Zearing, Iowa, Failed To Submit Budget, Residents Will Pay No Property Taxes

Residents of Zearing, Iowa, won’t pay property taxes this fiscal year, but they aren’t exactly happy about it.

“I hope the taxpayers in this town understand that, ‘yes,’ your taxes were reduced, ‘yay, we got some more money in our pockets,’’” said one Zearing woman sarcastically at Monday’s city council meeting. “…In the meantime, what’s going to happen to roads and whatever potholes? Where’s this money going to come from?”

The reason Zearing residents are getting a property tax-free year is that Zearing officials failed to get the city’s budget approved and certified through the Iowa Department of Management and Story County Auditor’s Office by the March 31 official deadline. They’re one of two towns in the entire state to fail to do so this fiscal year.

This means officials in the Story County city of 528 residents will also have to find a way to cover nearly $200,000 in lost property tax revenue. The lost property tax revenue covers about a third of Zearing’s general fund, according to state data.

What the state says

Ted Nellesen, who oversees the certification of city budgets for the Iowa Department of Management, said while March 31 is the official deadline for approval, cities can apply for extensions. In some instances, his office will accept a certified budget as late as June 14 and sometimes a little after as long as it isn’t too close to June 30, which is the last day of the fiscal year.

“We have to have certified tax rates back to the county by June 15 and usually, with the help of the county, we are even able to fudge that a little bit to give them every opportunity to get it in,” Nellesen said.

However, the city of Zearing didn’t file its fiscal year 2022-23 budget until July 5, which is five days into the new fiscal year that the budget is supposed to cover.

“They filed so late that we weren’t able to include a tax rate for them due to the statutory provisions in state law,” Nellesen said. “While they filed a budget—they have spending authority—they will just not receive any property tax for the current fiscal year.”

$0 is how much the city of Zearing will collect in property taxes for the 2022-23 fiscal year.

 All 940 of Iowa’s incorporated cities have to file an annual budget with the state. Zearing and Le Roy, a Decatur County town of 11 people,  were the only cities that filed budgets so late this year they won’t be able to collect tax revenues. This was also the second consecutive year Zearing filed its budget late; last year’s budget was certified on June 14.

Nellesen said it’s not incredibly uncommon for cities to miss filing a budget on time, but it’s also not something a lot of communities tend to do regularly.

“In the last five years, we’ve had three or four that do this,” Nellesen said. “So we don’t have it every year, but it has happened in the past. We try to prevent it as much as possible, making contacts ahead of time with the county.”

What the county says

Story County Auditor Lucy Martin, whose office crafts the county’s budget and acts as budget recordkeeper for all 14 Iowa cities in the county, was perplexed by the situation in Zearing.

“We keep tabs, but we’re also filing our budget at the same time—all jurisdictions file with us—it’s not like I’m closely monitoring every situation in every jurisdiction,” she said.

Martin said they have a checklist to ensure county entities that collect property tax have their paperwork done correctly before being sent to the state, but it’s the respective entities’ responsibility and not the county’s to make sure that information is provided to the county.

“I don’t have authority over in city limits, but I have the responsibility to make sure that I have the information so that I do the consolidated rate,” she said.

Martin described her office’s role in the situation as akin to being a one-stop-shop for people to come in and review budgets and finances for taxing governmental entities in the county.

“We’re basically like a local filing drawer,” she said. “Anyone can come and inspect documents here; they don’t have to go to Des Moines.”

What the city says

According to Zearing City Clerk Karen Davis, the reason she was unable to get the city’s budget filed by March 31 was because of Juneteenth, which fell on Sunday, June 19, this year.

“There was an error on my part that I did not realize was there and there was,” Davis said at Monday’s Zearing City Council meeting.

Davis went on to elaborate how Juneteenth supposedly impacted her work.

“This year, the federal government decided that Juneteenth became a national holiday, so, therefore, that adjusted all of the publication dates, times, everything for newspapers. That did not give 10 days because the weekend of Juneteenth shoving all of those things around.”

The notice of public hearing and proposed maximum property tax dollars are required to be published no less than 10 but not more than 20 days prior to the date of the hearing, according to Iowa Code.

A records search on Iowa’s public notice website shows the city of Zearing, sporadically, publishes public notices of city council minutes in the Ames Tribune newspaper. The Tribune puts out print issues Tuesday-Sunday, meaning that multiple issues came out the week of Juneteenth (Sunday, June 19, 2022) and on the holiday itself.

