Iowa League of Cities Director of Membership Services shares his expertise on urban revitalization plans and tax abatement policies
Interview conducted by Julie Berg-Raymond
NOTE: As the Lansing City Council continues working through the questions and procedures involved in instituting an Urban Revitalization Plan/Tax Abatement policy, and a public hearing on the matter has now been scheduled for Monday, March 18 (see Page 6), The Standard decided to gather some of the questions being asked by residents who have expressed interest/concern, to varying degrees, regarding the institution of such a plan/policy - and to bring those questions to the Iowa League of Cities. Serving as “the unified voice of cities, providing advocacy, training and guidance to strengthen Iowa’s communities” (iowaleague.org), the Iowa League of Cities is staffed by experts who are well situated to provide clarity on residents’ questions and concerns.
Julie Berg-Raymond (for The Standard) conducted the following interview via email with Mickey Shields, director of membership services for the Iowa League of Cities. Executive Director Alan Kemp reviewed the interview prior to publication. It appears in a Question and Answer (Q&A) format.
First, some definitions of terms, using information found on the website for the Iowa League of Cities (iowaleague.org):
• Tax abatement is a temporary reduction in property taxes on the portion of assessed value added by new construction or improvements to an existing structure. Cities adopt tax abatement programs to stimulate community revitalization, improve existing housing stock, retain and attract residents and homeowners, and reduce development costs for high-quality commercial and industrial projects.
• Urban revitalization is a tool that can be used to redevelop areas of a city and help spur economic growth … Chapter 404 of the Code of Iowa, the Urban Revitalization Law, contains the provisions relating to urban revitalization and details how local governments can implement and use the tool. The law describes five types of areas where urban revitalization can be used, primarily focusing on areas with dilapidated and deteriorated buildings that are detrimental to public health and economic growth as well as areas for historic preservation, economic development or public improvements for residential development …
Within these areas, cities are able to exempt all or a portion of property taxes for property owners who construct projects that improve the value of their property. The state code provides different tax exemption schedules for varying purposes and cities are allowed to tailor the exemption schedules to meet local policy needs so long as they do not exceed the statutory limits … Providing tax exemptions incentivizes property owners to improve their properties or construct new buildings, stabilizing tax bases and spurring growth when it otherwise might not occur.”
In a follow-up email interview, Shields described the two terms, “tax abatement” and “urban revitalization plan” as being “somewhat interchangeable.” He said, “tax abatement programs, generally speaking, must be done within an urban revitalization plan/area. There are some unique scenarios where taxes can be abated by a county or city government in relation to nuisance properties and redevelopment efforts, but those aren’t really ‘tax abatement’ programs.”
Julie Berg-Raymond (JBR): A resident of Lansing requested specifically that I ask you this question: “Please ask him or her about what affect the abated property has on the neighborhood if it sells, particularly if it sells for a high price.”
Mickey Shields (MS): This is one of those questions/answers where the local details matter greatly as the impact of a property sale on a neighborhood may be minimal in a lot of cases, but in some cases it could impact others (typically, residential property transactions are so commonplace that individual sales have very little impact; but the sale of a large commercial property could directly impact others in a downtown district, for example). If this question is more about property valuations/assessments, the answer to the next question speaks more specifically to that.
JBR: There are people in Lansing who are concerned about the possibility that their property will be assessed higher taxes if their neighbors take advantage of tax abatements to improve their property and increase its value. How are taxes assessed in Iowa - and is this a reasonable concern?
MS: For the most part, properties in Iowa are assessed on their fair market value. It can get fairly complicated in some cases, but generally speaking county assessors look at sales of comparable properties, the size of a property, the age, the condition of the home/building, the last time it was improved, and related factors to determine a value. I emphasize that it’s a fair market value - like any market, values can go up or down depending on market activity.
It’s also important to understand that higher property valuations do not automatically result in higher property tax obligations. In Iowa, we have what is called the rollback system that results in lower taxable values on each property. It’s far too complicated to explain (here); but pages 2-6 of our annual Budget Special Report provide a summary of the system and recent changes as well as impacts to city governments.
The main idea behind the rollback system is to restrict the growth of taxable values. A property’s assessed value, as described above, is based on its fair market value. The rollback is then applied to derive the taxable value. The main property classifications in Iowa are residential, commercial and industrial, and none are taxed at their full assessed value (some call it the “100% value”).
Commercial and industrial properties have a rollback of 90%, meaning 90% of their assessed value is subject to property taxation. Residential properties, meanwhile, have always had a much lower rollback percentage, which is currently at 54.6501%. For Fiscal Year 2025 it will be 46.3428%.
To help illustrate how this works, a home with an assessed value of $100,000 currently has a taxable value of $54,650 - local governments apply their tax rates only to the taxable portion. For Fiscal Year 2025, the same home (if its assessed value did not change) would have a taxable value of $46,343. To help underscore the impact of the rollback, a residential property’s assessed value would have to grow by 17-18% to “make up” the drop in the residential rollback percentage (if the local governments kept their tax rates the same). Many property owners also receive tax credits, such as the Homestead Tax Credit, that further lowers their property tax obligation.
