COMMERCIAL PROPERTY TAX REFORM: TAX SHIFT + UNFAIRNESS = GAME CHANGER

Disparity Could Thwart GOP Property Tax Plan

[Des Moines Register, 2/28/12]

GOP PLAN EXCLUDES 40% OF COMMERCIAL PROPERTIES IN ROLLBACK

Republican Plan Excludes 40% of Commercial and Industrial Property.

Under the Republican plan, properties in tax-increment financing districts, often called TIF districts, would not be eligible for the breaknearly 40 percent of commercial and industrial property in the state is located in such districts. [Des Moines Register, 2/28/12]

Major Inequity: 2 in 5 Businesses Not Eligible for Tax Break. Democrats predict
that a major inequality will derail a Republican plan to cut Iowas commercial property taxes: Two in five businesses would not be eligible for the break. [Des Moines Register, 2/28/12]

Commercial Property in 18 Iowa Cities Wouldnt Benefit from Rollback. In at

least 18 Iowa cities, all commercial and industrial property is located in a tax-increment financing district... [Des Moines Register, 2/28/12]

Gateway Market Managing Partner: Tax Rate Must Remain Equitable if Communities Hope to Continue Growing. Legislation that punishes businesses for
taking a risk on emerging areas is counterintuitive, Rottenberg said in response. Tax rates must remain equitable in these areas if communities hope to continue growing. [Des Moines Register, 2/28/12]

Branstad to Excluded Job Creators: You Cant Have Your Cake and Eat it, Too. The Register last week asked Gov. Terry Branstad about concerns that commercial and
industrial property in tax-increment financing districts would be excluded from the break that he is advocating. They got the benefit of the TIF district, Branstad said. So you cant have your cake and eat it, too. [Des Moines Register, 2/28/12]

CITIES AND COUNTIES CANT SHOULDER COST OF TAX RELIEF

Des Moines Register Editorial: State Must Not Force City and County Government to Shoulder the Cost of Tax Relief. According to the Des Moines
Register,"...The state must not force city and county governments to shoulder the cost of this tax relief, because that would almost certainly result in cuts in local services... Shortchanging essential services that make cities great places to live, work and raise families could retard the states economic growth." [Des Moines Register, 2/25/12]

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Des Moines Register Editorial, February 25, 2012:

Tax reform: Simple, low-cost tax plan is best

The governor and Republicans should use the Senate plan as the basis for a compromise.
Republicans and Democrats agree on few things, but there is broad consensus that something should be done about the inequitable treatment of Iowa businesses on property taxes. But there is no consensus in sight on a solution. The Republican version passed in the House on a party-line vote would give all owners of commercial and industrial property in Iowa a tax break regardless of the size of property. The version passed by the Senate on a bipartisan vote last year and still favored by Democrats would give a similar break, but the impact would be targeted to small businesses. While there are merits to both plans, the Senate version is simpler, less costly to the state and better targeted to the businesses that need it most. That is the clearest path to solving the commercial property tax disparity. Both parties and the governor should accept it. There is a good case to be made for more equitable tax treatment of commercial property. Today, the owner of a home in Iowa pays taxes on just over half of its actual market value. The owner of a business pays taxes on 100 percent of the market value. Owners of both residential property and farmland have for the past 34 years been protected from rising real estate values. Owners of commercial property have not. Besides shifting the cost of cities, schools and counties from homes and farms to businesses, Iowas property tax scheme is a disincentive to investment in commercial property. That is hardly a wise strategy for a state looking to boost its economy. Iowa has learned that giving one class of property a tax break can have unintended consequences, so the challenge is to give relief to businesses without shifting the burden to homeowners. Also, the state must not force city and county governments to shoulder the cost of this tax relief, because that would almost certainly result in cuts in local services. Iowas cities and towns are vital economic engines. As Iowa State University economist David Swenson documented in a study released in January, Iowas 10 urban counties accounted for nearly 60 percent of the states economic output. Shortchanging essential services that make cities great places to live, work and raise families could retard the states economic growth. The commercial tax break favored by Gov. Terry Branstad and passed by the House would grant significant local property tax relief, both by reducing commercial property taxes and by substantially increasing the states contribution to the school-aid formula. That could cost the state nearly $850 million a year when the tax cuts are fully implemented. Its unlikely the state would come up with that, given the Legislatures record of consistently failing to fully reimburse local governments for tax cuts over the last decade. Also, the Senate version leaves more money in the state treasury to pay for important priorities like school reform. Even assuming a steady increase in taxable real estate values, local governments would be shorted $357 million a year, based on an estimate by the Legislative Services Agency. Besides leaving local governments to absorb too much of the cost of this tax relief, the House bill would put a 2 percent lid on future property valuation increases and limit city and county spending increases to no more than the rate of inflation plus new construction. That much state control violates city and county home rule principles in the Iowa Constitution. It will be a challenge to reach a compromise between House Republicans and Senate Democrats this session, especially since Democratic leaders have thrown in a low-income tax break as a bargaining demand. The Senates tax bill should be the starting point for reaching a compromise.