By PETER HUSSMANN
Newton residents will likely see the lowest city levy rates in nearly 20 years next fiscal year, but its impact on the amount of city property taxes they pay is yet to be determined.
Newton Community Development Director/Interim City Administrator Bryan Friedman provided that bit of news to the Newton City Council on Monday during a brief budget update at its special meeting. He told the council that while he had hoped "to be a little further along than we are right now," the city's budget work had been stalled because "we just got our values on Friday," the first step in the overall process.
In giving a general overview, Friedman noted that as recently as six years ago, Newton's levy rate was pushing $17 per thousand valuation but has been decreasing since that time. Early projections for next fiscal year see the rate falling below $15 for the first time since the 1994-95 budget year, he said.
What's driving the expected levy decline is the increasing total valuations the city has been seeing, he said. As of Jan. 1, 2011, total valuation for the city jumped 7.6 percent, from $429 million in 2010 to $462 million.
He noted that valuation gains are due to a number of factors. A big one is the end of tax abatements associated with the TPI project that adds $13 million to the community's total, as well as the end of abatement periods for a number of other commercial projects that were completed in the middle of the past decade.
Further, Friedman said, the city is releasing $7 million from tax increment financing areas in Newton to general taxation.
Another factor in the budget equation is the Iowa Department of Revenue's action last fall to raise the residential rollback rate by just over 4 percent. The rollback sets the percentage of a homeowner's property value that is subject to taxation. In the current fiscal year, that rate is 48.5299 percent. Next year, property owners will pay taxes on 50.7518 percent of the total value.
A home valued at $100,000 in Newton is paying $742.50 in city taxes this fiscal year, under the current levy rate of $15.30. For the same valued home to pay a like amount in the coming fiscal year, using the new rollback rates the city levy rate would need to fall to approximately $14.65 per $1,000 valuation.
Friedman said the increase in the rollback offsets the 3.5 percent decrease the city has seen in overall residential values. He estimated the increased rollback generates an additional $10 million in value for the city.
The interim administrator said the city is also continuing to be able to lower its debt service levy. He anticipated another 30 cent drop in the coming fiscal year, with the levy getting under $1 in the coming years.
Other factors that are contributing to the ability to lower the levy rate needed to cover the cost of city operations include a "lower than industry trends" increase of just 4 percent for insurance costs and pending long-time city employee retirements. City reserves, he said, are $350,000 ahead of what had been projected.
Looking ahead, Friedman noted the city is entering its final year of paying $132,000 in interest costs to the county as part of the TPI Composites development and is likely able to release additional tax increment financing money into the general taxation fund. Projections also see values stabling off in coming years in the community.
Negatively, Friedman noted that local option sales tax collections have seen a downturn, likely a result of the condition of the overall economy, as well as lower hotel/motel tax collections.
Another uncertainty for the city is how the state Legislature addresses calls for changes to commercial and industrial property assessments.
"We're on a trend for a sustainability," Friedman said of the city's financial condition, "though we're not there yet."
Going forward, he noted the council still needs to address its capital equipment program budget for the coming year, as well as funding requests from outside agencies and the target reserve level, typically 25 percent.
Friedman said he planned to have full budget proposal to council members by the end of this week, with the council holding budget discussions on the details during its regular meeting next Monday. On Feb. 13 he proposed holding a budget workshop with the council setting the public hearing to adopt next fiscal year's budget at its regular Feb. 20 meeting. By adopting the budget at its March 5 meeting, the council would be able to comply with the state's March 15 certification date.
Following his presentation, council member Dennis Julius asked that city staff look at the possibility of taking advantage of the historically low interest rates to refinance some of its outstanding debt in order to even further lower the debt service levy.
Councilman Steve Mullan asked that city staff prepare a "worst scenario" financial impact to the city document based on the current legislative proposals to change the commercial and industrial property tax system, including the assumption that promised state "backfills" to cities will eventually go unfunded.
The Newton City Council met in closed session following the budget discussion but did not select a new city administrator. Last Saturday, the council interviewed three finalists for the position. The names of the candidates have not been released.