It’s September – time to pay property taxes! Most property owners will see a significant increase in taxes due this fall. Assessments were way up (8.2 percent for residential property in urban Polk County, for example), and most jurisdictions are capturing those increases by keeping rates constant. (See Spotting a Potential Flaw in Iowa’s Property Tax System.)
One of the reasons for an increase in expenses for Iowa governments (state, schools, cities, counties, county hospitals, community colleges) this year is a rise in required contributions to the Iowa Public Employees Retirement Plan (IPERS). Total payroll contributions are up from 14.88 to 15.73 percent, beginning July 1, 2018.
IPERS is a huge system, covering 300,000+ members with an annual public payroll of nearly $8 billion. What may appear to be a relatively small increase in the contribution rate means millions more per year for taxpayers and employees. Taxpayers fund 60 percent of total IPERS contributions, which amounts to $750 million per year, or an average of $600 per household per year. Click To Tweet
At the local level, property taxes are used to pay for pension costs. Most local property tax rates are limited by state law. For instance, cities’ general levy (the largest and most flexible levy) has a cap of $8.10 per $1,000 of taxable value. Schools are limited through the school aid formula. One rate that is not limited, however – and this is true for schools, cities, counties, county hospitals, etc. — is the separate “retirement levy.”Basically, there is no upper limit on what taxpayers are and will be expected to pay for public employee retirement benefits. Click To Tweet As pension funding requirements increase, property taxes will increase. It is an open-ended payment, and it will automatically compound as new members are added to the system each year.
For 30 years, IPERS contributions were stable at 9.40 percent. For the last ten years, however (especially following the market crash), IPERS contributions have increased by nearly 70 percent. Sadly, increased property tax levies are not buying any improvement in local services (nor in employee benefits for that matter) – they’re simply paying off a shortfall in funding for public employee benefits already earned. Moreover, so far, the increases have not resulted in any improvement in the system’s funded status. Because it is an open-ended property tax levy, look for even bigger property tax bites in the future.
For more information about Iowa’s public pension issues, go to https://taxpayersci.org/public-pensions.