MINUTES OF THE INFORMAL MEETING OF THE JOHNSON COUNTY BOARD OF SUPERVISORS:
OCTOBER 23, 2008
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Chairperson Sullivan called the Johnson County Board of Supervisors to order in the Johnson County Administration Building at 1:32 p.m. Members present were: Pat Harney, Larry Meyers, Terrence Neuzil, Sally Stutsman, and Rod Sullivan.
R. Sullivan said the Board was going to have members of the Auditor’s, Assessor’s, and Treasurer’s Offices address the financial environment and how it impacts the Fiscal Year 2010 budget. He said they do not have anyone from the Auditor’s Office but they do have County Treasurer Tom Kriz and County Assessor Bill Greazel. Greazel said he wants to discuss projections of what they will do with County valuations. He said the tax system begins with his office valuating property and then going through the Auditor and the Treasurer who figure the mileage rate and collect the taxes. He stated they traditionally see a little growth in the County, making it one of the only places in the state where the County gets a regular increase in value through inflation, but also with growth especially in commercial valuation. Greazel said commercial valuation pays twice as much on the same dollar value as residential. A lot of commercial growth really boosts growth beyond regular growth allowed by the State. There is also new valuation coming in. He said this has been very beneficial to the County over the last decade, to have received normal growth and inflation, plus the boost from commercial and residential valuation.
Greazel said when he looks at the current housing market the County has not been impacted as some other areas in Nevada, Florida, and California where values are falling through the floor. He stated there has been some decrease in valuation but it is uneven and there are not any pockets that are dropping 10 or 20%. He said there has been a 4 to 5% increase in the total valuation. Greazel said 2009 is a real estate year where normally everyone’s values would increase plus adding new construction. However, for the first time in many years they are not adding any inflation factor to the 2009 residential or commercial valuations. He stated there will not be a 5 or 6% bump they normally get every other year. Greazel said residential homes, except for a few isolated areas that are behind the market, will be left the way they were two years ago. He said he can not remember the last time they have not had an inflationary bump. The Board can expect no increase in the base, that is the existing valuations. He added the new construction will be pretty flat. He said they will see flat valuations, some growth but not as much as in the past. From the budgetary perspective the extra bit on the top that used to be the big commercial construction increase will not be there. Greazel said they usually do valuations every odd number year but next year they will see how the commercial and residential market look. He said if things look worse, they can make an adjustment downward for next year, which is unlikely. But if values change negatively they are allowed to change the value.
R. Sullivan asked Greazel to clarify the assessing process every other year. Greazel said by state law every other year is referred to as a real estate year. He said the Assessor is obligated by law to look at all values and adjust them to the market whether that is up or down. If they do not do this in the Spring, then the State will look at the numbers in the Summer, and in the Fall they will issue an order requiring the Auditor to put across the board a certain percent onto property owners. He said they try to avoid this because an across the board adjustment magnifies the inequity. Greazel said they assess through their office to make sure certain neighborhoods increase at a rate that is appropriate with their neighbors and in comparison with other towns. He said the northern part of the County has always had a higher inflationary rate than the southern part. He stated a town like Lone Tree has a lower inflationary rate than North Liberty. Greazel said it would be legal to have the same inflationary rate for the two towns but it would not be fair. Normally every two years in the Spring, the Assessor's Office mails assessment notices to county residents stating the old and new values along with directions to visit the Assessor’s Office if they do not agree with the values. He said this year, not everyone will receive a valuation notice because they only send them out when the office makes a change. Greazel said this might be a point of confusion because the public is used to receiving a notice every two years. He said agricultural land will increase but they are unsure how much because the government has not notified them yet. He stated that when they receive the information they’ll mail out notices. Greazel said farmland increases across the board are fair because the changes are based on productivity which goes up and down at the same level.
Neuzil asked Greazel if City Assessor Dennis Baldridge shared similar thoughts. Greazel said Iowa City is going to do some spot readjusting in certain neighborhoods but nothing across the board. He said the City is in the same boat as the County. Neuzil asked if businesses in Iowa City would see an adjustment either way. Greazel said he does not see commercial businesses getting an adjustment, but the State does oversee many commercial sales. Because the County does not often have need to appraise commercial property the State sends their own appraisers to assess properties at random. The State will tell the County whether they think the County's valuation is too high or low.
