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Legislative Priorities 2003MEMORANDUM TO:The Honorable Mayor and City Council Members FROM:Michael C. Van Milligen, City Manager DATE:October 28, 2002 SUBJECT:Legislative Priorities 2003 Assistant City Manager Cindy Steinhauser, with input from staff, has coordinated an extensive list of the City's legislative issues for the upcoming session. Additionally, Cindy has been in contact with the Iowa League of Cities and has included the Iowa League's Legislative Priorities. Both lists are attached. I respectfully recommend Mayor and City Council approval of these priorities for presentation to Legislators. Michael C. Van Milligen City Manager MCVM/ksf Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager CITY OF DUBUQUE STATE LEGISLATIVE ISSUES FOR THE 2003 SESSION State Budget In response to a revenue shortfall during last session the State of Iowa implemented across-the-board cuts in expenses. Some of these cuts reduced revenues to cities, with no relief to cities for state-mandated programs. The first round of cuts reduced tax credits, replacement funds and shared revenues by 4.27%, which reduced City of Dubuque revenues by $89,865. The second round of cuts announced in May of 2002 impacted revenues to the City for FY 2003 by an additional $78,000. This loss of $167,865 equates to a 1% property tax increase for our taxpayers. Concerns remain over the impact of the reduced revenue to cities and that similar action will be taken in the 2003 session. Requested Action: The state should restore revenues to cities that were cut last year in an effort to make cities whole. Funding of Major Transportation Projects The State of Iowa has used a strategy of allocating funds for completing the major transportation projects in the state as opposed to using a piecemeal approach. This strategy has been successful with extensive work being completed on major corridors. The same strategy should be used for major projects in larger cities, which require significant funding commitments for completing the projects in a reasonable amount of time. Examples include the Southwest Arterial, the Julien Dubuque Bridge and U.S. 20/Dodge Street. Requested Action: Support efforts to continue the strategy for funding major transportation projects throughout the state. Set the rate for State Tax on Gaming Revenues A recently ruling by the State determined that Riverboats, land-based casinos and other gaming operations are equal and should be subject at an equal rate as opposed to a fiat rate for riverboats and an increasing rate for land-based casinos. Concerns remain over the State's approached to revenue shortfalls by tapping into gaming revenues by increasing the fiat rate of 20%. Requested Action: Enact Legislation that sets the tax rate at a lower percentage (as close to 20 % as possible) for small gaming operations like Dubuque Greyhound Park and Diamond Jo Casino and a graduate tax rate for larger gaming operations. 12 Increase the public improvement bid threshold For over 20 years, the state bidding law has required that if a public improvement's estimated cost is over $25,000, the governing body must advertise for sealed bids by publishing notice to bidders. Like any other construction project, the cost of most city projects has increased greatly over the past 20 years. Based simply on the consumer price index, inflation would have increased the $25,000 public bidding threshold requirement set in 1980 to $54,400 in 2002. The cost for publication has also increased over the past 22 years, for these reasons, the League supports an increase in the public improvement bid threshold. Requested Action: Enact legislation to support an increase in the public improvement bid threshold. Rescind House File 324 In the 2001 General Assembly House File 324 (HF 324) was enacted. This law set up numerous new requirements for cities concerning bidding for street, bridge and culvert projects involving construction, reconstruction and improvements costing over $25,000 ($50,000 for cities over 50,000 in population). One requirement was a new report that is labor intensive and taxing to city public works departments. In addition to the report that cities currently submit on street receipts and expenditures using road use tax funds, the new report requires cities to provide detailed cost accounting for all projects within 90 percent of the bid threshold. The report also includes a statement of the cost of purchasing, leasing, or renting construction or maintenance equipment. Since the reports are extremely detailed and some cities do hundreds of street projects annually, this new requirement will entail a city needing additional resources. HF 324 did not charge the Iowa Department of Transportation to use this new report for any specific state purpose, resulting in 950 cities expending resources that could be used elsewhere. RequestedAcfion: Support effort to rescind HF 324 and allow cities to use own workforce on public improvements. Enterprise Zone Incentives The Enterprise Zone legislation was written to promote private investment in economically distressed areas of a city or county. To assist new employees of companies