Branstad cites possible property tax, preschool modifications as budget talks continue

PERRY – Gov. Terry Branstad indicated Wednesday he is modifying his commercial property tax phase-down to assure that local governments will be held “harmless” while one of their key revenue sources goes through a period of potential flux.

He also said he expected a smaller reduction in state aid for preschools than the $35 million savings that House Republicans included in their so-called omnibus budget bill as his staff, majority Senate Democrats and majority GOP representatives try to hammer out a budget and tax policy compromise that is needed to adjourn the 2011 legislative session yet this month.

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.”

Branstad's comments came in response to concerns raised by Perry Mayor Jay Pattee that cities, counties and other local entities still would have a “30 percent gap to fill” on top of the proposed state “backfill” of property tax revenue under the plan endorsed by Branstad and legislative Republicans. Pattee said the state has a checkered history of not making good on its commitments and he was concerned that cities and the education system were carrying the “brunt” of spending reductions and other proposed changes under consideration by Branstad and the split-control Legislature.

That concern was echoed by educators who showed up for the town hall meeting. One told the governor that student achievement has slipped and the fiscal 2012 state budget was being balanced on the back of education to its detriment, while a former school superintendent called zero allowable growth for the coming school year “a mistake” and that even a “nominal 1 percent growth” would keep class sizes at reasonable levels and qualified teachers in them.

Branstad defended the GOP education plan to pump $277 million of state money into the K-12 system over two years - including up to $216 million in increased funding in fiscal 2012 to “backfill” reserves and property taxes used to cover previous cuts in state aid and a 2 percent boost in “allowable growth” per-pupil spending in fiscal 2013.

“I believe that's a fair compromise,” he said.

Legislative Republicans also have agreed to keep intact the current state preschool program, but they would provide about half of the per-pupil funding – dropping the level from about $3,600 for each participating 4-year-old to about $1,800 per pupil in the fiscal 2012 budget to save the state about $35 million next fiscal year. He said Senate Democrats want a level closer to $3,000 and that somewhere closer to $2,400 could be the middle ground.

Branstad expressed optimism that a bipartisan agreement could be forged with legislators by next week in time to avoid a July 1 government shutdown like the one that Minnesotans are preparing for in their states. Unlike Minnesota, Branstad spokesman Tim Albrecht said no layoff or furlough notices have been sent out to state employees in Iowa and the governor said all sides are working together after the Iowa Legislature was “in suspended animation since about May.”

“I hope we can get it done. I don't know that we can get it done this week but we need to get it done before the end of the month of June,” he said. “We're making the tough decisions now, hopefully avoiding having to go through this again and again next year or the year after.”

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