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The ‘Dark-Store’ Strategy – Potential Implications for Local Governments

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Over the past few, a number of states across the nation have been dealing with what has come to be known as the ‘dark-store’ strategy. The phrase ‘dark-store’ which was coined by the property assessment community refers to the method used to assess the value of a commercial property. Across the nation, there are growing instances of big-box retailers challenging the accuracy of valuation methods used by assessors. In recent past, they have been successful at not just questioning the accuracy, but have been successful at changing the methods to effectively lower the valuation estimates, thereby paying lower amounts of property tax. “Big-box retailers argue that the market value of their commercial property should be the sale price of similarly sized but vacant retail buildings. They point out that these buildings are extremely hard to sell as-is once the retailer moves out. They tend to sit empty for long periods. Thus, the assertion is, they aren’t worth nearly as much as local tax assessors have traditionally assumed in valuing the property.” (Governing.com, Sept, 2016)

Effectively, the dark-store strategy reduces the value of commercial property, which in turn reduces the amount of property tax that the owner has to pay. In Michigan, where this practice is already in place has created significant shortfalls in local government revenues leaving them stranded to finding alternate revenue sources to fund services. In addition, there is evidence that the retail community is interested to pursue this in other states including Alabama, Iowa, Florida, Indiana, North Carolina, Ohio, Tennessee, Washington and Wisconsin (NACO, 2016).

It is common knowledge that local governments (cities, counties and schools) in Iowa rely on property tax as a major revenue source. For example, for the year 2015, City of Carroll and Carroll County earned approximately 25 and 36 percent of their revenues from property taxes respectively. In its most simplistic form, property tax revenue is determined using two variables, the taxable property base and the property tax levy rate. The taxable base is the portion of the total property assessment that is done by assessors in every county. Depending on the classification of property – residential, commercial, industrial and commercial, all or portion of the market value of the property is used for property tax calculation purposes. Three common types of methods used by property assessors to arrive at market value include the market data or comparable sales approach, income approach and the cost or summation approach. Once the market value has been determined, the rollback or assessment ratio, determined by the state is used to calculate the assessed value of a property. This value is used along with the property tax levy rate to arrive at the amount of property tax that is owed by a property owner. While residential property accounts for a large portion, the rest three classes of property are as important, especially in urban areas and small regional hubs, as well as in rural parts of Iowa. Commercial property, which includes retail establishments form a key group that contributes to the tax base. The proposed dark-store strategy, if implemented will significantly reduce the amount of property tax that a retail store owner would have to pay.

To get a sense of the property tax base in Iowa, figure below on average fiscal capacity illustrates the fiscal capacity for each of the 99 counties in the state and provides a visual comparison.  Fiscal capacity is an index to assess the strength of a government’s (state and local) tax base. Given the importance of property taxes for local governments, the index represents the relative strength of property tax base that exists in each county. Property valuation data for 2014 for all 945 cities in Iowa were used in creating the index and the value in each county is an average of the fiscal index of all the cities that reside within that county. A county that has an index value of greater than 100 has a relatively stronger tax base and those that have less than 100 have a relatively lower property tax base to generate property tax revenue. The cities were grouped into six categories based on population size to create the index. As the index represents a value relative to a group, the group’s index value is 100.

Given the complexity of property tax assessment and the differences in appraisal laws between states, it has been tricky for lawmakers to come up with legislative solutions that can assist local governments to respond to this situation. While some states have already done and others are considering laws to protect the local governments, places where this strategy has been implemented are already feeling the financial stress.

Given the power vested upon the local governments, they have little scope for increasing tax rates. In Iowa, the state through legislation and tax and expenditure limitations dictates what local governments can and cannot do by placing caps on revenue generation and spending increases. These limitations often tie the revenue and expenditure growth to the rate of population growth.  Therefore, the dark-store strategy, if implemented in Iowa will significantly add to the fiscal stress that local governments currently face. In addition, local governments in Iowa are currently dealing with a new law (SF 295) that has put a dent into their budgets. While the state is back filling them to compensate for the revenue losses, it is not a promise in perpetuity and it might not be very long when cities, counties and school districts might have to find additional revenue sources. On top of this, the dark-store strategy, if implemented will make their financial situation worse.