locating in enterprise zones, the legislation provides for employers to establish a capital fund for down payments or rental subsidies. The business funds this program through a credit from state withholding taxes, based on the wagers paid to the participating employees. An amount equal to 1.5 percent of the gross wages paid by the employer is credited from the payment otherwise withheld, and used to capitalize this fund. ]3 This feature of the legislation has not been utilized to date. One reason is that the credit produces so little capital for the housing assistance program. For an employee earning $10 per hour, the credit equals approximately $300. Typically, down payment assistance programs offer $3,000 to $5,000; rental subsidy programs average $2,500 to $3,000 annually. In order to make this program effective, the credit for withholding should be increased. Another option is to allow the credit to be "pooled," to be made available to all eligible employees. As the legislation currently is written, the 1.5 percent credit is made available on the basis of withholding from individual employees -for the benefit of only that employee. If the credit could be aggregated, a larger capital fund could be established, from which all employee purchasing or renting housing in the enterprise zone could access funds for their housing needs. Another reason for lack of employer participation in this program is that the legislation requires the employer to choose between use of the tax credit for job training or for providing a housing assistance program. Employers to date have chosen to use the credit to pay for training new employees. Requested action: The legislation should be amended to provide the credit for both job training and employee housing assistance and to "pool" the funds. This will increase the tax credit and increase interest in the program by employers. Property Tax Reform The current tax structure for state and local governments is a mix of tax laws, rates and policies that do not provide for a fair and consistent tax system. It is the result of many years of adopting tax changes that may or may note be consistent with previous laws or tax policies. Often, the tax policies are contradictory, such as the residential rollback's shift of tax burden from residential to commercial and industrial property owners, and the elimination of machinery and equipment tax, which shifts the tax burden from industrial to residential and commemial property owners. Requested action: Perform a comprehensive review of the entire tax structure of the State of Iowa and design a tax structure that provides tax equity and policies that are consistent with an overall direction for state and local government taxation. Place a freeze on the residential rollback at no lower than 50% during the review, ensure full funding of state property tax exemption and update the sales tax distribution formula. Military Tax Credit The State of Iowa provides for veterans to receive a military tax credit on their property taxes. The credit reduces their City property tax by the levy rate of the City, which is $10.76 per $1,000 of valuation. The State, however, reimburses 14 the City at a much lower rate, which potentially will be reduced again. This leaves a substantial deficit for other property owners to pay. Requested action: Enact legislation to fully reimburse cities for the State of Iowa's military tax credits. Expand Cities' Extraterritorial Jurisdiction Cities have extraterritorial jurisdiction (ET J) for up to two miles from their corporate limits for subdivision review and approval only if the County has zoning for the rural areas. Extending the cities' ETJ to include review and approval of zoning changes would facilitate planned and managed growth. Legislation should provide incentives for governments to voluntarily plan together, and identify recommended land use impact to be considered during the planning process. The League supports legislation that expands land management practices such as ETJ of cities to include review and approval of zoning changes. Requested action: Support legislation enabling cooperative planning and effective land management practices. Eliminate the "20% Objection Rule" for Rezonings Section 414.5 of the Iowa Code requires a favorable vote by three-fourths of the City Council members - a 6 to 1 vote - to approve a rezoning request over the written objections of 20 percent or more of the owners of the property being rezoned, or 20 percent or more of the property owners within 200 feet of the subject property. The concepts that nearby property owners have a say in rezoning cases is valid; however, this must be balanced against the needs of the entire community. At 20 percent, a minority of property owners can dictate the outcome of community development, especially when one property owner with a large tract of land can constitute the entire 20 percent. Requested action: Raise the "objection percentage" of owners of property within 200 feet from 20 percent to a simple majority (51%); or require a favorable vote by two-thirds of the City Council members, or a 5 to 2 vote, when the objection threshold is reached. Property Owners on Historic Preservation Commissions Section 303.34 of the Iowa Code requires that: "At least one resident of each designated area of historical significance shall be appointed to the commission." This requirement is problematic for the City of Dubuque's Old Main Historic District, which is primarily commercial. It would be beneficial for the City in the recruitment and retention of commissioners to be able to appoint property owners to represent historic districts. Furthermore, since historic preservation regulations apply to the rehabilitation, renovation and restoration of property, allowing property owners to serve on the commission would be appropriate. 