Local leaders often have alternatives before borrowing
Property tax bills keep going up and numerous local governments are on a spending spree, just like Congress. Last year, local debt amounted to $13.7 billion in Iowa, and if the proposals on upcoming Nov. 7 ballots are approved, there will be more than $1.7 billion in new debt heaped onto the back of property taxpayers. For context, the state’s general fund budget for 2023 was $8.2 billion.
Fortunately, taxpayers benefit from controls on local governments’ ability to take on debt. Rules require their annual operating budgets to be balanced, and bonds that pledge the full faith and credit of local governments often require voter approval. Still, local debt in Iowa has been increasing steadily and is a significant factor in property tax increases.
As a practical matter, local governments are in the property-management business. They own and administer the care for a vast array of facilities and other infrastructure. Managed well, these assets can provide ongoing returns to taxpayers in the form of revenue, population inflows, and, most importantly, services provided. Managed poorly, however, government assets become distractions and the cost of maintenance and upkeep alone can turn them into money pits.
One example of this is when prudent ongoing maintenance is neglected to the point where a large, capital-intensive project is the only way to keep that asset in service or functioning well. Rather than regularly devoting a sufficient amount of money to upkeep, officials will sometimes direct their tax revenue to new initiatives or headlinegrabbing projects, crowding out room in the budget that might better be used to take care of existing assets. The temptation to defer routine maintenance and costly repairs is universal. We have all done it in our personal lives. We delay our vehicles’ oil changes or tire replacements, putting off dirty jobs and expensive repairs. We tell ourselves it can wait, only to regret that choice once we have reached a point of no return.
For too many local governments that reach that point, they simply turn to the taxpayer and ask them to take on more debt. The nearly $700 million for debt service payments that Iowa cities have budgeted this year equates to almost 8% of total city expenses. Counties have 5.5% of their budgets allocated toward debt service payments. For schools, 10.3% of budgets go toward debt service, which is nearly $300 million. The upcoming bond elections for school districts provide good examples of this. Many of the proposed school bonds include improvements or updates to HVAC, electrical systems, lighting, replacing windows, and roof repairs.
A more palatable solution exists besides taking out the credit card, though. Items like government buildings, maintenance facilities, and physical infrastructure have dedicated funding streams to repair and replace these important assets. Iowa leaders instituted this solution in 1985 when they created a local option sales tax to cover specific municipal projects without adding to property taxpayers’ burden. In 1998, the Legislature approved a similar 1% local option sales tax devoted to school infrastructure. School districts also benefit from their ability to utilize a Physical Plant and Equipment property tax levy for repairs and remodeling.
By using these various revenue streams local governments should need to rely less on bonding. But time has shown that spending is climbing in many communities in part because local leaders continue to bond for general maintenance needs.
On Nov. 7, approximately 75% of Iowans will have the chance to vote on a new bond issue from their city, county, or school board. In addition to deciding if paying for maintenance with longterm debt is in their best interest, voters should also discern whether any given project is merely a want or truly a need. While Iowans do not have a say about the inflation that is squeezing our budgets, we do get to weigh in on how much spending our local governments plan to do.