Local leaders wary of Branstad's property tax proposals

Local governments welcome the discussion, but have reservations about Governor-elect Terry Branstad's proposal to reform commercial property taxes will affect their ability to meet residents' needs.

“You won't get an argument from us that the current system is a problem,” Iowa League of Cities Executive Director Alan Kemp said Tuesday. “We just worry this may not be the best solution."

Commercial property is taxed at 100 percent of value. However, ag land and residential property are coupled and cannot increase more than 4 percent per year. Also, a rollback is applied to residential property so homes currently are taxed on 48 percent of their value.

“Our concern is that this system is not working and there appears to be no political will to address residential rollback and now (lawmakers) want to apply that to commercial properties,” Kemp said.

Branstad would cut commercial property tax rates to 60 or 65 percent of the current rates for new businesses and phase down rates for existing businesses over four or five years. The long-term goal is to replace local governments' lost revenue with increased business activity that would generate new property tax receipts and jobs. In the meantime, he expects the state would have to come up with about $500 million a year to replace the revenue local governments would lose.

Local governments have been down that road before, said Linda Hinton, governmental relations manager for the Iowa State Association of Counties. And that worries her.

“If the state wants to buy out a part of the problem, that's fine as long as the money holds out,” she said, referring to the state's failure to reimburse cities and counties to offset revenue lost through the homestead property tax exemption and credits for veterans and the elderly.

Even with state revenue projections improving Kemp doubts many lawmakers believe the state is ready to backfill a $500,000-a-year commercial property tax cut.

Kemp and Hinton said their associations are willing to be a part of the discussion. The state could sweeten the deal for them by giving local governments the option of raising revenue from others sources such as local option taxes and public safety fees.

Counties would like to see the state pick up a larger share of mental health costs, too, Hinton said. They also have proposed changes in the definition of ag land and how large-scale livestock facilities are taxed.