Neuzil said the news is dire. He asked if the impact of the floods would greatly affect what happens with neighborhoods and commercial property. Greazel said in Coralville, most property that was flooded was commercial. The business owners of that commercial property could not afford to wait for FEMA, who does not cover commercial property anyway. They were quick to repair their damage and replace their losses so this will have a very minimal impact on Coralville. Most of the residential properties that were affected were purchased by the City of Coralville with TIF money. He stated in Coralville and some of the residential property in Penn Township, it will have a small impact on the valuation base. Greazel said Iowa City had residential neighborhoods impacted and there will be some valuation change there. However, as a total percentage of total valuation it is really insignificant in terms of revenue loss.
Kriz said they have been fortunate in Johnson County to have growth for the past 30 years and assessment values that have consistently risen, which gave the County the ability to raise funds and complete a variety of projects. He said much of Iowa is not in the same situation. When Neuzil said they were in dire straights, they are not going to have what they have gotten used to for the last 20 years. He said that might seem a dire consequence to Johnson County it would be a revelation and a great thing to many small communities in Iowa to just stay even or have a small gain. It translates into what goes out on tax statements and peoples' ability to pay. In Johnson County, because of the tax sale issue, they are fortunate because they collect a majority of taxes even if consumers do not pay. Kriz said this is a very new and unique situation for the County and the budgeting process will have to take this into account for the next couple years. He gave the Board an idea how what's happening with the economy affects the County. For the first time in ten years there is a slow down in the automobile sales industry.
Kriz said an analogy to the economic slowdown coupled with what's happening in the financial markets is similar to a car that does not run well, it sputters along then runs pretty good, then sputters again but it's not known when the car will stop. Kriz said while it will not stop, these are warning signs the Finance Committee thinks they should be looking at. National companies are experiencing a dip in stock prices, for example, Best Buy's stock a month ago was $50 and today it trading at about $21. People are starting to use layaway for the first time since the 1960s. As credit-tightens, the big manufacturers and big sales outlets are now considering bringing back layaway to help strengthen the consumer buying market. Kriz said that for the first time in years, the American public is starting to save money because of the uncertainty of the market.
Neuzil asked Kriz to talk about cash reserves. Kriz said Johnson County did not borrow anything for years and as they look at major projects today, $20 million to $100 million, community, cities, and counties were bond rated by companies like Moody’s. The rating system has changed drastically. Because Johnson County has some major projects down the road, Moody’s came out to give the County a rating. A good bond rating can reduce interest rates by half to one percent. Kriz said Moody's liked the growth they had seen here and liked that Johnson County had borrowed very little money. The only thing which prevented the County from receiving a AAA rating is that the County doesn't carry over many cash reserves. Cash reserves are what is left to fund unique and special projects. Moody’s would have liked to have seen a cash reserve of $15 to $20 million in a county this size. Johnson County has traditionally carried $1 to $1.5 million in cash reserve. Kriz said a county the size of Johnson County should have a cash reserve in the $5 to $7 million bracket. This is a budgeting consideration because with a cash reserve of that size, the money has to come from some place.
Kriz said that in reviewing long term bonding and law enforcement centers, any major capital projects, bond ratings will have an effect. Kriz said Johnson County has stayed way under what would be acceptable principle practices for any cash reserve. He said an advantage is the County is using every tax dollar right away and trying to hold taxes down. On long-range and major projects it could hurt the County by a total of hundreds of thousands of dollars in interest. He stated the whole rating system will change because AAA rated places are failing. Kriz said they need to realize the County will not have the growth to fund projects they have in the past. He said the Finance Committee may want to start budgeting for two years instead of counting on what has been happening. Kriz said he and Budget Coordinator Rich Claiborne discussed looking at budgets from the last five to ten years to see if they find good or bad trends. Kriz said they'll look for areas traditionally budgeted for but always overachieved in revenue, or items always traditionally budgeted but never spent over a period of years. It takes time to look at but they have a committee willing to do so and it's a good time for this. For example, if a department budgets zero revenue in something but every year has a sizable revenue, that needs to be figured in. He said the last two weeks of the fiscal year they often see a huge amount of dollars spent down in budgets. Whether there are reasons for that the Auditor’s Office is always saying they will need double, triple, or quadruple what it normally is in any one period so they need to look at why that happens. He said some times it is part of a grant, they have the money, they are replenishing supplies. If they are doing this in a lump sum he asked if it means they don't need that money budgeted that way for the next year. He said they all may need to put themselves in the mindset that business cannot be done exactly the same as the last 20 years.
Stutsman said one purpose of this meeting is to share with department heads and elected officials the facts in terms of assessments, valuations, and tax income. She said it is only fair they give a heads up to department heads that it will be a flat year so budgets will have to remain steady with little increase if any at all. It is a sign of the times and it's the prudent thing to do. Kriz said he knows there will be increases because they have bargaining contracts and salary issues for many budgets. He said 92% of his budget is salary and benefits. There will also be increases in postage. He stated that in the ten years he has been the Treasurer it is hands down the worst year with people being upset about tax statements.
