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Development director: New state cap forces rethink of Des Moines tax-abatement program
Summary
City development director Cody Christiansen told the council that a newly enacted state law capping annual general-fund property-tax revenue growth at 2% undermines the fiscal rationale for Des Moines' long-running tax-abatement program, placing $1.3 billion in abated value under the cap and prompting staff to recommend ending or sharply scaling back the program unless the council directs otherwise.
Cody Christiansen, development services director, told the Des Moines City Council in a work session that Senate File 2472'which sets a 2% cap on year-over-year general-fund property-tax revenue'has "completely changed" the math behind the city's tax-abatement program. Christiansen said the city currently has about $1.3 billion of taxable value under abatement and that the cap means previously abated value will not count as "new valuation" when it returns to the rolls.
"That's why we're having these conversations in the coming months about what we do to solve the $17,000,000 budget deficit," Christiansen said, noting the city's finance staff are continuing analysis and that the cap carved out an exemption for new construction but not for value that had been abated.
Nut graf: The council heard that longstanding practice'using abatements to defer property-tax revenue in order to spur future taxable value'may be fiscally unsustainable under the new state rule. Staff presented options ranging from an immediate suspension of abatements (as another nearby city is considering) to a phased cutoff that would grandfather in projects already underway.
Christiansen laid out the scale of the change. "As of today, we have $1,300,000,000 of taxable value that is currently abated," he said, and added that Des Moines has just over $10,000,000,000 in total taxable value. Under staff calculations, the return of abated value onto the rolls over the next decade would have previously contributed roughly a 1% annual lift in taxable value; under the new 2% cap that lift is constrained.
Council members pressed on the immediate impacts. Christiansen said immediate suspension would be "pretty detrimental" to projects already relying on abatement for financing, citing the 515 Walnut Tower as an example of a project that would be harmed. He said the city processes roughly 500 abatement applications per year and emphasized uncertainty about how developers and homebuilders would respond if the program ended.
Several council members suggested alternatives: scaling back "over-incentivized" projects, targeting abatements geographically or by need, and leaning more on other tools such as historic tax credits, tax-increment financing or Invest DSM and ION programs for neighborhood reinvestment. One council member urged giving projects under construction a reasonable runway rather than an immediate termination.
Christiansen also highlighted long-term service costs associated with new growth, including public safety and infrastructure. "Police the per-acre cost of police and fire to serve a new residential development is $7,322 per acre per year," he said, noting those costs come from the general fund.
There was no formal action at the session. Staff asked for council direction on preferred approaches and said they will return with detailed statistics and recommended timelines so the council can weigh options without abruptly disrupting projects that are underway.
What's next: Staff will produce a deeper fiscal analysis and bring forward options for a public hearing and possible ordinance or policy changes; the council indicated it expects another work session to consider those figures and possible targeted alternatives.