Under such circumstances, local governments will perhaps need to make unpopular choices – cutting services or laying off employees or a combination of both. In addition, it is likely they will not be able to pursue major capital improvement projects. Overall, the dark store strategy if adopted in Iowa could alter the trajectory of community and economic development efforts that communities pursue, in significant ways.

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Why financial trends matter for local governments?

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With the challenges of managing time for elected and appointed officials in ensuring smooth functioning of local governments, spending time to get into details of local financial and economic changes over time can oftentimes be unrealistic if not an impossible expectation. Especially, elected officials are hard pressed for time and appointed officials always have enough on their plate with the daily stresses of running their city and county operations smoothly. Under these circumstances, the Iowa Government Finance Initiative (IGFI) report is designed to be that one-stop resource that can provide officials a good and robust understanding of their city or county – its people, their economy and their financial situation and trends. With an easy to understand narrative, the report is an easy read on a long list of simple and complex demographic, economic and financial indicators. Developed as past of the IGFI mission to provide educational outreach, the reports improve understanding of local government financial situation and trends. In addition, from a practical standpoint, they are also useful reference as local governments go through the annual budgetary process. The reports provide a context in which resource allocation decisions get made. That includes demographic changes,  prevailing economic  conditions and what they mean in terms of revenues and potential changes in spending patterns in various types of services. The report also emphasizes the distinction between short-term operational budget and long-term capital budgets. Indicators have a good mix that can be used in decision making for both types of budgeting. Another value the report provides is for local governments to build efficiencies in the way they expend resources to provide services – the reports through the indicators provide a general sense on the ‘optimal’ level of spending in various ‘sizes’ of communities. Helps cities to step back and understand if specific services can be more efficient and/or be more effective.

With the constant and high turnover of elected officials – the reports provide a very good orientation to newly elected officials who can then participate and contribute in meaningful and effective ways during the budgetary decision making process. Helps them understand the city/county governments financial situation so that during a budgetary session, they can understand and include that as they make decisions on allocating/re-allocating resources. Finally, the reports provide a broad understanding of legislative changes mandated at the state level so they understand the impacts on their city or county’s budget and how they might need to respond. Overall, the expectation is that in the long-term, improved understanding of local government finances will lead to better budgeting processes, efficient resource allocation, more accountability and better governance at the local level.

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IGFI 2016 Annual City Fiscal Conditions Reports

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The IGFI 2016 Annual Fiscal Conditions reports for  all the 945 municipalities in Iowa have been released and are available on the IGFI website. The 2016 reports have few modifications compared to the FYE 2015 reports. First, the format of the figures in the 2016 reports have been presented differently. Instead of the trend lines, the updated reports use histogram to represent either the per capita or aggregate estimates for the selected indicators in the revenue and expenditure categories. For the 2016 reports, we use the time period 2012-16 to illustrate the trends across all the financial indicators. The legislative updates include changes made at the state level that impact municipalities. The updated reports also include the latest U.S. Census data for 2016. With access to more data now, more cities have fully populated indicators spanning five years. Once we have access to the FYE 2018 data, all 945 cities will have a completed report. As of now, complete reports are available for those cities that had responded to our invitation to share historical AFR data until 2012.

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IGFI Annual Workshops 2017

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IGFI Annual Workshops 2017

City and County finance officials and elected members of local governments are entrusted with the task of managing finances and making decisions that impact how much revenue is generated and how efficiently it is spent. With changing demographics, state mandated laws and citizen perception on taxes, it is becoming increasingly complex and challenging to manage local government finances. The role of financial planning in the budgeting process is therefore becoming very important that has significant short and long-term implications for community and economic development.

 What you will learn?

