UPDATE: Democrats on an Iowa Senate subcommittee Monday approved a $250 million property tax relief plan targeting help to small and Main Street businesses over five years, and called on Republicans led by Gov. Terry Branstad to use it to help build a compromise to resolve the nagging issue this session.
Sen. Matt McCoy, D-Des Moines, told a Senate Ways and Means subcommittee there is a “feeling of frustration” that the split-control Legislature has failed to lower rates for commercial and industrial properties. “I hope this is a new day and a new year,” he said, but noted, it’s going to require a willingness by Branstad to negotiate with Democrats.
Majority Senate Democrats are moving ahead with a proposed state tax credit that will enable all businesses to be taxed at the residential rate of less than 60 percent on their first $324,000 of their assessed property value. Commercial entities would have property values above that threshold taxed at the current 100 percent rate.
McCoy said his caucus is willing to modify some provisions to get a hybrid measure passed through both legislative chambers and to the governor’s desk, but he predicted the issue will stall again if Branstad “plans to cram his plan down our throats” with his “my way or the highway” approach to governing this year.
“Compromise is a two-way street and we’ve seen little of it from the governor,” the subcommittee chairman said. “If he wants to have property tax relief this year, if that’s one of his priorities, then he’s going to have to come to the table and negotiate which is a new word for him.”
Branstad spokesman Tim Albrecht said the governor was pleased that all parties continue to express a commitment to accomplishing significant property tax relief this year.
“The governor does not believe finger-pointing and accusations are particularly helpful to this debate, and hopes Senate Democrats will work with him rather than lob Washington D.C.-style attacks,” he said. “The governor looks forward to moving beyond this kind of bickering and instead work for meaningful property tax relief for the Iowans who deserve it.”
Branstad has offered a plan that would reduce the percentage to 80 percent over four years. The bill 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.
For their part, Republicans who control the Iowa House propose 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.
Democrats would offer relief to qualifying businesses that claim the new business property tax credit, which would function similar to the homestead tax credit offered to residential homeowners. A $50 million yearly state appropriation would be placed into a new Business Property Tax Relief Fund beginning July 1, 2014. The permanent, ongoing appropriation would grow by $50 million each year that the state’s revenue increases by at least 4 percent until the fund reaches a maximum $250 million at the end of the fifth year.
McCoy said nine out of 10 businesses get more from Senate Democrats’ tax credit than they would under Branstad’s approach. Also, he said, the Senate plan would not shift tax burdens onto residential property owners and would not negatively affect local services or schools.
Sen. Randy Feenstra, R-Hull, said he prefers a direct reduction in commercial property tax rates rather than the tax credit, calling that approach “a bit of a Band-Aid” that doesn’t get at the underlying problem – especially if revenue growth does not hit the 4 percent trigger. “You can put it out there. It’s sexy, but if they’re not going to get any money, it’s not going to work,” he said.
McCoy said Democrats would be willing to negotiate changes, such as lowering the trigger to less than 4 percent yearly state revenue growth or making residential and agricultural property taxes subject to indexing for inflationary factors rather than setting a flat 2 percent cap on growth
Feenstra called those constructive suggestions and he was hopeful that eventually legislative leaders and the governor would decide “let’s get everybody in a room and let’s talk about it and let’s get it done. I see it both ways – both sides are digging in their heels and saying it’s their way or the highway. That isn’t helping business.”