’t have a sense of how we pay for it going forward?” Gartin said.

Schainker responded, having said this is a one-time funding mechanism and has not been built into the operating budget.

“You could still argue, ‘Why are we doing it at all?’ because you’re raising expectations in future years, but at least you’re not paying for it with a property tax increase,” Schainker said.

At-Large Rep. Bronwyn Beatty-Hansen suggested they should allocate the funds to give them time to find alternative revenue sources.

“They are very, very new, so we at least give them some time to establish and find some other funding sources, too,” Beatty-Hansen said. “I think we’re helping them just get going. So, it’s not like an organization that’s been around a long time, and we still think it won’t be able to find funding.”

However, Haila said they might not be able to because the state disbarred the county from contributing funds to mental health services.

“The school district is pinched; they need counselors, they need EAs [and] they need other things, so they’re going to be really under the gun,” Haila said. “Maybe, maybe, Iowa State could put some money into it.”

Haila added that Central Iowa Community Services said it would not contribute to the fund because ARCH does not fit its mission or ability to use resources.

“If we’re gonna be short $775,000, do we put them into some of these buckets, or does that money go back to keeping the levy rate lower?” Haila said.