15 Furthermore, some Iowa cities are experiencing burgeoning commissions as historic districts are designated and representatives of each district are appointed. To avoid "over-populating" a commission, allowing a majority of the districts to be represented on a historic preservation commission would be appropriate. Requested action: Enact legislation allowing property owners to represent historic districts on the Historic Preservation Commission. Appeal of Actions by Historic Preservation Commission Section 303.34 of the Iowa Code states that an aggrieved party may appeal the action of a historic preservation commission to the City Council, and then to district court. The City Council, like the court, has to consider whether the commission exercised its powers and followed the guidelines established by law and ordinance, and whether the commission's action was "patently arbitrary and capricious." This process places the City Council in the difficult and uncomfortable position of interpreting technical guidelines and determining their appointees "arbitrary and capricious." The City Council would support an alternative process. Requested action: Consider legislation providing an altemative appeals process regarding an action of the historic preservation commission. State Mandates Cities are often faced with implementing mandates from the state and federal governments without receiving the necessary funds for implementation Requested action: Enact legislation that exempts local government from providing any new service or engaging in any new activities if the state does not provide full funding. An example of this is additional retirement benefits granted to public safety personnel in the 411 state retirement system. These new benefits, combined with lower earnings on investments and depressed market prices for the pension portfolio, has caused an increase in the City's contribution rate from 17% to 22% (estimated). This will result in additional expense of $425,600 to the City of Dubuque property taxpayer in Fiscal Year 2004. IOWA LEAGUE OF CITIES 2003 LEGISLATIVE PRIORITIES Priority: Call for a review of Iowa's state and local tax structure and pursue legislation equitably distributing property tax burdens and sales tax revenues, A) Call for a comprehensive review of Iowa's state and local tax structure and freeze the residential rollback at no lower than 50% during the study. B) Ensure full funding of state property tax exemptions. C) Update the sales tax distribution formula. BACKGROUND: Iowa's tax system is very complex. Recent efforts to study or make changes to the system have met with little success. Current and projected economic constraints indicate this effort needs to be undertaken now. The future of Iowa and its economic progress will hinge on the willingness of state leaders to work toward a state and local tax structure that promotes economic growth and prosperity for the state and its businesses and residents. A) Support a comprehensive review of Iowa's state and local tax structure with a commitment to enact recommended changes and freeze the residential rollback during the study. Previous studies of Iowa's state and local finances have been dominated by political objectives. In order to effectively address all relevant issues, policy oversight must be balanced by both technical objectivity and adequate time and resources. The process should involve establishment of a commission to follow a proposal from the Iowa Department of Revenue and Finance that recommends consideration of many issues, including: · Stability, dependability and adequacy of revenue sources, considering variance in local capacity; · Equity in the distribution of responsibility for financing government programs and services; · Effect of government fiscal policy upon economic decision-making by individuals and businesses; · Costs imposed on individuals, businesses and levels of government associated with administering and complying with tax laws and regulations; and · Enhancement of government accountability. Attempts to further limit city resources while reviewing the state and local tax system will be resisted by the League. During the study, a floor should be set on the residential rollback at Fiscal Year (FY) 2003 levels or no lower than 50 percent. The residential rollback is the percentage of the assessed value of a home subject to taxation and is currently 51.6676 percent. This number has consistently dropped, resulting in a shift in the property tax burden to commercial and industrial