The Iowa Government Finance Initiative (IGFI), workshop is designed as a “tool-based training” for local elected, appointed officials (finance, planning and economic development) and other stakeholders on issues relating to public finance and community and economic development. You will learn:

  • How to use the IGFI annual city and county fiscal conditions reports.
  • About the value of financial indicators and how to use them.
  • About ‘peers’ in the region to make comparisons
  • One specific topic critical for cities and counties
  • For 2017, the topic is Capital Improvement Planning (CIP)
  • Understand trends in capital spending in your region, for all cities and counties.
  • To use simple excel based tools to make demographic projections, assess benefits to  compare with costs for capital projects

Resources for Participants

Each participant will receive:

  • Latest customized IGFI annual fiscal conditions report for their city or county
  • Background material relating to CIP
  • Brief guide to conduct basic analysis related to CIP using excel.

Who should attend?

  • Elected Officials – Iowa cities and counties
  • Appointed officials (city and county finance, planning, economic development)
  • Local Chambers of Commerce,
  • Council of Governments in Iowa, County Affiliates in Iowa

 Registration Online

Registration is online for the IGFI workshops. To register, click on the “Register Online Here” link at the bottom of this page. When you register you will have the option to pay by credit card, or to be invoiced via email. To receive a meal you must register at least one week before the scheduled date of the workshop you wish to attend. You may register and pay at the door on the day of the workshop if you cannot register by the one-week deadline; however, no meal will be provided. If you have registered but find you cannot attend, you may send a substitute or cancel your registration; however, no refunds will be made for cancellations received less than 3 business days prior to the workshop. The registration fee is $65 per individual and covers the workshop instruction, background materials, and supper. Register at https://goo.gl/PLDB6S

Workshop Locations

The training sessions will be conducted in six regions in the state during April 06-May 18, 2017. All workshops begin with registration and a light supper at 5:30 p.m. The program begins at 6:00 p.m. and concludes by 9:00 p.m.

Ottumwa – April 06, 2017, 2017
Indian Hills Community College, 626 Indian Hills Dr., Ottumwa, IA 52501

Storm Lake – April 13, 2017, 2017
Buena Vista University, 610 W 4th St., Storm Lake, IA 50588

Des Moines/Altoona – April 20, 2017
ISU Extension and Outreach, Polk County, 1625 Adventureland Dr., Suite A, Altoona, IA 50009

Mason City – April 27, 2017
North Iowa Area Community College, 500 College Dr., Mason City, IA 50401

Atlantic – May 04, 2017
Cass County Community Center, 805 W. 10th St., Atlantic, IA 50022

Cedar Rapids – May 18, 2017
Linn County Extension Office, 383 Collins Road NE, Suite 201, Cedar Rapids, IA 52402

 

Register here: https://goo.gl/PLDB6S

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Making sense of property tax rates

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Many of us that work with communities on a variety of community and economic development projects often come across discussion that revolves around property tax base and property tax rates and the ways that they influence our work. While some of us deal with it more directly, many of us are impacted by relying on property tax as a vehicle of financing local projects. However, the underlying concepts, issues and arguments as they relate to property tax base and tax rates rarely get the attention they deserve. Given that they are a major source of local government revenue and the huge role they play in economic development of a community and region, this short write up (blog) is an effort to explain in simple terms the mechanics of how property tax rate is determined and what factors play a role in influencing them (changes in the rate).

In its most simple form, the property tax rate is calculated using a formula that includes three major variables:

  1. The total expenditure that is required by a local government entity to provide services for a year.
  2. The total non-property tax revenue that is available to the local government
  3. The taxable base that can be used to levy property tax to generate the required revenue from property within a jurisdiction

The ‘budget’ which is a forecast of the amount of revenues that will be generated and the expenditures that are necessary to provide services is the starting point for any calculation of property tax rates. Based on the total amount necessary and the forecast of all the revenue sources (excluding property tax) for any given year, the local government estimated the amount that needs to be generated using the taxable base available in their jurisdiction using property tax. The difference between total proposed expenditures and non-property tax revenue is then divided by the total assessed valuation of the property that can be used for taxable purposes. That valuation estimates are provided by the county assessor who is entrusted with the task of assessing the major property types (residential, agricultural, commercial and industrial).

