Iowa Senate approves property tax relief plan

The Iowa Senate voted 29-21 Monday to approve a $250 million commercial property tax credit plan targeted at small and Main Street businesses – action that likely moves the issue closer to a negotiated compromise with GOP forces led by Gov. Terry Branstad.

Republican Sens. Rick Bertrand of Sioux City, Hubert Houser of Carson and Brad Zaun of Urbandale voted with 26 majority Democrats to pass Senate File 295.

Backers say the approach would enable all businesses to be taxed at a lower rate on the first $324,000 of their assessed property value. Commercial entities would have property values above that threshold taxed at the current 100 percent rate.

“This is an incremental piece of progress,” said Sen. Matt McCoy, D-Des Moines, who acknowledged that whatever compromise bill that can make it to Branstad's desk this session will have to come via a House-Senate conference committee. He said the Senate approach “would be a major improvement to the tax climate in Iowa.”

Bertrand called the Democrats' tax credit idea a flawed proposal but said he supported it as “a vehicle” to move the issue forward in hopes of arriving at a better plan via negotiations.

During the floor debate, Sen. Randy Feenstra, R-Hull, tried to offer a comprehensive plan that would cut rates for all commercial businesses by 20 percent over five years, freeze residential property tax rates, have the state cover 95 percent of school aid costs and fully fund homestead tax credits with an inflationary adjustment.

“This is what comprehensive property tax relief looks like,” said Feenstra, before his amendment was sidelined due a procedural ruling on its relevancy to S.F. 295.

Under the Senate Democrats' plan, $50 million a year would go into a new Business Property Tax Relief Fund beginning July 1, 2014, to provide property tax credits for businesses. A permanent, ongoing appropriation would increase by $50 million each year that the state's revenue rises by at least 4 percent, reaching a maximum of $250 million per year in reduced property taxes.

McCoy said the Main Street tax cut would mean eight out of 10 commercial properties would pay the same rate as residential properties, and nine out of 10 properties would do better under the Senate's approach than under Branstad's proposed 20 percent across-the-board rate reduction.

Branstad has offered a plan that would reduce the tax rate that commercial property owners would pay to 80 percent over four years. The approach requires that a standing appropriation be made each year by the Legislature in the exact amount of reduced property tax dollars, to be given back to city and county governments. He also seeks to lower the amount that residential and agricultural classes of property could increase -- from 4 percent to 2 percent.

Republicans who control the Iowa House have proposed to provide relief to all property classes by having the state take over the full cost of funding the school aid formula. Currently, the state contributes 87.5 percent of the total cost of the K-12 school aid formula and the rest is funded by local property tax dollars. House File 2 seeks to increase the percentage the state contributes by 2.5 percent annually for five years.

Also Monday, senators voted 26-24 along party lines to approve a $167.7 million budget for the state's judicial branch in fiscal 2014. Senate File 442 would provide about $5.6 million over current funding.

If approved along with additional money to cover salary costs, judicial branch officials say clerks of court offices in all 99 counties could return to full-time status and maintain regular weekly hours beginning as early as July.

Currently, all clerk offices – including the Iowa Supreme Court and Iowa Court of Appeals – are closed on Tuesday and Thursday afternoons to enable a smaller statewide workforce to keep up with the demands of civil, criminal, juvenile and other case loads, said State Court Administrator David Boyd. About one-fourth of the courthouses keep part-time hours or are closed at more times in the aftermath of a 2009 state budget cut that reduced the judicial branch's statewide workforce by 12 percent, he added.

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