In the closing nights of the 2019 session, while most Iowans slept, the Iowa Legislature enacted substantial changes to the way city and county governments fund public services.
There was no chance for public input, or for analysis by legislative staff. With no apparent sense of irony, the bill’s supporters argued the purpose was to increase transparency for voters.
On Thursday, Governor Reynolds signed the bill out of the public eye, issuing only a one-sentence statement repeating the same claims and ignoring the real impacts.
In this one bill, the Legislature managed to enshrine minority rule, punish public-sector workers (yet again), penalize economic growth, and hamstring cities and counties recovering from a natural disaster.
The bill will limit the growth of property taxes levied by cities and counties to 2 percent each year. Local elected officials will need a two-thirds vote to do more, if they find that their constituents’ needs demand it. So much for majority rule and local democracy.
The bill threatens city services and the local public workers who provide them. Employee benefits, such as health insurance and contributions to pension funds, until now could be financed by a special tax rate, in recognition that the rising cost of health insurance and fixed pension contributions are outside city or county control. These costs have been increasing more than 2 percent annually, often much more. But now they go under that arbitrary 2 percent cap.
There was much attention — deservedly so — to how various versions of the bill would affect IPERS pension benefits. This ultimately served to distract many from much broader impacts.
When pension contributions and health insurance premiums increase more than 2 percent, the city or county may have to reduce services, cut benefits, or lay off workers to keep overall tax growth under the cap. The bill pits taxpayers against the people who plow their streets, protect their homes, build roads, or maintain parks and libraries.
When services are cut, public employees can be portrayed as the scapegoats, which will be convenient to the forces that have threatened public employee pensions. Turning Iowa’s secure pension programs over to less-secure, privately run for-profit administrators remains a goal for those forces.
The new bill also penalizes local governments for pursuing growth. A last-minute change in the legislation puts revenue from new construction under the 2 percent cap.
As a result, cities and counties experiencing significant growth may be forced to cut rates year after year and will find themselves without the revenue to support the growth if they can’t muster the supermajority. For example, a city growing at 4 percent per year would face a revenue penalty of 17 percent within five years.
Another last-minute change left in place existing levy limits, which would have been abolished under both earlier bills. So now cities and counties face two limits, one on rates and another on revenue growth.
The combination could be devastating in some circumstances. Consider a flood, or a recession causing a loss of property value. The rate cap forces revenues to decline for any city or county at or near the rate limit, which includes the vast majority of localities.
Then, as the recession ends or the city rebuilds, the revenue cap could now undermine recovery. The reduced revenue becomes the new starting point, potentially leaving a city or county unable to restore revenues even to the previous level because of the 2 percent limit on revenue increases. And this just at a time when extraordinary measures are needed to help the recovery.
One has to wonder if more transparency in the process might have helped legislators find a better outcome — or at least helped their constituents to argue for one.
Editor’s Note: This post updates and expands upon a previous post about this legislation, prior to the governor’s signing of the bill.