The other key factor is what each local government sets annually for its property tax rate. The three main local government entities that make up most of the property tax calculation are city governments, county governments and school districts. They set their property tax rates and budgets independently of one another, but their tax rates are combined into what is called the Consolidated Tax Rate that each property owner pays (again, it’s applied to their taxable value, after that value is divided by $1,000).
Property owners then pay their property taxes based on those calculations, and the city governments use the revenues to provide the essential services that every community relies upon - police, fire, clean water, roads, parks, sanitary sewers, libraries, trails, and more.
JBR: In addition to a proliferation of airbnbs, Lansing has a fairly large number of “second homes” - weekend retreats and “snowbird” homes, etc. These are not typically owned and inhabited by families with school-age kids, or by people who own and operate Main Street/brick-and-mortar businesses. Is it reasonable to be concerned that a tax abatement ordinance could end up primarily benefiting these property owners, and not necessarily year-round residents or first-time home buyers? Could Lansing conceivably end up with yet more weekend homes and part-time residents?
MS: My feeling is that it can be very difficult for a city government to know if a certain home is the primary residence or secondary residence of the homeowner, so trying to address that in an urban revitalization plan is likely impossible.
I’ll add that the Iowa Legislature adopted a bill in 2020 that prohibits city governments from adopting zoning regulations on short-term rental properties, which has made it difficult for cities to exercise local control with such properties and businesses. The legislature also mandated that short-term rental properties are classified as residential properties for zoning purposes, so my sense is that any city that has an urban revitalization plan for residential properties would likely have to include short-term rental properties.
To answer the question more directly, I would simply say the general idea of an urban revitalization district is to encourage new investment and/or reinvestment in the existing properties by abating a portion of the taxes owed on the growth/improvement of a property. For the cities that utilize urban revitalization, there is likely less concern about who exactly is receiving the tax break on an individual basis as the city government’s goal with such efforts is broad by trying to improve a neighborhood or district, which in turn can boost the entire community. In some cases, the goal may be more about trying to keep a neighborhood or district from falling into slum and blight status (or it’s already in such a state). Of course, each community would have to answer directly about their urban revitalization goals to get a sense of what they are trying to achieve.
JBR: Some residents are expressing resistance to an urban revitalization plan/tax abatement ordinance and seem, at the same time, to be suggesting that Lansing would be better served over the long run by actively pursuing industry. What would you say to these folks?
MS: There is actually a separate state code for industrial revitalization districts, although they are less commonly used by city governments. The reason I bring that up is that cities are increasingly expected to provide some sort of local tax incentive with pretty much any development project these days, whether it’s housing, commercial office and retail, or industrial facilities. That applies to existing properties that are considering expansion as well as new industries, businesses and subdivisions. It’s not surprising, then, that some folks would encourage a city to use various incentives to try to attract industry.
As in all cases, we (as the Iowa League of Cities) leave such decisions to those elected to represent the community - we simply advise our members to do research, carefully consider options, and arrive at a decision that best fits their city.
JBR: Are there any legitimate “downsides” to a city like Lansing instituting an urban revitalization plan/tax abatement ordinance? Could you help us understand what they might be?
MS: It’s difficult to provide a detailed answer since urban revitalization efforts are so localized when it comes to the potential benefits and downsides. The most common concern we hear from members when it comes to various tax incentive programs is that it can be difficult to ensure the city receives a return on its investment. By providing incentives, a city is making an investment, and one downside would be not enough growth occurring that returns adequate value to the city. This could be seen in not achieving the housing/commercial/industrial goals the city may have (again, heavily dependent on a city’s urban revitalization plan).
JBR: In the end, what would you say to community members who do desire what is best for their city, but who are having some trouble seeing how the urban revitalization plan/tax abatement ordinance speaks to that desire - without leading to the negative consequences they fear?
MS: While this issue is challenging and it’s probably hard to find consensus, we appreciate the interest from citizens and the city officials to find a way to grow Lansing in a way that reflects community goals. It’s common for any community to have differing views on what is needed when it comes to housing, downtown businesses, industries, airbnbs and plenty more - and that’s ok. Working through those differences by having a lot of respectful dialogue is at the heart of municipal government, so we encourage everyone there to be engaged.
For the city officials, we often recommend they conduct goal-setting or strategic planning sessions as those exercises are very helpful in establishing clear priorities and resolving conflicts. And while the Lansing city council and staff may not have time to do that in this instance, they can still hold work sessions and encourage public input as they consider the urban revitalization plan and related policies. They should also work with their bond counsel as there are often ways cities can insert some protections with incentive policies, such as “claw backs” if a property owner or developer does not complete an improvement by certain deadlines.
Urban revitalization and urban renewal districts are fairly common for cities in Iowa, and those that utilize them would likely say they have been helpful to their city’s overall community development efforts. The important element is what each city is trying to achieve - some may not be seeking substantial housing and population growth, and therefore its urban revitalization efforts are more focused on improving existing homes and businesses. Others, though, may have a goal of growing their population and want to add lots of homes, businesses and industries, so they may tailor their urban revitalization plan accordingly.
Lastly, it’s nearly impossible for any governmental entity to make all of its constituents happy, so eventually a decision will be needed that may not be supported by every resident, but best represents the goals of the Lansing community.
