Legislators bickering over school bucks should be reforming local government funding

So the sitzkrieg over K-12 school funding continues at the Statehouse as school districts approach the legal deadline for certifying their budgets.

There's a lot of talk, bickering and politicking over percentages. Republicans want to increase basic state funding by 1.25 percent, or nearly $100 million. Democrats opened at 4 percent, and last week split the difference with a 2.625 percent offer. Republicans say it's 1.25 percent or nothing. Democrats say things you can't print. Schools are stuck between the trenches.

A Legislature that locked bipartisan arms and passed a $200 million gas tax increase can't bring itself to forge a school funding compromise. So that's Paving 1, Pupils 0, if you're keeping score. But, curiously, nobody is talking about the way local governments are funded. Because that's a big reason why we're in this mess.

In 2013, Republicans and many Democrats approved a big commercial property tax 'reform” bill. It rolled back the percentage of a commercial property's value that can be taxed to 90 percent, down from 100 percent. And it created a tax credit for businesses that allows a state-determined portion of their property's value to be taxed at the lower residential rate.

It was a big deal. After decades of promises, lawmakers finally lowered commercial taxes. It was touted as a bipartisan triumph and the largest tax cut in Iowa history.

It's also really expensive. To get it passed, lawmakers promised local governments that it would replace, or backfill, property tax revenue lost by the commercial rollback. And the state pays the full freight for the business tax credit.

Next budget year, the backfill is expected to cost the state $162 million, according to the nonpartisan Legislative Services Agency. And the tax credit will cost $100 million. So the 'reform” effort will cost more than a quarter-billion dollars annually for years to come.

In the next budget year, a combination of revenue growth and this year's projected ending surplus gives lawmakers roughly $400 million in new bucks to spend on a long list of competing needs. But the property tax backfill/credit takes more than half that money right off the top.

So that's a big reason why Republicans are correct when they say the state can't afford a pricey jump in school aid. I'd submit that Democrats make a good argument that school funding is a priority that lawmakers should figure out a way to afford. That's their job. But lawmakers didn't really 'reform” anything in 2013. What they did was shuffle the deck chairs on our Titanic property tax system, throw a ton of state dollars at it and made a long-term promise the Legislature and future governors are going to struggle mightily to keep. Oh, and other state priorities, such as education, will suffer.

So repeal the whole thing, right? That's not going to happen. This commercial property tax relief is here to stay. Any measure rolling back the rollback or curtailing the credit is a political nonstarter, especially in a divided Legislature.

OK, so cancel the backfill and stiff cities and counties. Well, there is a proud tradition of legislators solving their problems by creating problems for local government officials. Nutrient runs downhill, they say.

But that's a really lousy way to do business, and leads to cuts in local services that voters will see and feel.

That leads us back to the issue of how local governments are funded. Lawmakers could cut the backfill bill and relieve state budget pressure if they gave cities and counties new ways to raise tax revenues and make them less dependent on property taxes.

State leaders have given themselves all sorts of ways to raise bucks. But local governments have just a few, tightly controlled options. Statehouse types need to give locals more tools and authority.

If local voters are willing to approve it, why shouldn't a city be able to seek more than a one-cent local-option sales tax, or more than a 7 percent hotel/motel tax? If that's too regressive for your progressive taste, allow voters to consider an income surtax.

With much of the cost of alcohol misuse covered by local law enforcement agencies, why should the state have a monopoly on booze taxes, or tobacco taxes?

Speaking of sin, Cedar Rapids leaders are right to question how non-casino counties get the shaft from Iowa's distribution of gambling proceeds.

There are a lot of possibilities. My point isn't to endorse any of them, at least not until they've been more thoroughly explored. My point is that lawmakers should be doing that exploring now. It's time to consider real reform.

As long as local governments remain dependent on property taxes, property tax relief will keep costing the state more than it can afford.

And that means this year's school funding fight will be the rule, not the exception. The thought of that makes me want to say something I can't print.

' Comments: (319) 398-8452; todd.dorman@thegazette.com