The property tax rate is usually represented as a dollar amount for every $1,000 dollar of assessed property value. For example, if the taxable value of a residential property is $1,00,000 and the property tax rate is $10.50 for every $1,000 dollar of assessed value, the amount that the property owner would have to pay is $1,050 for any given year.

Given the formula that is used to calculate the property tax rate, it is apparent that the rate can be higher if the non-property tax revenue share is low, the taxable base is low or it is a combination of both. Similarly, the rate can be lower is there is a higher taxable base, or there is a greater share of non-property tax revenue or a combination of both. For example, the City of Ames is able to keep its property tax rate low because the higher sales tax revenue the city receives (you can ascribe this to any number of factors) allows the city to offset some of the property tax revenue, thereby keeping the tax rate low.

An examination of municipalities that have higher property tax rates reveals that a low level of taxable base, usually on a per capita basis often times results in a higher tax rate. A governmental entity can also have a higher property tax rate if it has used that as an instrument to finance long term capital projects within their jurisdiction and is paying off debt.

The table below provides a comparison of property tax rates and the total taxable base for all cities in Iowa, during 2001-2013.  Data in its original form is from Iowa Department of Management.

https://drive.google.com/file/d/0B1fUweg82Z6qenRWaENFSk85TDg/view?usp=sharing

Look for future postings to continue discussion of property tax rates and how they are impacted by as well as influence economic development efforts at the city and county levels.

Questions, comments or suggestions can be sent to bdas@iastate.edu

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Property Valuation and County Fiscal Health in Iowa: Is There a Rural Urban Divide?

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Local governments across the nation including Iowa rely heavily on property tax as a source of revenue.  It is the only source of revenue that the local governments have the autonomy to set a rate and leverage the resources to expend on services based on local needs and willingness of residents to pay. Property tax base for a jurisdiction is determined based on the property tax levy rate and the value of property at a point in time. Property tax levy rates are determined by a set of variables that include level of total spending, non-property tax revenues and the total assessed property valuation. Similarly, the total assessed property valuation which is the base upon which the tax is levied is also determined by a host of factors including demographic size and growth, agricultural contribution to the area, age of housing stock, and the presence of commercial and industrial establishments. In addition, the economic conditions that prevail in an area also influence the pressure on land and hence affect property valuation. The focus of the recent short article is to: (a) examine trends in property valuation at the county level across the state of Iowa, comparing rural and urban counties over a 15-year period, and (b) highlight based on property valuation, ways it impacts their overall fiscal health.

Based on analysis findings, while it is apparent that rural Iowa continues to depopulate and economic growth lags other urban counterparts, with respect to property valuation, it is difficult to paint a broad brush to characterize rural counties. Areas of the state endowed with natural resources that increase value of land as well urban clusters possess a larger tax base. However, on a per capita basis, the distinction is even harder to discern. The northwest and northeast counties perform well on the fiscal health index created as part of the IGFI outreach efforts. Lot of that can be attributed to the strong natural capital the regions are endowed with. Tourism contributes to the region’s economy that is also reflected in the high value properties in the region due to the high amenity value. The southern portion of the state with few exceptions lagged compared to their peers across the state in terms of per capita valuation and overall fiscal health.

The entire article can be accessed by using the following link.

http://www.iowacounties.org/wp-content/uploads/2016/09/67419_IACty-September2016_SP_OPT.pdf

Amelia Schoeneman, graduate student in Community and Regional Planning is a co-author of this article.

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Population Change and Impacts on Government Finance

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Fiscal trends are often closely related to population and income trends. In general, as population increases or disposable incomes rise, government revenues and expenditures rise. By comparing city, and county estimates with their respective averages and the state, a particular jurisdiction can assess its changes in relation to the larger system. Demographic trends that mirror those in the larger geographic entities are generally preferred over a scenario in which the trends are in the opposite direction. For example, a decline in a city or county’s population at a rate greater than their respective averages (of all cities or counties in a state) is a cause for concern and requires further investigation to assess the underlying factors.

