Iowa House Republicans Pass Commercial Property Tax Reform, Democrats Argue Cuts will Hurt Local Budgets

By Lynn Campbell
Iowapolitics.com 

DES MOINES — A House Republican plan to reduce property taxes for Iowa homeowners and businesses would cost the state $1.2 billion, according to the nonpartisan Legislative Services Agency. 

“This is a billion-dollar baby we can’t afford to give birth to today without a lot more thought,” said state Rep. Chuck Isenhart, D-Dubuque, comparing the plan for property-tax relief to “Billion Dollar Babies,” the 1973 album by Alice Cooper. 

But Iowa House Ways and Means Chairman Tom Sands, R-Wapello, argued that increases in Iowa property taxes are growing faster than people’s ability to pay, and something must be done.

He said property-tax revenues are projected to grow from $4.8 billion in 2012 to almost $7.4 billion in 2022. 

“We know if we do absolutely nothing and just let present law roll along like it has been, we will see a $2.5 billion property tax increase over the next 10 years,” Sands said. “Under this plan, House File 2274, local governments will still see a growth going forward into the future, but it will only grow to $6.153 billion — a total property tax-reduction of $1.2 billion.”

The Iowa House on Tuesday approved 59-38 along party lines for House File 2274, the latest attempt to reform Iowa’s property-tax system for the first time in more than 30 years. The House rejected, 41-57, a more modest Senate plan that would instead award up to $250 million in property-tax credits to businesses.

Fred Buie, president and owner of Keystone Electrical Manufacturing in Des Moines, which makes electrical control panels and switchgear for electric utility companies, said Iowa’s high commercial property taxes are a “tremendous problem,” especially in border communities competing with other states.

 Yet Buie indicated the Iowa House might be trying to bite off too much with its plan to lower both residential and commercial property taxes. 

“I think we have to be careful not to get too many balls in the air at once,” Buie said. “Focus on commercial property taxes and try to get something going there.” 

House File 2274 would lower commercial and industrial property taxes by 40 percent over eight years, or over five years for small businesses with buildings assessed at $400,000 or less. The bill would eventually reimburse local governments $240 million a year to make up for part of their revenue loss. 

The bill would also eventually spend up to $500 million a year to increase the state’s share of paying for schools, which would give property-tax relief to all classes of taxpayers. It would limit residential and agricultural property tax increases to 2 percent, rather than the current 4 percent. And it would limit city and county property tax increases to the rate of inflation. 

Opposition to the House bill stems largely from the drop in revenues that cities, counties and school districts would see by reducing commercial and industrial property taxes. Democrats say local governments would receive $560 million less and would only get a reimbursement, or “backfill,” of up to $240 million a year from the state, leaving them $320 million short. 

“The public better pay attention,” said state Rep. Dave Jacoby, D-Coralville. “Anytime you use the word ‘backfill,’ it means one thing and one thing only. You’re using a tax to backfill another tax. There’s no true relief. You’re shuffling the deck.” 

Sands shot back that the House bill would benefit all classes of property taxpayers, and would reduce the shift from commercial to residential taxpayers. 

"We're not talking about cuts to local government," Sands said. "Only in government is a reduction of what you're going to get 10 years from now ... but it's still an increase, is that a cut. That is not a cut. It's a reduction of your growth. Big difference." 

Buie argued that local governments should curtail spending, rather than passing the shortfall on to taxpayers. Keystone Electrical’s website touts that it has implemented “lean manufacturing” throughout its organization, which has allowed the company to keep its overhead low and win a large portion of its work through the competitive bid process. “Lean manufacturing” is a production practice that considers the expenditure of resources for any goal other than the creation of value for the customer to be wasteful, and thus a target for elimination.

“We’ve got to get municipalities thinking the way businesses have for some time,” Buie said. “And that is, figuring out how to do more with less.” 

But, Isenhart said, if Iowans don’t like how much their local government officials are spending, they can instead go to the polls in the next election and “elect somebody who will spend less.” 

Tuesday’s Iowa House vote isn’t the end to the property-tax debate. Senate Democrats have not agreed to the plan, which they said would shift $320 million tax burden to homeowners. The standoff between the two chambers began last year, when the legislative session went for six months and didn’t adjourn until June 30. The issue has spilled over into this year. 

“We are 13 months into this debate and have made almost no progress,” said Rep. Nate Willems, D-Lisbon. “If we don’t do this this year, then I don’t know why Iowans would ever believe legislators’ promises on property-tax relief in the future.”

Buie, who’s also board chairman for the Iowa Association of Business and Industry, the state’s largest business trade group representing 1,400 Iowa businesses employing more than 300,000 Iowans, declined to side with the Senate or House approach to property-tax relief. 

“I guess I recognize that they aren’t going to solve this problem in this legislative session,” he said. But he urged: “Get some progress made. Get it off the dime and get moving.”