"We're the Ones Who Are Limited": Winneshiek Supervisors Criticize Iowa Funding Caps

Our newsroom runs on more than coffee and craft beer — it runs on you. Support Decorah News' local reporting today. DECORAH — Winneshiek County Auditor Ben Steines warned Tuesday that sweeping changes to Iowa's property tax and local government finance laws could force counties to reduce services, delay projects and overhaul long-standing budgeting practices to comply with new state-imposed limits. Steines addressed the Winneshiek County Board of Supervisors during a meeting Tuesday, providing an overview of Iowa's 2023-24 property tax and budget reform legislation and its projected impact on county finances. The legislation, approved through measures including House File 718 and Senate Files 2442 and 2472, imposes new restrictions on county revenue growth, levy rates and reserve balances. Beginning with fiscal year 2028-29 budgets, counties generally will be limited to approximately 2% annual growth in property tax revenue, plus additional revenue generated from new construction and improvements. Steines said the law separates "new valuation" from overall taxable growth, meaning counties may increase revenue from existing property valuations by only about 2% annually while still collecting taxes from newly constructed property. Under the law, counties in fiscal year 2028-29 may collect no more than 101.75% of the previous year's revenue, plus revenue from new construction, or 100.5%, whichever is greater. By fiscal year 2030, that formula changes to 102% of the previous year's revenue plus new construction, or 100.5%, whichever is greater. After that, allowable growth becomes tied to inflation formulas. Steines said the legislation's most immediate long-term concern is a mandatory reduction in maximum levy rates. "The biggest concern I have, as far as for the county's budget, is that they left the clause in there that for budget year FY30, the maximum levy for the general fund is the 2% cap or $3.50 whichever is lower," Steines said. Although Iowa law already included nominal levy caps, Steines said the new legislation makes those limits far more restrictive in practice. He explained Winneshiek County's current general fund levy remains above $4.20 per $1,000 of taxable valuation, meaning the county would need significant valuation growth to avoid cutting expenditures. "That means the state is requiring that we cut services to our taxpayers," Supervisor Steve Kelsay said. Steines said that would be the case unless the county experiences substantial growth in taxable valuation. "Like this year, we had like 9% value growth," Steines said. "If we have 9% value growth again, we can be hopeful, but we can only do 2% budget growth. Then the rest of that makes our levy go down, which was handy. That's what we did this year. But if we have a year of 2% or 3% growth, we aren't getting much of a reduction on the levy, so you can't count on that." Supervisors acknowledged county governments have limited flexibility because many expenses — including law enforcement, emergency management and infrastructure maintenance — are difficult to reduce quickly. Supervisor Mark Vick pointed to the sheriff's office as an example of a department facing unpredictable expenses tied to emergencies, criminal investigations and weather-related events. "They just don't know what's going to happen," Vick said of the sheriff's budget. Supervisor Chair Dan Langreck agreed. "There's so many unpredictables," Langreck said. Steines also focused on new restrictions involving county reserve balances, commonly called carryovers. Under the reform package, counties will be limited to maintaining carryover balances equal to no more than 35% of annual expenditures in both general and rural funds. Any excess balance would have to be spent down before budget certification. Steines warned the provision could create unintended incentives discouraging conservative spending practices. "We don't ever want to encourage people to spend money if they don't need to," he said. He explained departments frequently budget for worst-case scenarios or emergencies that never occur. When departments later return unused money to the county, those funds count toward the carryover cap and could trigger audit findings if balances exceed 35%. Steines said departments may eventually need to alter how they build budgets to avoid violating the reserve limitation. "We may have to start budgeting more like a projected 20% carryover," he said. Vick said counties are effectively being penalized for conservative budgeting and fiscal restraint. "Here we are trying to commend people for doing a good job, trying to be conservative and stuff," Vick said. Steines added, "If you turn your money back in, you're going to get written up in our audit." Steines also described how the reform package eliminates several long-standing state reimbursements tied to property tax credits. Under Iowa's previous system, the state reimbursed counties and other local governments for tax credits such as the homestead credit, military exemptions and business property tax credits. Under the new law, those credits continue for taxpayers, but local governments no longer receive reimbursement payments from the state. "All the taxing entities will just have to absorb that loss of value," Steines said. According to Steines, the state redirected those funds toward reducing school property taxes. Iowa lowered the statewide school levy from $5.40 to $4.90 per $1,000 of taxable value, with the state covering the difference through general fund and education-related revenues. "The schools will lower their property tax and then get reimbursed from the state from the pot of money they took away from everyone else," Steines said. Steines said lawmakers had considered an even broader proposal that would have combined multiple county funds under unified limits, which he said would have been devastating for local governments coping with inflation and rising health insurance costs. County officials also discussed changes to road funding requirements. Previously, Iowa counties were required to dedicate at least 75% of their maximum allowable road levy to receive full Road Use Tax Fund allocations from the Iowa Department of Transportation. Under the new law, that threshold falls to 51%. Steines said the change gives counties greater flexibility if budgets become strained. "If the budget gets tough, gets tight in a couple years, if we don't have value growth like we need, to at least look at the general fund portion," he said while discussing possible transfers to road funding. He noted Winneshiek County currently transfers more than $2 million from rural funds to roads and about $300,000 from the general fund. Supervisors acknowledged the political sensitivity of reducing road spending because infrastructure maintenance remains one of the county's most visible services. "I've heard completely the opposite — raise my taxes, just fix my roads," Langreck said. Steines said one positive provision in the law allows counties to reserve money for future infrastructure projects without counting those dollars toward the 35% carryover cap, provided the funds are formally restricted through a resolution identifying a future project. "That is one thing they did do," he said. The discussion later broadened into criticism of state government policies and what several county officials described as increasing limitations on local control. "We're the ones who are limited," Kelsay said. "They give us the unfunded mandates and reduce our funds as their method of appeasing state voters at the expense of county residents." Supervisor Shirley Vermace also criticized state leadership. "If we always do what we always did, we're always going to get what we always got," Vermace said. "We need a change in decision-makers. Who's in control right now?" "It's not home rule," Kelsay responded. Despite the concerns, Steines emphasized counties still have several years before the strictest provisions fully take effect. The fiscal year 2030 budget cycle will be the first in which the $3.50 levy cap and revenue restrictions fully converge. "The good news is that the drop-dead date isn't for three years," Steines said. Still, he warned county departments and elected officials will need to begin preparing immediately by tightening budget projections and reconsidering how county services are funded. "But it's something to keep in mind for the future," Steines said. Be the first to know! Sign up for the free newsletter and unlock exclusive updates, breaking news, and tips from around the community.