Another important aspect of population change is where it is coming from. By understanding age distribution and the median age by sex of residents, it becomes easier to assess how this will likely influence and impact revenue flow as well as future spending patterns. A positive change in median age means that the jurisdiction has experienced an increase in the age of its residents and vice versa when the change is negative. Changes in a city or county’s median age have implications on a variety of fronts. For example, a decrease in median age—that is, a younger resident base in the community—may create the need for additional amenities suitable for young adults and children, such as more parks or bigger or more schools. Similarly, an older resident base may require services geared toward elderly residents. Further, the income levels of residents and the changes that occur as a result of demographic shifts influence revenue stream of the city or county and can be either be positive or negative, with varying degrees. Either of these scenarios requires closer inspection assess the impacts on spending to meet the changes in likely demand for public goods and services.

New 2015 data from the Census Bureau’s American Community Survey provide an updated demographic snapshot for localities across the nation. Research suggests that high poverty rates, high unemployment and older populations can stretch a city’s services thin. Past experiences once again suggest that state and federal programs provide a lot of support, especially, cities are burdened with additional costs.

In a recent research, Prof. Inman at Univ of Pennsylvania has developed a formula that indicates a threshold beyond which cities could be put at a fiscal disadvantage. According to him, if the percent of a city’s population that were elderly or living in poverty exceeded 35 percent, a city could run into fiscal challenges. It’s based on the assumption that at this level, middle-income residents will pay roughly 20 percent higher taxes for the same services as they would in nearby jurisdictions, leading them to consider moving out of the city. “Cities are going to feel this kind of demographic pressure on their budgets,” said Inman. “But good economies and good policies can overcome the demographic disadvantage.”

Five major cities in Iowa: Iowa City (34.2%), Davenport (23%), Sioux City (20.8%), Des Moines (21.3%) and Cedar Rapids (19.5%) are listed in Prof Inman’s study findings. Figures in parentheses reflect the percent of population below poverty or are elderly.

Reference: Demographics Can Spell Trouble for a City’s Finances, Mike Maciag | Governing.com, September 15, 2016

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Why property assessment methods matter?

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It is common knowledge that local governments in general rely heavily on property tax as a major source of revenue. Typically, school districts and counties rely more on property tax relative to cities. Nonetheless, the importance of this local source of revenue makes it a key issue for debate and discussion.  Broadly, property tax revenue is determined by two factors, the taxable base and the property tax levy rate. The taxable base is based on the assessed value of property in four major classes – residential, commercial, industrial and agricultural. While residential property accounts for a large portion, the rest three classes of property are as important, especially in urban areas and small regional hubs, in rural parts of a state. Commercial property which includes retail establishments are also a key component of the tax base.

The method used to arrive at the value of a property is different by class. While residential property value is tied to the market value and is relatively simple, other classes value assessment can be complex. Depending on the method, the valuation estimates tend to vary, sometimes by significant amounts.

Across the nation, there are growing instances of commercial property owners challenging the accuracy of valuation methods. Especially, big box retailers in recent past have been successful at not just questioning the accuracy of the valuation method, but have been successful at changing the methods to lower the valuation estimates, thereby paying lower amounts of property tax. “Big-box retailers argue that the market value of their commercial property should be the sale price of similarly sized but vacant retail buildings. They point out that these buildings are extremely hard to sell as-is once the retailer moves out. They tend to sit empty for long periods. Thus, the assertion is, they aren’t worth nearly as much as local tax assessors have traditionally assumed in valuing the property.” (Governing.com, Sept, 2016)

Referred to as the ‘dark-store’ strategy, there is evidence of big retailers in states including Michigan, Alabama, Iowa, Florida and Indiana, North Carolina, Ohio, Tennessee, Washington and Wisconsin successfully trying to lower assessed valuation for tax purposes. This is putting a severe dent into the revenue stream of local governments and putting them in a situation to cut services and make other adjustments.

Given the complexity of property tax assessment and the differences in appraisal laws between states, it has been tricky for lawmakers to come up with legislative solutions that can assist local governments to respond to this situation. While some states have already done and others are considering laws to protect the local governments, this ongoing process has already financially hurt a number of communities.

