By Jason Hancock jason@dmcityview.com

Balancing act

City Council looks for ways to balance its budget without a property tax increase

Eliminating some jobs and modifying the election system are two proposals that have been presented to the Des Moines City Council in order to deal with a budget shortfall without increasing property taxes.

The council has been holding workshops since October, but will be presented with a final budget draft from City Manager Rick Clark by late January, Clark said. A public hearing will then be scheduled a month later, with final approval taking place before a March 15 deadline.

“As often happens, revenues haven’t kept pace with expenses,” Clark said.

Clark said no employees would lose their jobs. The positions to be eliminated either are already vacant, are held by people intending to retire or would be moved to another department.

“There shouldn’t be an adverse affect on service levels,” he said. “The average citizen won’t notice the changes.”
The budget also includes a proposal to use runoff-style elections instead of primaries, which could save nearly $60,000 during election years.

“These budget shortfalls are something that is expected,” Clark said. “Expenses usually keep up with inflation. Revenues do not.”

Councilwoman Christine Hensley said another factor in the budget shortfall is an expected 15 percent increase in health insurance.

“Last year we were able to get a significant decrease,” she said. “You can’t expect that two years in a row.”

The main focus, Hensley said, was to avoid a tax increase and balance the budget, which all preliminary budget proposals have accomplished.

Clark said the budget problems would continue until something is done about the way cities finance themselves.

“Using property taxes is not a good system,” Clark said. “But the fix needs to happen at the state level. Most larger cities in Iowa are facing a similar situation.”

In Des Moines, 40 percent of property is tax exempt, Hensley said. That is one of the reasons she is more interested in utilizing user fees.

However, a Polk County District Court will decide this year whether the 5 percent fee the city collects on gas and electric utility bills is legal. A ruling against the city could cost Des Moines $12.6 million that it raises annually from the franchise fee. Besides losing a big chunk of annual revenue, the city could face the prospect of paying back tens of millions in fees collected in recent years.

Clark said losing that revenue could force the city to choose between deep cuts — including layoffs or raising property taxes.

Des Moines has collected a utility franchise fee for more than 40 years, but for most of that period it bounced between 1 percent and 2 percent of customers’ utility bills. When the Iowa Legislature phased out its 5 percent statewide utility tax, Des Moines and a number of other Iowa cities raised theirs — Des Moines to 3 percent in 2004 and 5 percent in 2005.

The Iowa Supreme Court ruled in May 2006 that the city could collect only enough revenue to cover the actual cost of regulating the gas and electric utilities. The court then sent the case back to the district court to resolve whether the amount the city is collecting is justified.

Clark said the city is working with legislators to try to change the law and allow cities to collect up to 5 percent in franchise fees, thus taking the decision out of the court’s hands.

“A dark cloud hangs over our finances until this is resolved,” Clark said.

Hensley agreed, but said Des Moines makes a strong case for utilizing the franchise fee because of the large amount of tax-exempt property.

“The user fee is just more equitable,” Clark said. “It spreads the burden out among everyone. That’s a good feature.” CV

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