property owners. Because the residential rollback has declined, more communities have needed to increase levy rates to simply maintain the same level of services. This has created a disparity in the property tax burden recognized by commercial and industrial property owners who must pay almost 100 percent of their property's assessed value on the increased levy rates. Bringing more balance between classes of property and sharing the property tax burden proportionately is essential to a property tax system that works. Establishing a floor on the rollback provides a stopgap measure against further erosion of the property tax base, which is hampering local governments from providing necessary services, and will freeze the shift in the property tax burden to commercial and industrial property owners at its current level. B) Require full state funding of all mandated property tax exemptions and credits. Because other states provide higher levels of state funding and shared sales tax revenue to cities, their municipalities are far less reliant on property taxes than are cities in Iowa. This fact was demonstrated in a recent study commissioned by the League comparing Iowa's municipal tax structure to other states. At the very least, cities should be able to rely on the state to fully fund all state-mandated property tax exemptions and credits. In FY 2003, the following were funded at less than 100 percent: · Homestead Tax Credit funded at 90 percent; · Military Service Tax Exemption funded at 97 percent; and · Elderly & Disabled Tax Credit funded at 80 percent. C) Update the sales tax distribution formula and establish a mechanism for a rolling average of property tax levied to more accurately distribute local option sales tax (LOST). Legislation passed in 1985 allowing cities and counties to collect LOST provided the following distribution formula: Each county's account is distributed on the basis of population (75 percent) and property tax levies (25 percent). The population factor is based on the most recent certified federal census. The property tax factor is the sum of property tax dollars levied by boards of supervisors or city councils for the three years from July 1, 1982, through June 30, 1985. The property tax data is compiled from city and county tax reports available from the Iowa Department of Management. Only population and property tax levies of the jurisdiction imposing the tax are used in figuring percentages. The computation is as follows: D: (.75 x P x Z) + (.25 x V x Z) where D = distribution for the taxing jurisdiction P = judsdiction's population percentage V = jurisdiction's percentage of property tax levied Z = total collections for county in which jurisdiction is located Today, the Iowa Department of Revenue and Finance is still using the property tax levies from the three-year period of 1982-1985 to calculate "V" in the above formula. This period no longer reflects current taxing capacity throughout the county. Priority: Support economic development initiatives that provide necessary tools for cities to serve as economic engines for the state of Iowa. A) Protect tax increment financing (TIF) as an economic development tool. B) Support continued or renewed funding of state development incentives including the Brownfield Redevelopment fund, Resource Enhancement and Protection fund (REAP), historic preservation tax credits, Vision Iowa and the CAT program, and others. BACKGROUND: A) Protect TIF as an economic development tool. Tax increment financing (TiF)is an indispensable tool in community economic development. As Iowa competes nationally and internationally for businesses and other development, it is vital TIF be preserved to aid city officials in their efforts. Increasingly, cities are called upon to provide economic development to the state. Without the necessary tools such as TIF, the entire state loses out on the opportunities provided by city government. Often confused with another economic development incentive, tax abatement, the two operate very differently. Tax abatement allows for an exemption from property taxes for a limited period of time as defined in Chapter 404 of the Code of Iowa. With TIF, the full taxes assessed on the property are collected, but the increased value of the property (or increment) is earmarked for use within an urban renewal district established by a city or county. The increment is determined by the property value increase from the base year (as of January 1 prior to establishment of a TIF) and current value. Taxes received on the base value continue to be disbursed among all taxing jurisdictions, while taxes on the increment remain with the city or county for use within the urban renewal district. TIF revenues are often used to supply infrastructure to a development. For example, water and sewer lines and roads may be paid by TIF funds as an incentive for a developer to build in the district. Sometimes they are used as an incentive for a new or expanding business. A recent League survey indicates the average length of a TIF district is 13 years. This is significant considering urban renewal districts used for residential development are limited to 10 years, districts