Newton faces another tough budget year

Newton faces another tough budget year

Tuesday, July 11th, 2006

Newton faces another tough budget year
Date October 04, 2005
Section(s) Local News
By PETER HUSSMANNEditor

When Newton City Administrator Dave Schornack looks out his office window, Maytag looms large on the Newton skyline. And while many worry about losing thousands more Maytag jobs, Schornack must also face the threat that the city could lose large amounts of Maytag tax revenue.

Maytag currently pays a whopping $936,000 in taxes to the city, so this could mean a big blow to the city’s payroll, and therefore to city services. And it could create an awkward financial predicament for a multi-million-dollar city program designed to promote growth.

It wouldn’t be the first time declining Maytag taxes have caused pain. Just this year, the city was forced to lay off 15 workers, eliminate dozens of seasonal positions and cut funding to many worthwhile local organizations, largely because Maytag’s tax bills went down.

Times are tough, Schornack thinks, when the city can’t even fund its own municipal band. These problems resulted from a change already in place. Looking ahead, it’s already clear that Maytag taxes will be going down again. And if any Maytag facilities are closed in the Whirlpool merger, it will mean yet another set of problems.

Taxes already lost

Ironically, a major cause of Newton’s 2005 budget problems was a decision made for Newton’s benefit 10 years ago by state lawmakers.

Back then, Newton was competing with an Illinois Maytag factory for the chance to build the then-new Neptune washer. To boost the incentive package offered by local and state officials, the state legislature voted to abolish taxes on new factory machinery and equipment and phase out taxes on existing equipment over a 10-year period.

The phase-out ended last year, and Newton’s tax revenue dropped by a half million dollars. That was the primary cause of this year’s layoffs and cutbacks at city hall.

Looking ahead

Meanwhile, Schornack points out another disturbing development: The value of Maytag’s 30 properties in Newton fell by $2.36 million in 2005. Company officials asked for a reduction at its Plant 2 and headquarters buildings ,and the county assessor agreed. Taxes are based on property values, so lower values mean lower taxes. Therefore Newton will capture $38,000 less in taxes next year, based on current levy rates.

Maytag also has more than $1 million in property that is exempt from taxes this year because of tax abatements. And the rollback on residential property values is expected to decline 3.7 percent, so the city will receive less tax revenue from homes as well.

And then there’s the question of Maytag’s future.

Looking at Maytag’s big, blue lights from his office at city hall, Schornack wonders whether appliance industry analysts will prove to be correct. Many of them believe that if Whirlpool succeeds in its Maytag buyout, it will close Maytag headquarters, maybe as early as the first quarter of 2006.

A blow to a growth plan

Such a scenario could wreak havoc with a major Newton tax increment financing fund, Schornack says.

Since it was created in 1986, the North Central Urban Renewal Area has seen property valuations grow within its district by nearly $40 million. However, the taxes on this growth all go to a Newton TIF fund, with the proceeds paying off debt the city has accumulated in helping the district expand.

Newton has spent $22 million for roadwork, streetscape and infrastructure in the area but still owes more than $7 million. And the Maytag headquarters building is by far the largest property tax payer in the area.

The TIF fund gets 78 percent, or $479,00, of the $608,000 in local property taxes that Maytag pays on the headquarters building. Without that money, Schornack says, the revenues from the area may not be enough to pay the outstanding debt.

“That could hammer that TIF fund to the point that we may not have enough to pay our debt obligations,” he said. “We may have to renegotiate some refinancing.”

A delayed impact

Schornack knows he has some time before drastic impacts to Newton’s budget could be felt. Values assessed in 2005 will determine the taxes paid in 2006 and 2007. The merger appears unlikely to be completed before valuation figures come out next year, which means the city has at least until 2008 before the revenue crunch sets in. But the impacts could be severe, not even counting what could happen to residential and commercial property values in the future. Pull Maytag out of the property tax mix and Newton may have difficulties down the road in providing basic services to its residents.

“We’re talking about jobs if we’re required to cut much more from the General Fund,” Schornack said, noting that 80 to 85 percent of city expenditures go to salaries and benefits. “There’s not much left. We’re talking about closing down complete departments.”

Tomorrow: A detailed look at the city’s tax situation, past and present.

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