HIAWATHA, Iowa (AP) — Gov. Terry Branstad on Wednesday signed into law a measure aimed at reducing Iowa's commercial property taxes, an effort he expects will spur economic development even as some officials predict it could leave cities and counties short of funds.
Flanked by state elected officials, Branstad signed the bill in Hiawatha at Hawkeye Ready-Mix, a concrete supplier with plants in several eastern Iowa locations.
“The tax relief in this bill will put more money in the pockets of Iowa families and make it easier for Iowa businesses to invest in growth,” Branstad said. “It's a win-win for everybody.”
But some local government officials questioned the tax plan, saying they're going to lose out on tax revenues that they use to pay for services.
“We're concerned,” said Sioux City Assistant City Manager Bob Padmore. His city expects to take in $23.9 million less in tax revenues over the next 10 years as a result of this change. “Some of this will result in a reduction of revenues with nothing to offset it.”
Under the bill — a compromise between Senate Democrats and House Republicans — the state will gradually cut taxable assessments for commercial properties, reduce the tax burden for apartment buildings and limit the amount that residential and agricultural property values can grow. It also provides a property tax credit geared at small-business owners and some income tax breaks.
The state general fund will provide substantial funding to replace some lost tax revenues for local governments.
An analysis from the nonpartisan Legislative Services Agency shows that the funding won't cover everything. The agency estimates that the bill will reduce property tax revenues by $3.9 billion over 10 years, with the state general fund paying $3.1 billion to cover the losses. That leaves about $740 million in projected revenue reductions over the next decade, much of which will be shouldered by cities and counties.
Davenport Finance Director Brandon Wright said the city is projecting that it will get $40 million less over 10 years because of this plan.
“The reality is that when we look at the sources of revenue a government uses, property taxes pay for most of the services we provide,” said Wright, who said that about two-thirds of the city's approximately $45 million annual budget goes to police and fire. “To significantly reduce costs, we would have to do layoffs.”
Branstad said that local governments should get enough funding under the plan.
“We worked very hard over the last several years to make sure the state was protecting local governments and their sources of revenue,” Branstad said, noting the amount of funding the state is providing to local governments. “I think local governments are adequately protected.”
Department of Management Director Dave Roederer said the new tax structure would spur economic development, which would grow commercial property tax revenues.
“The fact of the matter is this was focused on the property tax owners, not the people who spend the property taxpayers' money,” Roederer said. “We believe cities will be able to do OK.”
Matt Hinch, senior vice president of public policy for the Greater Des Moines Partnership, which represents central Iowa businesses and chambers of commerce, said the organization lobbied for these tax changes.
“I think that the reduction will hopefully allow these businesses to take that money, reinvest it in their operation, which will mean companies can hire add employees and grow and expand,” Hinch said.
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