Iowa’s governor and lieutenant governor took their message to Clinton on Friday in an effort to get residents to persuade their state senators to approve a property tax reform plan that would roll back commercial and industrial taxes by 40 percent over the next eight years and hopefully bring more business into the state.
“Everyone knows that property taxes are too high and something needs to be done,” Gov. Terry Branstad said while addressing the crowd at Rastrelli’s Restaurant. “If the legislature fails to do anything about property tax this year, these taxes will go up $2 billion over the next eight years.”
Branstad explained the problem by recalling the 1970s, when during an inflationary time, people were buying farmland as a hedge against inflation.
He said the Iowa Farm Bureau told legislators that valuing farmland based on market value “just doesn’t pay out because people are buying land at inflated values and if you look at the price of corn and soybeans it just doesn’t make sense.”
He said the Farm Bureau suggested Iowa should value farmland based on productivity, specifically a five-year rolling average looking at yields and prices of corn and soybeans. The state didn’t want to see a shift in both ag and residential so they tied ag and residential together in the late 1970s, Branstad said.
The the farm crisis of the 1980s appeared.
“Farmland values went down during that time and so did residential,” Branstad said. “We had a rollback and residential went down to being taxed at 50 percent of market value. We didn’t do anything with the other class of property: commercial and industrial.”
He explained that during his previous terms as governor, as Branstad was working on the IPSCO project between Davenport and Muscatine, the legislature eliminated the Machinery and Equipment tax for industry; however, commercial property taxes remained at 100 percent of market value. He said that while two previous governors and several general assemblies have said they were going to do something about it, they failed to do anything.
As a result, he pointed out, while total property tax revenues grew 4.79 percent per year from 2001 to 2010, commercial property tax revenues grew by 8.24 percent annually, for a total of 82.38 percent over the 10-year time period. The median household income grew by 1.87 annually during the same time period.
Branstad and Lt. Gov. Kim Reynolds did have a plan last year in which they sought to reduce commercial property taxes from 100 percent to 60 percent over a five-year period. They then adjusted that plan to extend it to the current eight years, with the taxes to drop 5 percent a year. He said the state also over time will have $240 million to be used to fill in losses experienced by local governments.
“Last year we had a plan and we improved it,” he said, adding that a trigger has been built into the plan. “If any year it looks like revenue is not going exceed previous year’s, we will slow down the phase down of commercial property tax.”
As of now, the bill known as House File 2274 has been passed through the Republican-controlled House of Representatives and has moved into the Senate, where Democrats are seeking an increase in the earned income tax credit for low-income residents. Branstad will go along with that, he said, as long as permanent commercial reform is approved as well as the limiting of residential and agricultural property tax growth.
"The governor and I are committed to job creation and enacting a permanent property tax solution. So let’s get to work. And we would appreciate your help in helping us get that done ... This is the time to do it. I believe I taxpayers deserve nothing less than the opportunity to get this done and sent to the governor so he can sign off on this,” Reynolds said.
Under the plan, residential property taxpayers will benefit the most, he said, stating that they will save more than $606 million. Commercial, industrial and railroad taxpayers would see savings of $347 million under the plan, while ag taxpayers would save $226 million.
The plan also would limit residential tax growth to 2 percent per year.
But some residents didn’t agree that the plan is a good one.
Clinton City At Large Councilwoman Jennifer Graf asked if commercial and industrial taxes could be separated since a rollback of industrial taxes by 40 percent would cripple Clinton’s city budget. She said it would be devastating if such a rollback is allowed for businesses such as Archer Daniels Midland, which recently eliminated jobs at the polymer plant. She said 300 construction jobs have been eliminated also.
Branstad said last year’s bill was limited only to commercial property taxes, but the problem is that both are often found in the same operation and it is difficult to separate the two.
As for any problems Clinton’s city budget could see, Branstad and Reynolds pointed out the rollback would happen in 5 percent increments over eight years so cities won’t be hit all at once and that reiumbursement will be available for cities that need it. He also talked about restructuring within ADM, which along with Clinton’s has a plant in Cedar Rapids. He said the rollback could bring more jobs to the state and, he said, because there have been discussions about it, he is hopeful ADM will put a lysine plant in Clinton.
He also said the rollback could help Clinton leverage itself: Because Illinois has been raising taxes, business could move into Iowa as a result.
“You’re as close to Illinois as anybody is,” he said.
He stressed that now is the time for changes to the system.
“Iowans are frustrated by lack of action over this many years on this issue,” he said. “It’s been 30 years that politicians have promised to fix this problem and not delivered. Here’s a time we can do it. We need your help and we need the legislature to work together to get it done.”