CEDAR RAPIDS — Getting arms around a City Hall budget these days requires a regard for two words — revenue diversification.
Another two words — property taxes — still matter most because they remain the chief source of funding for the city of Cedar Rapids’ general operating budget, as they do for most Iowa cities.
In last few years, though, Cedar Rapids City Hall has been turning quietly to other revenue options to the extent that only about 62 percent of the city’s new property-tax-supported general fund budget of $110 million will come from property-tax revenue, City Council member Kris Gulick said on Friday.
Just a few years ago, that number stood at “well over” 70 percent of the city’s general fund budget, Gulick said.
What has changed is that the city now imposes a franchise fee on electric and gas use, has erected traffic enforcement cameras to ticket speeders and has turned to the city’s temporary local-option sales tax for flood recovery to help out in a ways not initially foreseen.
In the proposed new city budget for the fiscal year beginning July 1, the City Council is proposing to raise the current city franchise fee from 1 percent to 2 percent on electric and gas use for anybody who pays a bill for those utilities. Five years ago, the city didn’t collect the fee. In the new budget year, it will bring $8 million into the city coffers, Gulick reports.
Likewise, just three years ago, the city did not operate a system of traffic enforcement cameras, the net revenue from which will add about $3 million to the new city’s budget.
In the new budget year, too, the city will use $750,000 in revenue from the local-option sales tax to cover higher costs for flood insurance for one year before the tax expires. The city also will use $500,000 in revenue from the sales tax to provide a one-year fix to the cost of operating the new library.
In addition, the city’s new budget calls for steering $1 million in fees that go to the city’s Water Pollution Control plant into the city’s general fund to support economic development.
In total, that is $13.25 million from revenue streams other than property taxes, which otherwise would need to be increased to support the city’s new general fund budget.
The new budget will keep the city’s property-tax rate at $15.22 per $1,000 of property value, which is the number that the City Council and City Manager Jeff Pomeranz talk most about and celebrate.
However, that rate would jump more than $2 per $1,000 of property value, Gulick estimated, without the diverse revenue from other sources.
Gulick, who is chairman of the council’s budget committee and is immediate past president of the Iowa League of Cities, said the Cedar Rapids City Council didn’t start paying attention as it should to revenue diversification until the city changed to a council-manager government in 2006.
“We were late to that party because we didn’t have a professional manager who was looking into that,” said Gulick. “But there were cities all across the state, as well as the League of Cities, that were very active, trying to find other ways of generating revenue besides property taxes.”
The city of Des Moines, he said, had imposed a 5-percent franchise fee on utilities years ago, which prompted a successful lawsuit against the city because of the fee’s size. State law now permits a franchise fee — which property-tax-exempt hospitals, non-profit groups and churches also pay — of up to 5 percent, Gulick said.
In terms of revenue diversification, Cedar Rapids City Hall still can find itself envying the likes of Dubuque and Waterloo, both of which obtain revenue from casino gaming and from an ongoing local-option sales tax to bolster the city budget.
Cedar Rapids Mayor Ron Corbett said on Friday that property owners talk to him all the time about their property-tax bill.
For that reason, the council will have kept the city’s levy rate at $15.22 per $1,000 valuation for five years when the council passes the new budget in March, he said. It’s the lowest among Iowa’s largest cities but for Dubuque.
Even so, the city has benefitted from additional property-tax revenue because property values have increased and because a state formula requires homeowners to pay tax on a higher percent of the value of their homes. As a result, the average homeowner in Cedar Rapids will see the city portion of the property-tax bill (about 40 percent of the total) go up about 4 percent in the new budget.
Even so, the mayor said the new Cedar Rapids city budget does not have the council “going crazy and hiring a bunch of new employees.”
The one exception, he said, is the hiring of five employees to support a project to reduce the number of nuisance properties in the city.