Given how critical the issue is, we certainly will hear a lot more of this in coming months and years.

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Capital Spending in Iowa

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Much of the growth and progress that United States achieved over the last century was made possible due to its strong and reliable public infrastructure. Public investments in assets, which included highways, roads, bridges, public schools and higher education institutions, water and sewer systems, ports, railways, airports etc., allowed the free market economy to thrive, creating wealth, opportunities, prosperity and improving quality of life of residents. Slowly, it is now becoming more apparent that public infrastructure is aging and there is a growing need for major investments to rehabilitate existing and create new assets. One of the key aspects of public infrastructure is not just the capacity it provides to local governments to facilitate the provision of essential services to residents but also the critical role it plays in assisting private farm and non-farm businesses to carry out their production and distribution activities. This translates into forward and backward economic linkages that, through a cascading effect, positively contribute to the national, state and local economies. In addition to these direct benefits, expenditures made toward periodic maintenance, rehabilitation and replacement of existing public assets help the economy by way of supporting large number of jobs.

Capital Expenditures of Local Governments

At the local level, capital expenditures are usually funded through federal and state grants, borrowings from the capital market using municipal bonds, property tax levies, sales and local option sales tax and sometimes by cash. A closer introspection of the financing mechanism for capital projects reveals that approximately 90 percent of U.S. total capital spending takes place at the state and local level. Besides using funds from their operating budget (mostly for larger local government entities), most local governments rely on state and federal funding of projects by way of direct transfers, loans and grants. It is therefore logical to infer that during hard economic times, as federal and state revenues decline, it ultimately impacts the local governments’ ability to undertake capital improvements. However, during periods of economic boom, besides relying on intergovernmental revenues sources, local governments also use local tax revenues, surplus fund balances and various types of debt instruments to finance capital improvement projects. However, depending on the state, there could be statewide revenue and spending limitations mandated by the state that could inhibit the capacity of local governments to finance capital improvements. That could sometimes add to the cost of capital investments at the local level and hence act as a deterrent. Given the historical context on the state of capital assets and the prevailing economic conditions, it is an opportune time to study the scale of capital expenditures at the local level and the factors that influence such investments. Given the recent economic slowdown and the subsequent recovery over the past 7-8 years, that will act as the backdrop for undertaking the proposed study.

The State of Iowa

Iowa is the leading producer of corn, soybeans and eggs and also boasts of diversified industry sectors that contribute to the state and local economy. With its strategic location, it is also the pathway that connects several large metropolitan areas in the nation and thus facilitates regional, national and global economic activity. According to the Iowa Economic Development Authority, Iowa is “home to a diverse and robust industry mix, Iowa offers a strong economy and numerous business opportunities in a variety of industry segments — including targeted sectors of advanced manufacturing, biosciences and insurance and financial services. Nine industry segments contribute $127.7 billion real gross domestic product (GDP) to Iowa’s economy, with the service industry employing more than one-third of the state’s workforce and manufacturing contributing the largest share (20.8 percent) of total output.” Iowa also presents an interesting case study to the recession’s lingering effects on rural areas. Many rural areas, including those in Iowa, have yet to regain the pre-recession employment levels that likely impact decisions on capital improvements.

The information is timely and will likely expand the discussion on the need for capital spending to keep the public infrastructure from deteriorating and making communities sustainable into the future.

Link below provides per capita capital spending for all 945 cities in Iowa. The table includes 4 select years that span a 10 year period, from 2005-2014.

https://drive.google.com/file/d/0B1fUweg82Z6qak1SUkFkZGR5ZDg/view?usp=sharing

Questions, comments suggestions can be directed at Biswa Das, email: bdas@iastate.edu

Acknowledgements: Amelia Schoeneman for assisting with the data related work.