Additionally, Juneteenth became a federal holiday in 2021, meaning it would already be marked as such on calendars for 2022. The holiday also falls nearly three months after the official March 31 deadline for city budgets to be certified with the state.

A resident asked Davis when the budget was due after she blamed Juneteenth as the reason for the late filing.

“It is technically and officially— everything changes a little year to year—but it was officially due March 31st,” Davis said. “Yes, I have had issues with lots of things but that doesn’t resolve my guilt or anything to it.

“I screwed up, made an absolute mistake; I have admitted that from day one and did everything I could to get that fixed.”

Zearing, Iowa, officials during Monday’s city council meeting.

Davis also told residents it was a conversation with Nellesen, the department of management official, that led to the council meeting on July 5 to certify the budget since the city needed at least 10 days to publish notice of the budget.

When asked what he remembered about meeting with Davis in June, Nellesen said he didn’t recall her providing a valid reason for not filing the budget in a timely manner. He also consulted notes he took during the meeting to double-check.

“The only statement I got on it was just a statement that it was a ‘mistake,’ but no real explanation beyond that,” Nellesen said. “I don’t have any other rationale I can find as to why it was late and, honestly, at that time, I would not have made much follow-up because there wasn’t really much we can do in terms of an extension because they were just beyond the statutory deadline.”

When Starting Line called Davis for comment on Wednesday, she deferred all comments to Zearing Mayor Tim Reed. Starting Line left Reed a voicemail and will update the story with his response.

What Zearing residents say

Monday’s Zearing City Council Meeting was an airing of grievances for residents and officials. Several residents called for mass resignations at city hall, while some council members took exception to the way townsfolk have reacted to the budget situation.

Councilman J.R. Murrell said he was especially frustrated by some of the signs around Zearing that altered people about the city budget shortfall.

“I don’t know who that’s going to help or who that’s going to hurt, but whoever put them up, you ought to be ashamed of yourself,” Murrell said.

A Zearing, Iowa, resident erected this sign highlighting the city’s budget shortfall, which according to the state is actually $198,454.

One meeting attendee told Murrell that the person was exercising their First Amendment right and Murrell countered by saying he was exercising his First Amendment right by complaining about the signs. A woman in the audience claimed responsibility for them.

“I put them up to make awareness; it’s awareness,” the woman said.

Another city official raised his voice at the woman and said she was “sneaking in like a snake” to put the signs up.

“I admit I did it and I’m proud of it,” the woman said.

Zearing, Iowa, residents during Monday’s Zearing City Council meeting.

What’s next?

The Zearing City Council voted to have a special meeting to figure out how they can shore up the city’s budget with reserve funds. An audio recording of the meeting provided to Starting Line does not specify when that meeting will take place and the last meeting agenda posted on the city’s website dates back to April.

City of Zearing website screenshot.

According to Nellesen from the department of management, Zearing does have enough in its reserve funds to cover the dollars it will miss out in this current fiscal year.

“It’ll have no long-term impact,” he said.

The city also will receive certain funds from the state including road-use tax and Local Option Sales Tax revenues since it did file a budget.

“I will expect that the city will also cut some expenditure or delay big-ticket budgeted items, there’s ways to mitigate it,” Nellesen said. “It’s not like they are going to go completely under based on what I’m seeing in their budget.

“Now granted, I only see what they report to me; they are small enough that I don’t believe they are audited from year to year. So we take what they tell us is their financial data as far as balances and we have to trust it.”

For cities with a population of less than 2,000, no annual audit is required. Zearing’s last audit was released in October 2020 and that audit covered fiscal year 2018-19.

Mayor Reed told residents who attended Monday’s meeting that the city wasn’t trying to hide anything and that the budget mishap was an honest mistake. One resident asked Davis why didn’t she ask for help with the budget from the state or county and noted the budget was filed late in 2021 too.

“Either you know how to do it or you don’t; you have to ask questions,  there’s nothing wrong with asking for help,” the resident said. “If the person doesn’t ask for help, it screws up the whole town, but the council is responsible also. It’s not one individual, you’re all responsible.”

UPDATE (Sept. 15, 1:40 p.m.): The Iowa Department of Management notified Starting Lin that there was one other town that filed a late budget this year that was previously omitted. The story has been updated to reflect that.

by Ty Rushing
09/14/22

To contact Senior Editor Ty Rushing for tips or story ideas, email him at ty@iowastartingline.com or find him on Twitter @Rushthewriter 

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