This could be year for tax reform in Iowa Legislature
Officials agree on need, but differ on methods
DES MOINES — The late Chicago Cubs legend Ron Santo used to rally long-suffering but die-hard fans with a battle cry of “This is the year.”
Likewise, proponents of revamping Iowa’s property tax system to reduce commercial rates and slow growth for other property classes are bringing the same hope-springs-eternal attitude to the 2013 legislative session that begins Jan. 14.
“We’re willing to look at anything,” said Mike Ralston, leader of the Iowa Association of Business & Industry, who saw the split-control Legislature come close last year to resolving Iowa’s property tax inequity that dates back to the 1970s.
Ralston is among those hoping for a compromise solution in 2013. “It has to be meaningful, but it doesn’t have to be perfect,” he said.
Democrats return to the Statehouse maintaining their 26-24 majority in the Iowa Senate, while Republicans bring a 53-46 edge to the Iowa House after a hard-fought 2012 election.
Republican Gov. Terry Branstad said voters’ decision to continue with divided state government means he and legislative partisans must work together to resolve a vexing issue that is holding back Iowa’s potential for economic growth.
Branstad said he hopes to forge a bipartisan property tax relief agreement by providing enough state money to fully fund local tax credits and to protect local governments against potential revenue losses caused by lowering rates on commercial property and capping increases for homeowners and farmers. He also is looking at revamping K-12 school funding in a way that shifts per-pupil costs from property taxes to state aid.
“I want to get this done,” the governor said. “At the end of the day, I’m probably looking at providing the most significant property tax relief we’ve ever done.”
Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee, said the devil is always in the details of any tax policy change.
“Show us the plan,” Bolkcom said. “The Senate plan targeted Main Street small businesses and didn’t give away the farm to the Wal-marts and out-of-state corporations. I think that’s where we should start. (The governor) hasn’t given us any details other than ‘I will make them whole or I will not shift property taxes to residential.’?”
EFFECTS ON BUSINESS
Steve Dust, head of the Waterloo-based Greater Cedar Valley Alliance, said tax competitiveness ranks high when businesses make location and expansion decisions, but having commercial and industrial property tax rates near the highest in the country dampens Iowa’s business climate at a time when the state should be a hotbed of recruitment and expansion activity given its favorable economic position.
“Success this session can have a long-lasting impact for Iowa. Our potential for economic growth in 2013 and beyond is rising and strong,” said Dust, chairman of the Iowa Chamber Alliance — a non-partisan coalition representing businesses in Iowa’s 16 largest metro areas and economic development organizations throughout Iowa.
“The 2013 legislative session can do a great deal to promote economic growth, but the promise it holds can only be fulfilled if the policymakers work toward a shared goal of increasing economic growth, creating more well-paying jobs,” Dust said.
Commercial and industrial property is taxed at 100 percent of its market value. Branstad-led GOP forces have pushed to lower that incrementally to 60 percent while capping yearly increases at 2 percent for residential and agricultural properties up to a future maximum of 60 percent as well.
For their part, Democrats have offered a targeted property tax cut aimed at small and Main Street businesses that would guard against shifting the tax burden to residential classes and would put up $250 million in state “backfill” money to protect local governments against a loss of revenue due to commercial property tax relief. Their plan to deliver relief via a state tax credit has run into resistance from Republicans who note the state has a poor track record of fully funding such commitments.
It is from those competing positions that negotiators are trying to reach some bipartisan accord.
“The good news is everybody’s talking about addressing the issue,” said Ralston, who noted that the current property tax arrangement hits manufacturers and other commercial enterprises disproportionately harder than other classes. “Our folks are also going to do everything they can to grow jobs no matter what happens but, boy, that would sure make the job a little easier.”
He pointed to a small manufacturing firm in Waverly with 150 employees that wanted to expand but didn’t because an already high tax burden would be exacerbated as an example of how the commercial/industrial property tax imbalance is deterring growth.
House Speaker Kraig Paulsen, R-Hiawatha, said action is needed this session to stave off the potential for significant tax increases to hit agricultural and residential property owners under the state’s rollback formula that determines the percentage of a property’s value that’s subject to taxation.
He said Republicans are willing to keep cities and counties in a position where they don’t move backward on the revenue they collect while revamping and reforming the system, but they are not interested in trying to protect future projected growth.
“We had a great discussion and came very close when it came to property tax reform and relief, but of course in this business close doesn’t mean a darn thing,” he said. “Now we need to go back and start that discussion over, get everything up on the table and start pushing it around and find a solution that works for everybody.”
House Democratic Leader Kevin McCarthy, D-Des Moines, said the prospects for a property-tax compromise are “very likely” but to be sustainable it will have to be phased in over a long period of time. Even with a projected $804 million state surplus, there are limits on what state government can afford to do in providing commercial/industrial property tax relief and addressing other priorities, he noted.“We could get the foot in the door and then it could ramp up over time in a way that everyone can absorb,” McCarthy said. “In end, we have to be fiscally responsible.”