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Politics & Government

Iowa City Braces For Budget Shortfall

Iowa City could lose up to $3.3 million in lost property tax revenue.

Iowa City will be hit the hardest in Johnson County in impending budget shortfalls, assessors warned during a joint meeting in North Liberty Wednesday night.

Iowa City Assessor Dennis Baldridge said the city of Iowa City could lose up to $3.3 million in tax revenue due to the decision handed down in July by the Iowa Supreme Court in his address to government and school board officials from the cities of Iowa City, Coralville, North Liberty, Tiffin, Johnson County Board of SupervisorsIowa City Community School Board and Clear Creek Amana Community School District.

In Krupp Place 1 Co-Op and Krupp Place 2 Co-op vs. the Board of Review of Jasper County, Newton property owners Larry and Connie Krupp were granted the co-op, or residential, classification for units they rented out instead of the commercial classification of property that Jasper County sought.

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Apartments are currently deemed commercial and taxed 100 percent of the assessed property’s value.

Unlike an apartment building, in which the owner leases individual units for profit, a co-op must have at least two members, who can then sublease the units at a property tax savings of almost 50 percent in property taxes.

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Since the decision, three year's worth of filers who converted are under appeal, so the assessor’s office will have to pay property owners back - about $21,000 for 2009, $127,000 for 2010 and almost $300,000 in 2011 property taxes throughout the county. 

“Now we’ve had three years of people converting to co-ops,” Baldridge said. “We’ll probably have to settle those now and give them residential roll-back.”

Co-ops are also not required to follow current housing codes when converted like condominiums, which also have the 50 percent savings.

“In the past, property had been converted to condos in order to receive this (state) rollback,” he said. “But at least in Iowa City they have to meet building codes in order to convert, so there are quite a few older properties that haven’t done that.”

County Supervisor Janelle Rettig said the Board of Supervisors learned earlier in the week during a finance committee that if all apartments were converted, the total estimated tax loss was $3.3 million for Iowa City, $2.7 million for the Iowa City Community School Board and $1.2 million for Johnson County.

“You have no expectation that everybody is going to (convert), but the problem is we have no idea how many are, and so it is a real budgeting issue for everyone to think about,” she said, asking if a percentage of apartments that might convert could be predicted.

Johnson County Assesor Bill Greazel said Coralville currently has about $60 million of tax revenue in apartment property that could go co-op, with North Liberty at $10 to $11 million, but he wasn’t sure how many people would convert to the non-profit co-op status.

Baldridge said there is currently $360 million in value for apartment buildings in Iowa City alone.

“As I understand it the other cities in the county do not have as big a proportion of apartment buildings as Iowa City has so the impact will probably be less for them,” he said. “It will be a couple of years before it hits you real hard but we’re already getting quite a bit of tax loss.”

Greazel added residential property isn’t the only classification getting a roll back – agriculture gets a 90 percent roll back.

“A lot of our battles aren’t so much anymore about valuation, they’re about classification,” he said. “In the rural areas of Johnson County for instance, anybody that has a couple goats, they want to be a farmer because they get their (agricultural) tax breaks.”

Greazel said this debate will be a hot item in the legislature.

“Be sure you contact (your legislators) and have some input on the front end on how the commercial property is, how much of a rollback they get and where the money comes from to back-fill that because that’s going to have a significant impact,” he said.

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