Kriz said part of the County's public services are paid for with tax dollars. This is an abnormally hard year with the economy in its current state. Meyers said if revenues are going to be flat but there are going to be automatic increases like union contracts, that means in some areas they are going to need to spend less. Kriz said there will be some growth but not at the level it was before. Meyers said one difficult thing about the budget process is they are well into the process before they discover how much money they have. He said Greazel talked about agricultural land increasing but that is tied to residential. Greazel reminded everyone that agricultural and residential are tied together so a large increase in ag values will increase rollbacks. Traditionally the rollback has only gone down for residential and that is why there is a disparity between commercial and residential, because commercial isn’t tied to ag land. Greazel said yes, you can levy more, however, it will come out of the same pool of revenue and no fresh money is coming in. Stutsman asked when the rollback will take affect. Greazel said in about a month. Stutsman asked if that will reflect a change. Greazel said it will tell them where they will be.
Stutsman asked for an explanation of the shift from farm buildings to farm land. Greazel said a couple of years ago they had a situation where they had no guidelines on how to value agricultural buildings like machine sheds. The Department of Revenue passed new rules with instructions on how to value ag buildings. Now agricultural land is selling for about five times more than they have it assessed for because it is based on productivity not market value. Greazel said the Department of Revenue establishes the values and they take the net operating income from ag land products and capitalize it at 7% which is about one fifth of what it is actually selling for. He stated they can predict some values but they still receive all values from the State. When they valued ag buildings alone they looked at those buildings in terms of what they contributed to the farm. Greazel said they traditionally looked at old chicken houses and old barns that did not add value to the farm; there was a lot of obsolescence. He said things like hog houses, chicken houses, cattle confinement and other buildings people are still building today have a much higher value on them compared to the cost to build them. The Department of Revenue changed the rules to say the land and building ratios must be the same. For example, if the land is selling for five times more than it is assessed for then the buildings have to be lowered by the same amount. Greazel said the few happy people they had this year were the large hog confinement owners because they received a substantial decrease in the taxes they paid because they had to apply an 80% factor meaning they only paid taxes on 20%. The ag system is a closed system, there is only so much value on ag land and buildings so if they raise or lower one part of it, it is transferred over to the other ag properties. When they lowered the hog confinements they had to shift that value over to the land and while the big hog confinement centers got a tax saving, that was shifted over to the other land owners by this rule.
Stutsman said if they want to keep the tax bill as steady as they can they have to be careful what they put in the rural side of the budget. She said not only did ag land value increase but if taxes are also increased because they are not at levy limit, that will be a huge increase for farmland owners. Greazel reminded Stutsman that when the rollback kicks in ag can only go up 5%. Stutsman said they have not yet reached their levy limit on the rural side. Greazel said as far as valuation they are still under the rollback figure that things can only go up or down by 5% but if they have not reached the levy limit there is that opportunity if they want to take advantage of it. Kriz said when the tax statement goes it is often misunderstood that the County is taxing for all that type money. While the County is being proactive, Johnson County alone cannot be the only one doing their part if they are trying to keep tax statements, taxes and billings at a similar level. Supervisors are required to pass through the request from the cities, the school districts, and other bodies. Kriz said Johnson County holding things in line is no guarantee that tax statements are not going to go up. He said as a homeowner in Iowa City, Johnson County gets about 15 cents of the dollar and the rest of it goes elsewhere.
Neuzil said all the communities are getting the same assessments. He is hoping the message that gets to local governments is that things are changing in Johnson County and what is happening in the economy has arrived in this community. He asked if local governments have been communicating with anyone but he says the people he has talked to have not yet heard the message. Stutsman said they talked about going to joint cities with the Assessor and Treasurer to speak to them before they put together their budget.
Neuzil said the Finance Committee recommended operational freezes. They need to start bringing some of those things out and there are more things the Board, department heads, and elected officials need to hear about before a decision is made. He said Claiborne, M. Sullivan and the Auditor's Office need to be made aware of some things before putting budgets together. For example, there should be discussions about how to handle operational freezes and which areas should be exempt such as fuel and postage. Enhancing revenues and diversifying funding streams are two areas to discuss as well as considering adjusting the services the County provides to include potential fee adjustments are things the Finance Committee is going to have to explore some more. When he hears the term operational freeze he's not certain how some situations will be handled. For example, will this include a freeze on hiring new employees and rehiring employees for people who are retiring. Neuzil said most budgets have 91 to 92% of the budget for salaried employees and in County government the services provided are rendered by employees and there is not a lot of wiggle room.