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Municipal Fiscal Health in Iowa

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City governments rely heavily on property taxes to fund a variety of services. In addition to being a major source of revenue, property tax also provides the local government entities to have some degree of control on changing it to levels that become necessary, adhering to state mandated codes. Cities that have a robust property tax base usually tend to be in good financial condition and those that have limited property tax base are restricted in their ability to provide services and make long term capital improvements. While other revenue sources like local option sales tax, user charges and fees are available, they are not as reliable and steady as property tax as a source of revenue.

In an effort to track fiscal health of Iowa municipalities, through the Iowa Government Finance Initiative, we have created two indexes – fiscal capacity and fiscal effort. These indexes were first used by the United States federal government in the 1960’s to make comparison between states on their overall fiscal health. Using the same concept, we have adapted it to help understand the fiscal health of Iowa municipalities.

In developing the two indexes, we have used city-level data on total property valuation, population and city-levy rates. The 945 cities in the state have been divided into following groups:  > 50,000; 25K-49, 999; 10K-24,999; 2.5K-9,999; 500-2,499; and < 500.

Fiscal Capacity Index

For each of the subgroups, we have estimated the per capita valuation for each city by taking the ratio of its total property valuation and the population for the same year. Based on the sum of the total valuation of all the cities and the total population of all the cities, per capita valuation is then calculated for each subgroup.

To arrive at the fiscal capacity index, we use the ratio of the per capita property valuation for each city to the per capita valuation of the corresponding subgroup. To create the index, the ratio is multiplied by 100.

The fiscal capacity for each subgroup is 100. If a city has a fiscal capacity value greater than 100, it simply indicates that relative to the group, that particular city has a relatively higher per capita valuation. If the index for a city is less than 100, it indicates that relative to the group, that city has a lower per capita valuation.

Fiscal Effort Index

Fiscal effort is he ratio of each individual city’s per capita levy to the levy it would generate by using the group levy rate. Per capita levy is the ratio of the total property tax revenue in a particular year and its population. The group levy rate is determined by taking he ratio of the sum of all the property tax revenue to the taxable base of that group.

The fiscal effort index for each group is 100. If a city has an effort index of greater than 100, it indicates that the levy rate in that city is relatively higher than the group average levy rate and vice versa.

Fiscal Health

We use a combination of the capacity and index to define fiscal health. Four scenarios are possible based on he two indexes.

  1. Capacity index>100, Effort index <100
  2. Capacity index <100, Effort index>100
  3. Capacity index>100, Effort index >100
  4. Capacity index <100, Effort index<100

(1) represents a case of fiscal comfort.

(2) represents a case of fiscal stress

(3) represents a case of over reliance on property tax revenue (lack of adequate alternate revenue sources)

(4) under-reliance on property tax revenue (higher level of local option sales tax might allow a city to keep property tax rate low)

Use the link below to access the fiscal capacity and effort index for all 945 cities in Iowa, FYE 2014.

https://drive.google.com/file/d/0B1fUweg82Z6qTk03eXBBdXlMUjA/view?usp=sharing

Questions can be directed to Biswa Das at bdas@iastate.edu
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Understanding Fiscal Health of Counties in Iowa

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Local governments in Iowa provide vital public services affecting citizens’ quality of life and creating an environment for economic opportunity. While often undervalued for the role they play, local governments are an essential institution in the maintenance of civil society. The collective organizational capacity represented by municipalities, counties, school districts, and other local public entities is all too often not fully understood. Changes in demographic, economic and political factors are  however, making the task of maintaining and improving local public services more difficult and challenging for the foreseeable future.

Increasing economic downturns, continuing depopulation of rural areas, aging infrastructure and rigidly divided political ideologies are contributing toward local government ‘fiscal stress.’ While there are different ways of defining fiscal stress, the most important feature is the added pressure on government finances as revenue streams slow down and expenditure level rises either due to rising cost or increasing demand. Using two indexes – fiscal capacity and fiscal stress, we are tracking the evolving fiscal health of local governments in Iowa. For a more detailed understanding of what the index means and how to interpret it, please refer to our recent publication in the Iowa County, a monthly publication from the Iowa State Association of Counties. The link to the article is

http://www.iowacounties.org/wp-content/uploads/2015/12/TheIowaCounty-January2016.pdf

 

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