As published in the May 12, 2011, Iowa City Press-Citizen
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If truth in advertising were required of legislation, the property tax bill that just passed the Iowa House would have to be labeled “Homeowners: Pay More for Less.”
The bill enacts complex and far-reaching changes in Iowa property taxes that over time would hamstring the ability of cities and counties to provide services, while shifting the responsibility for property taxes from business to residents.
Years of complaining about commercial property taxes by the business lobby may finally pay off. Having succeeded in reducing the corporate income tax to a shadow of its former self, they have been going after the property tax, claiming it is an impediment to growth.
Yet, competent research shows overall Iowa business taxes, including property taxes, already are low. In fact, the nationally recognized accounting firm of Ernst and Young recently showed that only 15 states taxed businesses at a lower rate than Iowa as a percent of private-sector GDP.
Further, promises of economic growth created by these tax cuts are a pipe dream. A fact conveniently ignored is that all state and local taxes on business are less than 2 percent of total business costs — and the commercial property tax an even tinier fraction by itself. Cities already routinely offer commercial property tax breaks, through abatements or through rebates provided in abuses of tax-increment financing. Cutting business taxes further will do little or nothing to stimulate growth.
If fairness is a concern to Iowans, competent analysis shows the House-passed bill would shift local funding of cities, schools and counties even further away from business, and toward residential property taxpayers.
The House bill would mandate a 40-percent reduction in commercial and industrial property assessments, phased in over five years. Even with a new limit on growth in residential and ag property assessments, the net effect is a sizable shift to residential homeowners. The commercial share of taxable property would drop by almost a third, from 29 percent to 20 percent, while the residential share would rise from 47 percent to 54 percent.
The bill does express an “intent” to partially reimburse localities for lost revenue in the new assessment limitations on commercial property. But past practice shows there is no guarantee of even a partial reimbursement.
Residential homeowners, many of whom also have received the short end of the deal in income-tax cuts to benefit the wealthy over the past 15 years, would again pay the tab for perks for the most well-connected.
Finally, local governments need latitude to directly respond to their citizens’ needs. The House bill severely limits this ability by tying revenue growth to an irrelevant measure of inflation. The bill uses the Consumer Price Index, which has little to do with the costs of providing public services. Over time, the revenue limit would force substantial cuts in local services because revenues would not be allowed to increase as fast as costs.
Once again some state legislators feel compelled to tie the hands of the local supervisors and city council members that we elect to do their job, this time by putting a big hole in the tax base they must rely on while telling them how much they can spend.
If this bill becomes law, some years from now we will be asking ourselves what happened to the quality of life that brought us and our families here in the first place.
Peter Fisher is research director of the nonpartisan Iowa Policy Project (www.IowaPolicyProject.org), and professor emeritus of Urban and Regional Planning at the University of Iowa.