Property tax fairness with balance

By The Gazette Editorial Board

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Republicans and Democrats in Iowa agree that the state's flawed property tax system puts an undue burden on commercial property owners, including small busineses. But they disagree on what to do about it.

And that disagreement is a major barrier standing between Statehouse leaders and a session-ending budget deal.

We want to see property tax fairness for businesses, but in a way that does not gut local government budgets or micromanage the way cities, counties and school districts meet local needs. Reform should be bold enough to have a significant economic impact, and smart enough to understand that local services paid for almost exclusively with property taxes are vital to economic growth. So far, none of the options on the table meet that threshold.

Taxes on commercial property are assessed on 100 percent of its value, unlike residential properties, which enjoy a rollback that taxes only about half of a home's value. A massive budget bill approved by Republicans who control the House would, over five years, roll back the taxable value of commercial properties to 75 percent.

That's less ambitious than Gov. Terry Branstad's preference for rolling commercial property back to 60 percent over at least five years or even up to 10 years. In both the House GOP and Branstad plan, the state would reimburse local governments for some but not all lost revenues. Republicans assume new business growth would cover the remaining gap.

Local governments are wary of that assumption, for good reason. The House Republican plan would also place new limits on tax growth and would allow local spending to grow only at the rate of the Consumer Price Index. We think that provision is a state overreach, especially because it's unlikely that legislators would ever abide by such a tight limit on their own spending.

The Republican plans might be more acceptable if they also allowed local leaders to ask local voters for other sources of revenue beyond property taxes. But, sadly, revenue diversity is not part of the property tax debate.

Democrats who run the Senate have proposed a tax credit that would allow commercial property owners to pay property taxes on the same rolled back valuation as homeowners on the first $30,000 of property value. The credit would be fully funded, but only if state revenues top 4 percent.

We like the Democrats' insistance that the state should fully fund its policy objectives, but we've seen many credits tacked on to the broken property tax system with big promises over the years. In many cases, those promises were not kept. We also question whether the Democratic plan packs enough punch to spur growth.

The clock is ticking, but there's still time to find the right balance.

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