So, do you care about the Statehouse property tax debate?
It's all the rage under the golden dome these days. Differences between Senate Democrats, House Republicans and Gov. Terry Branstad over how best to provide commercial property tax relief seem to be the main roadblocks to a budget deal. And a budget deal is what stands in the way of ending the long national nightmare otherwise known as the 2011 legislative session. So care already.
This wonky love triangle has three players.
Gov. Terry Branstad wants to slice the percentage of a commercial property's value subject to tax from 100 percent to 60 percent, arguing that high commercial property taxes are an impediment to economic growth. That cut would take immediate effect for new properties. And for existing ones, it would be phased in over five years. In the meantime, the state would provide local governments with annual replacement dollars rising from $50 million to $250 million by year five. The cut is is much larger than that, but Branstad argues that commercial growth will offset losses.
Branstad would also limit the growth in residential and agricultural property values to two percent annually, down from the current 4 percent cap. He contends the move will head off potentially big tax hikes down the road.
Republicans who control the House are less aggressive, reducing commercial taxable value from 100 percent to 75 percent in five years, while providing a rising local government reimbursement of up to $150 million over five years. The House matches Branstad's 2 percent cap, and expands the state's share of K-12 education aid with an eye on reducing the share of property taxes that fund schools.
Senate Democrats would provide a tax break that would allow the first $30,000 of commercial property value to be taxed at the same value percentage as residential property, around 50 percent of assessed value. The breaks would increase to $200 million statewide over five years, with a maximum credit of $600 per property. The state would fully fund the credit, and Democrats contend the credits would help small businesses.
The House plan is in the omnibus budget bill that's becomethe vehicle for a budget deal. Branstad is still pushing for his plan, but has hinted that he might be willing to accept the House version. Senate Democrats are balking at both GOP plans, and brought in a series of experts this week to argue Republican options would hurt cities, schools and counties.
I may be writing about this soon, so I'm wonder what you think. My initial take is that something will get done, but I can't help but think we've missed an opportunity for real reform.
I think Republicans are right that the commercial property tax is a business burden as currently configured. But you can't significantly slice commercial taxes and pretend that local governments will be just fine and dandy.
Democrats are right that if this is a state policy priority, the state should provide the bucks to make it happen. Anything else is a dreaded unfunded mandate. But layering yet another credit on this lousy system is not real reform. And it might have been nice if they'd done more than play lip service to this issue during the four years they ran the Statehouse.
Missing completely from all of this is any serious talk about the tax mix cities, schools and counties rely on. Right now, it's property tax-centric to a fault. Cutting property taxes would be much more palatable for local govs if they could also tap other sources of revenue. And I'm talking about letting local voters decide which of those options they want. But Statehouse types like micromanaging local governments too much to give them or voters any flexibility.
And that's too bad, considering that cities and regions are the real economic engines in this state. You can create elaborate state development agencies and slash taxes, but if you kneecap the ability of local governments to provide the infrastructure and services businesses look for and need, you may do as much harm as good.
What do you want to see emerge from all this sausage making?
UPDATE -- The governor has modified his position today:
Branstad said he wants to see commercial and industrial property currently taxed at 100 percent of assessed value be reduced to 60 percent – new and remodeled parcels up front and existing property over a period of years that he initially pegged at five years. However, he told about 50 people attending a lunch-hour town hall that the yearly reductions may have to be moderated to 3 percent or 4 percent and stretched over more years to make sure cities, counties and educational entities aren’t hurt in the process.
The governor said in an interview that he has conveyed to House and Senate negotiators “my willingness to provide some assurances to local governments that they’re not going to lose out as we reduce that commercial property tax. I’ve put together an idea on how we can assure that.” He said he would prefer to see the commercial property rate reduced by 5 percent a year, but the cutbacks could be adjusted to some lower level on a year-by-year basis to make certain the $50 million state commitment to local entities for revenue fluctuations would make up for lost tax bases or slower-than-expected new growth.“If that takes us eight years, or nine years or 10 years (to lower commercial rates from 100 percent to 60 percent), I’m willing to do it,” Branstad said. “But I think it’s been put off too long. I want to see it addressed this session.”