founded under an economic development purpose are limited in duration to 20 years, and urban renewal districts classified as a slum or blight have no time limit for existence. B) Support continued or renewed funding of state development incentives. State funding was reduced or eliminated for several important economic 4 incentive programs for FY 2003, including the Brownfield Redevelopment Program ($1,000,000 elimination) Resource Enhancement and Protection ($8,000,000 reduction) Aviation Assistance ($600,000 reduction) and Local Housing Assistance Program ($800,000 reduction.) Cuts to libraries and other cultural development initiatives impede programs that add to the quality of life for Iowa residents. Important progress gained through the Vision Iowa and Community Attraction and Tourism (CAT) programs will come to an end if these programs are not continued. Less than $10 million remains for the large projects supported by Vision Iowa. The CAT program is slated to end by FY 2004. These programs are cdtical in enabling cities to help reach the state's goal of improving the view that Iowa is a great place to visit and live by the year 2010. 5 Priority: Pursue legislation that provides for a more equitable distribution of the road use tax fund and other transportation funding. BACKGROUND: The tragic events that faced this nation have presented legitimate concerns regarding the safety of our nation's infrastructure. Today, maintaining and protecting the roads and airports not only means economic vitality for Iowa, but providing the security citizens expect and deserve. The Road Use Tax Fund (RUTF) is the master read fund where net revenues from the taxes and fees paid by highway users are held until distributed to the subsidiary fund that finances state, county and city read projects. The last change to the formula was in 1990. Subsidiary Funds Current % Primary Road Fund (IDOT) 47.5 Counties 24.5 Farm-to-Market 8 Cities 20 As state revenue has decreased over the past few years, the attempts to transfer monies from the RUTF to supplement the state general fund have become a matter of contention. Any transfer from the fund for non-transportation programs detracts from the purpose for which the fund was created - investment in Iowa's infrastructure. Although over the years there has been a tremendous effort to return non- construction diversions that result in an increased per capita share for cities, the current formula is inadequate for maintaining, upgrading and constructing city streets. Although 77 pement of Iowa's population lives within incorporated boundaries of a city, the formula provides the least amount of revenue to cities. Citizens expect their city to maintain and upgrade residential and commercial streets. Cities are often fomed to subsidize read funds with tax dollars to meet citizens' demands. But, simply changing the formula will not solve the problem. Iowa's roads are interconnected, and cities recognize that safe highways outside incorporated boundaries are just as important as the streets their citizens use every day. Because a change to the current allocation will result in one or more entities losing funding, the League supports an increase in overall funding to keep those entities at existing levels. Equally important to funding the state's road infrastructure is funding for airports. Many economic development projects depend on available air transportation within close vicinity, making a state investment in airports important for the future development of Iowa. State budget shortfalls have significantly impacted programs on which municipal airports depend for safety and improvement projects. 6 In the 21st century, both air and land transportation play a crucial role in keeping communities competitive and vital. The League believes in the protection of monies in the RUTF, encourages an increase in the formula allocation to cities, and also supports sufficient funding for other transportation programs. Priority: Support legislation to increase the public improvement bid threshold to a figure that reasonably reflects current project costs. BACKGROUND: For over 20 years, the state bidding law has required that if a public improvement's estimated cost is over $25,000 the governing body must advertise for sealed bids by publishing notice to bidders. Like any other construction project, the cost of city projects has increased greatly over the past 20 years. Based only on the consumer price index, inflation would have increased the $25,000 public bidding threshold requirement set in 1980 to $54,400 in 2002. Publication costs have also increased during that time. Priority: Support legislation authorizing the use of impact fees for improvements related to developments. BACKGROUND: In Home Builders Association of Greater Des Moines v. City of West Des Moines, the Iowa Supreme Court ruled that charging developers for park development is illegal since it is not currently authorized by the Code of Iowa, The Court found no legislative authority in Iowa for cities to impose an excise tax on developers or builders. Both the Home Rule amendment to the Iowa Constitution and Code Chapter 364 require express authorization by