DES MOINES — Gov. Terry Branstad has warned that residential property owners could see a massive tax hike over the next decade if the Legislature doesn't clamp down on future increases, but city leaders said they have no intention of allowing taxes to soar and don't need the state interference.
Branstad's office projects local property tax collections will jump from $5.1 billion in fiscal year 2014 to $7.4 billion in fiscal year 2022, due in large part to a projected $50 billion increase in the taxable value of residential properties. Those taxes pay for public safety, roads and other city services.
But some city leaders and Democratic leaders aren't convinced that Branstad's projections are accurate, and they said local city councils would likely adjust tax rates to protect citizens from big bills.
"The flimflam that we're going to have some kind of windfall is just that," said Davenport City Administrator Craig Malin.
Malin noted that Davenport has cut its budget by 15 percent in recent years, and he said city leaders want to keep reducing the tax rate. There is no need for the state to get involved, he said.
"I would just note that local elected officials are closer to citizens than a part-time Legislature 180 miles away, and we're well able to manage our budgets and our affairs," Malin said.
Cedar Rapids Mayor Ron Corbett said his city's tax rates have been steady for several years even though the city has struggled to recover from flooding in 2008. The city budget has seen some growth, though, thanks to new properties coming on the tax rolls and the taxable value of homes increasing slightly.
Corbett, a former Republican House speaker who served seven terms in the Legislature, said local officials are very sensitive to tax rates.
"Certainly the local councilors and supervisors are extremely accountable to the voters," Corbett said. "We face election just like the Legislature and the governor, and where we sit, we're much closer to the constituents than the higher up you get in government."
Branstad's plan would slow projected property tax increases by capping taxable valuation increases for residential and agricultural properties at 2 percent annually. That's part of his larger plan that also aims to cut commercial property taxes by 40 percent and backfill city budgets with up to $240 million annually in state money.
"It's critically important that we address that as well as reduce the commercial and industrial property tax over this eight-year period," Branstad said.
The reason for the projected property tax increase is complex. A decades-old state law links agricultural productivity with the taxable value of both residential and agricultural land and caps annual growth at 4 percent.
Because farms have been doing well in recent years, projections are that the taxable value of residential and agricultural properties will climb quickly in the coming years.
Residential properties are currently taxed at about 50 percent of their value and agricultural properties at about 57 percent. Branstad's projections have those both reaching 75 percent by the 2022 fiscal year.
Commercial properties are now taxed at 100 percent of their value.
Jeff Boeyink, Branstad's chief of staff, said the goal is to provide balance and predictability for taxpayers and local governments and make the property tax system more equitable across the board.
Boeyink said there have been positive conversations with local officials on the subject, and he believes there's more understanding on both sides. But he couldn't say whether more city leaders now support the plan.
"I know they're not going to jump up and support us, but we've made some major strides," Boeyink said.
Branstad spokesman Tim Albrecht said changes on the state level are the best way to address the projected increases instead of counting on each local government to make adjustments.
"We would like parity for Iowa homeowners and farmers and we believe this is a much fairer and more effective way to achieve that rather than leaving it to chance," Albrecht said.
But Democrats also aren't convinced Branstad's projections will come to fruition.
Sen. Joe Bolkcom, an Iowa City Democrat and head of the Senate's Ways and Means Committee, points to an assumption in the projection that local tax rates will remain constant in the coming years. Bolkcom said he doesn't believe it.
"I think it's a big assumption. I think cities will take care of it on their own," Bolkcom said. "I don't think cities are suddenly going to go on a spending spree."
Bolkcom said local governments will adjust their tax rates to offset any increase in the taxable value of property to prevent major tax increases.
"I think if city council members increased taxes by $2.3 billion over the next eight years there are going to be a lot of new council members," Bolkcom said.
Lawmakers largely agree that commercial property taxes should be reduced, and despite failure to approve such cuts in the past have promised to try again during the current session.
Corbett agreed there is an imbalance in how commercial and residential properties are taxed. But state involvement in city budgets isn't necessarily the answer, especially if that would hurt their ability to provide services and maintain infrastructure, he said.
"To shortchange cities, the engines of economic growth in the state, that doesn't make much sense to us," Corbett said.
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