Stutsman said they are trying to be proactive. Kriz said this is something that is different that they do not have a lot of history with. The reality is the economy has finally hit a point where things might be fairly stagnant for a few years until things work out. Stutsman said the Finance Committee is going to be more active and they are planning on meeting monthly. Stutsman said Finance Committee members are Kriz, Baldridge, Greazel, and representatives from the Auditors Office are County Auditor Tom Slockett, and Deputy Auditors Dana Aschenbrenner and Chris Edwards, and Neuzil, Claiborne, M. Sullivan, and herself.
Veteran Affairs Director Leo Baier asked if Van Guard will do assessments next time. Greazel said all their residential assessments will be in house and the only time they hire an outside source is for special commercial properties. Baier asked if they ever hire for residential. Greazel said they always do their own residential and hire occasionally for commercial.
Mental Health/Disability Services Director Kris Artley asked if there are any specifics that impact the General Supplemental Fund. M. Sullivan said the only criteria that impacts the Supplemental is that they have to be at a levy max with the General Basic Fund and they will be so it will not impact the Supplemental. R. Sullivan said it has to be a qualifying expense or essential county purpose. Neuzil said the Iowa Code sets the list of things that are eligible for the General Supplemental Fund. He said they have gone through every eligible item that is out of the General Fund. He said what happens at the federal level will be passed down to the state level and what is not being paid by the State will be passed down to the County. He said it will be important to tell the legislature to watch the unfunded mandates.
Ambulance Director Steve Spenler asked if they should proceed normally in preparing their annual budgets or if they should plan on preparing a budget for two years. He asked if they will be informed throughout the proceedings about how tight their budget might be. Kriz said they are trying to get people to look two years ahead but not necessarily budget that far ahead. As the committee gets time to look through each budget they will follow up with department heads as needed. Kriz said the goal is to realize how flat the situation will be over the next couple years and to not plan big capital projects.
County Engineer Greg Parker said he is aware that everyone is dealing with increased cost of everything they purchase. A little over 50% goes to staff salaries and the rest is purchasing activities or items. The salt budget has jumped from $48 per ton last year to $78 per ton this year, oil expenses have gone up almost 300% along with other things to maintain road operations. These are just two items that are increasing at an exponential rate. Parker said they are all going through tough times but what will happen is Secondary Roads will have to cut back on local service. He said he is hearing that the only thing they can increase is fuel and postage. Fuel is about $300,000 from his budget but postage wouldn't really impact his budget in a significant way. He said the growth of the cost of services is going up more than what the budget will allow and Secondary Roads will not be able to maintain the level of service as in past years. He asked the Board for recommendations when he is faced with a situation where he must turn away requests for local service. Neuzil said a list of exceptions needs to be developed and there is probably a project or two that will not be accomplished. He said for the Secondary Roads Department to maintain their level of service they will need to prioritize.
Parker said another thing the Secondary Roads Department is being hit on is the revenue tax funds. He said people are buying less fuel which means they receive less tax dollars to service the Secondary Roads Departments and now Parker is effectively getting double hit. Harney said this is no surprise because they have seen this nationwide. He said he voted against the budget last year because he could see the current status coming. Everyone is going to have to tighten their belt and prioritize by making equipment last longer. There isn’t going to be much growth or home building.
Harney said farm ground went up considerably and if they add onto farmers again many of them will not make it. Stutsman said they may be saying to the taxpayer there will be a lower level of service. R. Sullivan said he wants Parker to tell the Board what he can and can't do within the budget and to recommend where the cuts in service can be tolerated. Parker said he agrees with the comments but he wants to give notice that there will be a drop in local service. R. Sullivan said this is the kind of thing they need to know in order to make informed budget decisions. Parker said he is planning a presentation for the Board during the first part of November to give a preview of Secondary Roads Department budget.
Sheriff’s Major Steve Dolezal asked if they should expect a list of prioritized items or if they should tell the Board what is really not negotiable in their department, such as fuel. Stutsman said they used postage as an example because the Treasurer’s and Assessor’s Offices must send out tax bills and there is no flexibility. Neuzil said each department knows their mandated requirements and non-mandated requirements. The County spends more because Johnson County provides a higher level of service. Department heads will have to give the Board their expert opinions about how to allocate the budget. Neuzil said jail transport is a requirement for the State of Iowa so they will continue to pay for it. M. Sullivan said he and Claiborne will meet individually with departments. He said if they anticipate an increase in one area to try to find a corresponding decrease somewhere in the budget.
Adjourned at 2:25 p.m.
By Nancy Tomkovicz, Recording Secretary