IN DEPTH House File 718: Analyzing the Impacts Many cities consider this a challenging budget year amid the current financial environment and in light of multiple legislative changes. As cities jump into their budget planning for the upcoming fiscal year, a new law passed earlier this calendar year, House File 718 (HF 718), will have significant impacts. This article will focus broadly on the longer-term impacts that this law may have on local finance. To review the basics of what was included in HF 718 and its technical impacts, see the June 2023 and August 2023 Cityscape magazine articles on HF 718. Property Tax Valuations Year-to-year, there are many things that may impact a city’s taxable valuations. The calculation of potential revenue growth limitation and reduction in Division II of HF 718 depends upon a city’s non-tax increment finance (non-TIF) taxable valuation growth in a community. While planning and working on the budget, it is important to take a look at these factors. In brief, when a city’s taxable valuation grows by 3% or more, under HF 718 it will exceed one of two possible “growth tiers” that subsequently trigger a levy limit to the new adjusted combined general fund levy (CGFL). Those “growth tiers” are set at 3% (a tier II city) and 6% (a tier III city) respectively. In simplest description, if a city’s taxable valuation grows by more than 3% but less than 6%, a formula will work to reduce the new CGFL by an amount to approximately reduce its 22 | November 2023 | Cityscape revenue growth by 2%. Similarly, it a city’s taxable valuation grows by more than 6%, the formula will reduce the new CGFL by an amount to approximately reduce its revenue growth by 3%. The CGFL growth triggers are evaluated each year from Fiscal Year (FY) 2025-2028. Beginning with FY 2029, all cities go to a new CGFL maximum of $8.10. Any city above that will be limited to $8.10, and any city forced under during the fiscal year 2025-2028 period will be allowed to go back up to $8.10 beginning in FY 2029 and forward. However, it’s important to note that the combined and eliminated general fund levies remain eliminated. Also note that in any given year from FY 2025-2028 revenue growth limitation might be at a rate of 2% or 3% for any city that falls into the tier II or III city category, likely resulting in compounding fiscal impacts over the long-term. New construction New construction was not exempted from the taxable valuation used to calculate the new levy limit. While any new levy limit will still generate property tax revenue from newly constructed property, it will do so under a lower levy limit that the added value may have triggered. That same lower limit will be applied across all taxable property valuation in the city. New construction can be new builds, valuation added from expansions and additions, annexation, etc.
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