CLARINDA, Iowa — The cost of living continues to rise, for small town's in Iowa, so does the cost to do business.
In Clarinda, city leaders are preparing to tighten the budget following Gov. Kim Reynolds, a republican, signing a new state property tax reform bill into law. The new legislation could leave some communities with fewer dollars to maintain services, pay employees and invest in future growth.
The new law is likely to impact rural communities as new population growth and ecnomic development are not guaranteed.
"We’re kind of at that brink of we don’t really get enough revenues to properly staff a city and do the best that we can with what we have," Clarinda City Manager Gary McClarnon said.
McClarnon is preparing to retire and says that his replacement could be forced to make some tough budgetary decisions.
Senate File 2472
Back in May, Gov. Kim Reynolds signed Senate File 2472 into law which overhauled Iowa's property tax system.
The legislation is home to many provisions, but top of mind for rural governments is a 2% annual cap on the growth of property tax revenue collection through city and county general fund levies. It exempts new construction and other specific sources of revenue. The changes affecting the city budgets will begin in the new fiscal year starting July 1, 2027.
The goal is to provide property relief by limiting how quickly local governments can increase collections.
For towns Clarinda's size, population just over 5,200, the impact can cut deep. 56% of the municipal budget is operated by property taxes, any restriction can pose some challenges.
City manager McClarnon told KMTV 3 News Now Southwest Iowa Reporter and Clarinda resident Ryan Gamboa, he estimates upwards of $25,000 to $30,000 in revenue losses.
Which seems like a drop in a bucket to the size of Des Moines or Council Bluffs size, can mean the difference in a city employee's raise, new equipment purchases, or scaling back department projects.
He went on to add the city has already put off buying a new police car until 2029.
"The 2% cap that they have on revenue from year to year in the general fund, is going to be huge," McClarnon said.
McClarnon went on to add that employee raises typically range from 3-5% and it could become difficult for the city to afford when property tax revenue growth is restricted.
Additionally, it's anticipated that some communities small than Clarinda could reduce operating hours at public libraries and recreation centers. It's something he hopes the city can avoid doing.
His predecessor may have to make that call in the next few years.
"It's going to be a rough start because they may have to come in and say departments we have to cut 5% of your budget," McClarnon said of Clarinda's next city manager.
Getting Creative
Tim Reilly, a tax attorney for BrownWinick told KMTV 3 News Now local governments will need to rethink how they fund operations — potentially by working alongside the county or other municipalities.
"Finding new resources for revenue is going to be important," Reilly explained.
It could mean communities need to make use of local option sales tax revenue, which Clarinda already does, or consider utility franchise fees. McClarnon said, that's already on the table, but called it a "hidden tax on residents."
Clarinda already collects hotel-motel taxes but those sources of revenue are dependent one how many visitors stay and shop in town.
It's also increased fees at the Lied Center, a city operated recreational facility and is considering peddler permits and raising the cost of building permits.
McClarnon estimates that utility franchise fees could create upwards of $400,000 of revenue annually, but it would significantly impact the town's industrial partners.
Reilly went on to add that communities can also save money by sharing emergency services with neighboring towns.
"I think it's certainly doable, communities are going to have to figure out ways to work together more for those types of things," Reilly said. ""Longer term, I think communities that are struggling to grow or more stagnant or shrinking are going to have a tough time keeping up with providing the services the citizens have today, service people expect."
A balance of small-town charm and growth
It's no secret rural Iowa towns have a charm about them — the county courthouse as the center, with quaint historic buildings, and the friendly people to go along with it.
For people like Whitney Beery who grew up in town, left, and then came back, she says Clarinda's strength is its sense of community.
"What makes Clarinda so great, is we are a community that let’s everyone grow," she said.
As the regional retail bank manager at Bank Iowa, she see's day in and day out the potential small town Iowa has by the people she serves.
But she also sees some areas the community is falling behind, including a lack of additional restaurants, entertainment, and other opportunities that encourage the communities kids to return home.
Growth in the entertainment and dining sector could strengthen a small town's tax base.
City leaders are finding it a challenge to balance the dollars to invest in those opportunities and provide the actual services residents expect.
McClarnon explained that folks have expressed a desire for new baseball diamonds for the youth sports programs and also a splash pad in the city park — that project could cost upwards a $1 million.
Funding will continue to be the biggest factor holding these growth opportunities back. McClarnon said private donors might be the only way these projects could move forward.
The city of Clarinda is working on a major business park expansion on the city's south side of town and the infrastructure work is being done now. According to public land records, the city has parceled 21 lots on about 52 acres of land. The land was formerly a farm field and the parcels still have an Agriculture zoning designation, according to public records.
The city confirmed two occupants are interested in building on the property, but would not comment on who those potential tenants could be.
Who has control?
City manager McClarnon raised the question as to how much control local governance's should have over its finances.
In 1968, Iowa voters approved an amendment to the state constitution giving cities home rule power of authority.
It means that cities and counties can make decisions about local issues without needing permission from the state legislature for every action. The local government can govern itself, within the boundaries of state law.
"The legislators don’t really know how rural Iowa city’s work," McClarnon said.
State lawmakers still determine taxes cities collect and can restrict on how those powers are used.
It's why McClarnon is frustrated — he believes decisions about how much money a community needs to operate should be a decision made by the city government, not through a statewide approach that puts growing metro suburbs in the same category as small rural towns.
"To me, home rule works very well, and I’ve noticed the state of Iowa is getting away from that," he said. "Red Oak’s needs are, and Shenandoah’s needs are different than Clarinda’s needs. It all depends on the priorities of the city council... They [state lawmakers] really just need to sit back and let us decide at the local level what we need for revenues and how much we can tax."
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