Governor Branstad and the Lt. Governor were in Clinton today to promote their proposed commercial property tax reduction plan, which was recently passed by the House (HF 2274) and sent over to the Senate. I attended the meeting, which was held over the lunch hour at Clinton’s wonderful Rastrelli’s restaurant — except actually, it took place at the Tuscany conference center attached to Rastrellis, and there was no food. Sadness.
I do sincerely appreciate the fact that the Governor took the time to come to Clinton to discuss the House’s version of commercial property tax reform with us citizens (especially since he did so in the middle of a freak blizzard); I don’t appreciate the fact that one would assume from listening to his presentation that the Senate opposes any reduction to the commercial property tax rate, and/or has no commercial property tax reform plan of their own. That’s simply not true — the Senate passed their plan last year, Senate File 522. So there are two commercial property tax reform bills out there, and to suggest otherwise is misleading.
This year’s version of the House commercial property tax reform bill is better than last year’s, in that it phases in the 40% reduction over eight years instead of five. However, I am concerned that in his presentation today, the Governor never explained that the two billion dollars his plan guarantees to local governments to make up, in part, for the billions of dollars they will lose in commercial property taxes — that two billion dollars will have to come out of the general fund, which is funded by Iowan’s income taxes. Which if OK, so long as Iowa’s income tax revenue magically increases by two billion dollars over the next eight years. Because if it doesn’t — if the State can’t afford to fund necessary state services AND supplement funding for city and county services — well, my guess is that the State’s going to fund state services, and local governments will just have to come up with some other way to make up for the lost commercial property tax revenue.
A lot of city and county officials are pretty dubious about the State’s promise to supplement funding for local services on a consistent, long-term basis — and who can blame them? After all, schools got zero percent in allowable growth this fiscal year, because the State supposedly couldn’t afford to give schools more, and the budget bills passed out of the House this session so far have been artificially and unnecessarily low, cutting funding for important state services — so realistically, how can the State afford to pay for local services as well? The Governor pointed out that there is a provision in the House bill that allows local governments to request permission to raise commercial property taxes if the State is unable or unwilling to follow through on its promise to backfill the shortfall, but that process would take time, and money, and in the meantime, local governments would be broke. Or broker.
Senate File 522, the Senate’s commercial property tax reduction plan which was approved by the Senate last session in a bipartisan vote, is admittedly a more modest plan than that of the House. It creates an ongoing appropriation of $50 million per year, beginning with fiscal year 2014, for a Business Property Tax Credit Fund. Each year that state revenues grow by at least 4 percent—which has happened in 6 of the last 10 years—the deposit into the fund will grow by an additional $50 million. When the appropriation reaches $200 million per year, it will be maintained at that amount.
The Senate’s business property tax cut is fully funded with state dollars — there would be no negative impact on local schools and governments. Under the Senate plan, all commercial property tax payers would receive a tax cut, and when fully phased in, four out of five Iowa commercial properties (those valued at $390,000 or less) would be taxed at the same rate as residential properties, a tax cut of 41 percent (the same as the House bill, but without the need for backfilling local government budgets).
Bottom line, both the Senate and the House commercial property tax reform bills have their supporters, and both contain some good ideas, and hopefully the leaders of both parties can sit down with each other and the Governor and work out a compromise that will protect commercial property owners, local governments, and Iowa taxpayers – that’s a bill I look forward to voting yes on.