Branstad, lawmakers can't agree on Iowa property tax relief

Governor-elect Terry Branstad and 2011 legislative leaders promised to make reforming commercial property taxes a priority, but are offering few details and little optimism for implementing changes needed to make Iowa more attractive for business development and job creation.

In back-to-back appearances with Iowa news reporters Monday, it appeared Branstad, a Republican who will be back for a fifth term, and Democrats, who will maintain their majority in the Senate, disagree on how to go about lowering commercial property taxes, which they agree are too high and too onerous.

Branstad wants to spur job growth by reducing the percentage paid on new commercial property to 60 percent or 65 percent of the current rate. He would phase down the taxes on existing commercial property to 60 percent to 65 percent over four or five years while protecting local governments from revenue loss.

The best model, he said, is the 10-year phase-out of the state “machinery and equipment” tax that he pushed during his previous tenure as governor.

Commercial property owners now pay taxes on the full value of their property. Farmland is taxed on productivity and residential property taxes, which are tied to farmland taxes, are reduced through the use of a “rollback” that effectively reduces the value homeowners pay taxes on by roughly half.

Just as that phase-out of the machinery and equipment tax helped Iowa land employers like PMX and Cedar River Paper in Cedar Rapids, and IPSCO Steel in Muscatine, Branstad said lower commercial tax rates would attract businesses and jobs to Iowa.

With Iowa unemployment at 6.7 percent, legislative leaders agreed with Branstad on the importance of fostering job creation, but didn't endorse his approach.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, called the machinery and equipment phase-out “close to the biggest tax shift” in the state's history. Homeowners and farmland owners paid higher property taxes as a result of the phase-out, he said.

Any reduction in commercial property tax rates would have to be incremental, Gronstal said. A “global” solution to the property tax dilemma is too pricey, politically charged and detrimental to local government entities.

He said initially the state provided money to hold local governments “harmless” during the phase out of the property tax on machinery and equipment but eventually it caused a negative impact on a number of communities that, in turn, imposed a local-option sales tax to replace their lost property tax revenue. He's not interested in revisiting that type of tax shift to ease the burden of property taxes.

House Speaker-elect Kraig Paulsen, R-Hiawatha, would like to see a commercial property tax reduction, but in eight years in the House he's learned property tax reform is difficult.

Any property tax reform plan can get 30 to 35 votes, Paulsen said, “and if you fight hard, you can get up into the forties.” To get a bill through the House and Senate and signed by the governor is a major undertaking.

That prompted Rep. Kevin McCarthy, D-Des Moines, who will be moving from House majority leader to minority leader in January, to suggest the Legislature take the advice of the Iowa Chamber Alliance. It's called for a commission to study and make a proposal for property tax changes that when presented to the Legislature could be accepted or rejected, but not amended.

“If we allow the legislative process to move forward, I predict nothing will happen,” he said.

Branstad, who also has called for cutting corporate income taxes by half, expressed little interest in a gas tax hike. Any hike would have to be “broadly and deeply bipartisan” to win legislative approval, Gronstal said.