the general assembly for cities to levy a tax. Since the service provided by the park was not dedicated to the property being charged -- but to the public at large, the court found West Des Moines was levying a tax, not a fee. The court, however, found "practical and sound reasons for allowing a city to require a monetary exaction from a developer in lieu of a dedication of parkland." But the court determined, "the decision to extend that power to local government is for the legislature, not this court." The American Planning Association defines impact fees as "payments required by local governments of new development for the purpose of providing new or expanded public capital facilities required to serve that development. The fees typically require cash payments in advance of the completion of development, are based on a methodology and calculation derived from the cost of the facility and the nature and size of the development, and are used to finance improvements offsite of, but to the benefit of the development." The APA states impact fees are being increasingly used by local governments throughout the country to finance a wide variety of public facilities including sewer and water facilities, parks, roads, schools and libraries. Approximately half of the states have enacted enabling legislation for impact fees. Iowa should join that group, enacting legislation that authorizes impact fees to be used for street, traffic control and infrastructure improvements needed to support developments and for other public facilities including parks and other recreation, convention, cultural or entertainment facilities. Priority: Support legislation enabling cooperative planning and effective land management practices. A) Support incentives for cooperative planning between §overnments, including planning for effective land management practices. B) Support legislation enabling cities to plan for and develop open spaces including parks and trails. C) Support local input on siting of animal confinement facilities. BACKGROUND: A) Support incentives for cooperative planning between governments. Regional strategic planning has emerged since the 1990s as a major decision making tool according to the Local Officials Guide: Shaping a Region's Future, a Guide fo Strategic Decision MakinE for Regions, published in 1995 by the National League of Cities. An interest in providing services demanded by citizens efficiently and economically encourages local governments to cooperate in a myriad of ways, evidenced by the many 28E agreements on file with the Iowa Secretary of State. Land management is one decision requiring significant planning that affects residents of multiple jurisdictions. Legislation should provide incentives for governments to voluntarily plan together, and identify recommended land use impacts to be considered during the planning process. B) Support legislation enabling cities to plan for and develop open spaces including parks and trails. The Governor's Strategic Planning Council recommended in the Iowa 2010 report that by the year 2010, Iowa be known as "a recreational destination, featuring the country's best network of trails...and a healthy lifestyle focusing on exercise and sports participation as a central part of community life." Trails and parks add significantly to the quality of life in Iowa for residents and are an attraction for visitors and future residents. Legislation passed in 1999 changing sections of Code of Iowa Chapter 6A regarding condemnation of agricultural land has hindered trail development and should be changed. The League supports continuation and expansion of funding sources for trail and open space development. C) Support local input on siting of animal confinement facilities During the 2002 session, the Iowa legislature passed SF 2293 regulating animal agriculture. The criteria for a decision matrix regarding construction of confinement units will be developed before the end of 2002. Final siting decision authority rests with the Department of Natural Resources. The League supports local participation in the decision process. l0 Priority: Pursue legislation-enabling funding of fire and emergency medical services and other homeland security protections. A) Support reasonable allocation of state and federal funding for homeland security. B) Support expansion of training opportunities related to homeland security. BACKGROUND: A) Support reasonable allocation of state and federal funding for homeland security. The federal government is allocating funds to states for use at the state and local levels to implement stronger homeland security measures. Financial constraints at the local level will inhibit preparedness without a reasonable allocation of state and federal funding. B) Citizens have increasing service expectations of local fire departments, but fewer volunteers are available to serve (especially during the day) and funding and training are perennial concerns. Fire departments report state training can be inaccessible and inconvenient; state officials say the demand for training exceeds their supply capability. Legislation should expand opportunities and funding for homeland security-related training.