Iowa property tax relief plan gains committee OK

DES MOINES – The House Ways and Means Committee approved a “very bold” property tax relief plan, but not before adding a provision for annual adjustments if economic growth doesn't offset local governments' revenue loss.

“It's a great start,” said Ways and Means Chairman Tom Sands, R-Columbus Junction. “It doesn't solve all of the problems (with the property tax system), but it solves some of them.”

House Study Bill 240, which was approved with the support of just one of 10 Democrats on the committee, calls for rolling back tax rates on commercial and residential property over five years from 100 percent to 60 percent – still higher than what homeowners pay on residential property.

The bill also calls for the state to increase its share of schools' regular program foundation base. Now, local property owners pay $5.40 per $1,000 of assessed valuation toward schools. The state funds 87.5 percent of the remainder and local property taxpayers cover the last 12.5 percent. HSB 240 would increase the state's funding to 100 percent at a cost to the state of about $57 million in the first year, Sands said.

The plan would limit the growth or decline in property tax rates to 2 percent a year. It's 4 percent now. Concerned that property tax collections are increasing faster than inflation and income growth, representatives approved tying overall property tax collections to a Midwest consumer price index.

An amendment by Rep. Jeff Kaufmann, R-Wilton, called for the House and Senate Ways and Means committees to review the plan each year and make necessary adjustments.

Gov. Terry Branstad has predicted that economic growth spurred by property tax relief will make up about half of the difference between what local governments collect now and will under the new formula. To reduce the impact of lower tax rates, the state would add $50 million a year to local government assistance up to $250 million after five years.

Kaufmann's amendment would allow the Legislature to adjust the tax plan “in case the governor's predictions are not accurate or we don't have the growth we expect.”

Rep. Dave Jacoby of Coralville, the committee's ranking Democrat, supported the amendment, but called the overall plan a “tax shift' because the tax relief would be paid with income tax and sales tax revenue.

“Backfilling is not tax relief,” he said.

On a party line vote, the committee rejected substituting a $200 million property tax relief plan passed by the Democratic-controlled Senate for HSB 240. It would provide a tax cut of about $600 for each eligible commercial parcel in the first year. The $50 million in yearly relief would be achieved by taxing the first $30,000 of assessed value for commercial and industrial property at the same rate as residential homes – a reduction of nearly half. State revenue would have to grow by at least 4 percent to trigger the relief.

Sands said that plan didn't go far enough or offer enough relief for residential property taxpayers.

The plan is expected to be approved by the Republican-controlled House and then be part of end-of-session negotiations between the House, Senate and Branstad.