Iowa House measure would slash deeply into property tax revenues

It would require unprecedented economic development to replace the revenue local government would lose under a property tax plan under consideration in the Iowa House today.

On the other hand, supporters of House Study Bill 240 called it “serious substantive property tax relief” and a plan that would rein in local government property tax collections that have grown $1.75 billion in the past decade.

A subcommittee of the House Ways and Means Committee heard testimony on the plan this morning and will reconvene this afternoon to take action. Chairman Tom Sands, R-Columbus Junction, hopes to move the bill through the subcommittee and full committee today.

HSB 240 is a marriage of proposals by majority House Republicans and Republican Gov. Terry Branstad to roll back the property tax rates on commercial property – now 100 percent – to 60 percent over five years.

“The main purpose of this bill is to help economic development, to spur development,” Sands said.

Local communities that are dependent on property tax collections to fund their services would welcome that, but Alan Kemp of the Iowa League of Cities warned roll back is “too blunt a tool” and would restrict the ability of cities and counties to meet citizens' needs.

“We would have to have unprecedented growth to offset the impact of this,” Kemp told a Ways and Means subcommittee.

“I think that's what we're on the threshold,” Sands said, referring to record agricultural commodity prices and signs the state and nation are coming out of a recession.

There was general agreement there is unfairness in the state's property tax system that taxes commercial and industrial property at 100 percent of their taxable valuation, but taxes residential property at roughly 50 percent.

The revenue loss from reducing the commercial and industrial tax rate by 8 percent a year until it is at 60 percent would be offset by the state “backfilling” local government budgets, according to the bill. The state would increase aid to local government by $50 million a year up to $250 million.

That gave Victor Elias of the Coalition for a Better Iowa “heartburn.”

“The state doesn't have a stellar track record on following through on paying tax credits,” he said. Without an actual appropriation, he is concerned cities and counties would be able to fund essential services.

Groups representing commercial and industrial property taxpayers were strongly in favor of the bill.

“Now is the time and this is the vehicle for meaningful property tax relief,” Ed Wallace of Iowans for Tax Relief said. “Now's the time to get to work.”

HSB 240 is a way to address the property tax system that is “spiraling out of control and must be addresses if we want job creators to continue to employ Iowans,” said John Gilliland of the Iowa Association of Business and Industry.

He cited numbers from the non-partisan Legislative Services Agency showing local government property tax collections have increased substantially over 10 years – a 74 percent increase among school districts, 64 percent among counties and 60 percent among cities.

The local government revenue stream has expanded much faster than inflation and income growth, he said.

John Stineman of the Iowa Chamber Alliance, representing the state's largest communities, emphasized the need for commercial and industrial property tax relief. It's more important than other tax relief, he said, because those classes of property have been taxed at 100 percent while other classes are taxed at rates less than that.