First public hearing held on one of many bills designed to address Iowans’ property taxes

DES MOINES — Placing constraints on local governments’ use of tax increment financing drew the most attention Wednesday during the first legislative hearing on the multiple bills designed to address Iowans’ property taxes.

While statehouse Republicans’ proposal to cap property tax revenue growth has sparked widespread warnings that such a provision would hamper local governments’ ability to fund public services, the tax increment financing — or TIF — restrictions in Gov. Kim Reynolds’ proposed legislation were the hot topic in Wednesday’s hearing.

TIF districts are established to allow a public entity to freeze the property value, develop that land and sequester any new tax revenue generated from the improvements to be used on that property for infrastructure or private development subsidies. The process, however, currently keeps schools or counties from getting a share of the new tax revenue until the TIF district expires.

Reynolds, majority Republicans in the Iowa Senate and House, and House Democrats all have introduced legislation designed to address Iowans’ property taxes. Iowa has the 11th-highest property tax burden in the country, according to the Tax Foundation, and the 10th-highest effective property tax rate, according to Rocket Mortgage.

Each plan takes a different approach to reducing the taxes paid by Iowa property owners. Wednesday’s hearing was on Reynolds’ proposal, Senate Study Bill 3034.

It was the first legislative hearing — and thus the first opportunity for public feedback in a formal setting — on any of this year’s property tax bills. A hearing will be scheduled on Senate Republicans’ proposal next week, a key legislator said.

What Reynolds’ bill would do

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Reynolds’ proposal would:

Reynolds’ office says her legislation would reduce Iowans’ property taxes by $3 billion over six years. Molly Severn, Reynolds’ legislative liaison, said during the hearing that property taxes remain “one issue (that) continues to impact Iowans in every community and at every income level.”

The proposed restraints on TIF drew concerns from local leaders who called it a vital tool for economic development.

“Cities share in the state’s goal of growing Iowa and attracting new residents and employers, and that partnership happens at the local level through housing infrastructure, downtown redevelopment and site readiness,” Iowa League of Cities Director of Government Affairs Chelsea Hoye said during public comment.

“Property tax revenue is the primary local investment that drives our shared goal growth goals. Tax increment financing has been the primary tool used to make those projects possible,” Hoye said. “When the reduction in TIF capacity is combined with the limitation on other ongoing resources, cities are less able to partner with the state and businesses on expansion and new growth opportunities.”

Some local government leaders and representatives also repeated their concern with the 2 percent growth cap, and locally elected officials expressed concern with the proposal to allow counties to appoint instead of elect auditors, treasurers and recorders.

Key lawmaker warns against legislative paralysis

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Sen. Dan Dawson, a Republican from Council Bluffs who chairs the Senate’s Ways and Means Committee on tax policy, concluded Wednesday’s meeting by issuing a stern warning to lobbyists. Dawson said Iowa voters have demanded legislation to address property taxes and that he does not want to see that effort torpedoed by opposition to the many proposals.

“I know there’s a bunch of local officials out there that are doing their damn best to deliver a service out there. But we have to be honest with ourselves in the fact that if local control was working, we wouldn’t be 10th-highest (in effective property tax rate),” Dawson said. “And if we do status quo right now, guess what happens? Then everyone comes back here to (state legislators) like, ‘Hey, we’re getting killed.’ …

“At some point in time, this dark building is either going to start to focus on addressing the root of the problem, or we can all kid ourselves and say everything is fine and go home and tell Iowans we can’t get anything done,” Dawson added. “The reality is, if we can’t move the needle and lower bills for Iowans, then we have no credibility on the issue.”

Sen. Cindy Winckler, a Democrat from Davenport, said she would prefer a legislative approach to property taxes that creates relief based on “ability to pay” and said state legislators should be deferring to local government decisions on property taxes.

“I wish that we were looking at ability to pay (and) allowing the local communities who elect their leadership … to provide the services that their residents expect and deserve. They are the closest to those services,” Winckler said.

The three Republicans on the five-member subcommittee supported advancing Reynolds’ bill, making it eligible for consideration by the full Senate Ways and Means Committee. The two Democrats, Winckler and Sen. Tony Bisignano of Des Moines, declined to support moving the bill forward.

What the other proposals do

Senate Republicans’ bill would phase out Iowa’s decades-old property tax rollback mechanism and replace it with a large homestead exemption — 50 percent of a primary residence’s value, up to $350,000, fully exempt homeowners age 60 and older who have paid off their mortgage, have the state cover the full cost of K-12 education — allowing school districts to lower property tax levies — and index the state gas tax to inflation.

House Republicans’ bill would cap local property tax revenue growth at 2 percent plus new construction, with exceptions for schools and the debt levy, create a new $25,000 exemption on every residential property, and make it harder for local governments to take on debt backed by property taxes.

Comments: (515) 355-1300, erin.murphy@thegazette.com

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