The property tax rollback proposals we’ve seen this legislative session are concerning for a number of reasons. The latest — in an amendment to House Omnibus Budget bill (HF697) — though scaled back from an earlier proposal, does little to ease legitimate concerns.
Citizens and elected officials of cities and counties have reason to be both concerned and confused by the legislation.
The bill, passed by the House last week and yet to be taken up in the Senate, would reduce commercial and industrial property assessments and limit the amount of revenue city and county governments can raise from commercial and industrial tax (see our recent backgrounder for a more complete explanation).
Starting in Fiscal Year 2014, commercial and industrial property assessments would drop by 5 percent for five years, so that they are ultimately reduced by 25 percent. The same legislation provides for some property tax replacement monies to be allocated by the state. In FY14, the replacement fund would total $30 million, increasing by $30 million each year until it reached $150 million.
This formula has many problems, not the least of which is that no one knows if the replacement funds (1) will be enough to fully replace lost property tax revenues or even (2) will actually be allocated. The rollback would be written into law; the replacement dollars would be subject to the annual appropriations process. The $30 million figure — maybe it’s close, maybe not; for all we know it was one of many numbers on a dartboard. Either way, in a tight budget year, even that might not be provided. It’s one more note of uncertainty for local officials setting budgets.
Additionally, as we’ve noted before, the legislation disrupts the shared responsibility of financing local government between residential citizens, agricultural citizens, and corporations. The bulk of the general fund — the source of the replacement funds — is generated from individual income tax. Already, the corporate share of state funding is minimal due to many breaks written into law and unintended loopholes in the law. The proposed property-tax legislation does not target help to small businesses, but assures big corporations — some of which already do not pay income tax in Iowa — also get the new property-tax breaks. The big-picture impact: Homeowners will assume a greater share of funding local services, because big companies will get one more break.
Any legislation that emerges from House-Senate negotiations needs to do better than HF697 in assuring sustainable and fair changes to Iowa’s property-tax system.
Posted by Andrew Cannon, Research Associate