Real Commercial Property Tax Reform
Tuesday, January 20, 2009
The Hutcheson Plan (Draft Version)I have been fairly critical of the Iowa Legislature for not doing anything about Iowa'a commercial property tax problem. I have complained about the problem and complained about the proposed solution. So what would I do about it?
First of all, I would like to see governments reduce the property tax burden by controlling their spending. That won't happen on its own, so my pragmatic solution is offered in several points below:
-Eliminate the residential rollback and replace it with an increased (but non-refundable) homestead tax credit (perhaps somewhere in the neighborhood of $1,300 - $1,400)
-Rebalance the levy rate according to the new taxable valuations and credits
-Offer a 0.5% sales tax rebate to governments (cities and counties) that enter into shared service agreements that reduce their overall budgets by 5% over two years. The tax rebate would come from the state's 5% sales tax collection and would be used for additional dollar-for-dollar relief among all property classifications.
Optional or negotiable changes:
-Assess agricultural land according to market value instead of the production method
-Mandate an additional portion of the local option sales tax (say 1/4 of the 1% tax) be used for dollar-for-dollar property tax relief
Those governments that consolidate or share services would not only save their constituents money inherently, but they would also bring additional tax relief through the rebate. Why would the state be willing to divert 0.5% of its sales tax collections to local property tax relief? Right now, the economy is struggling and revenues aren't growing very quickly. We know that the economy will cycle back in the next few years and collections will increase again. When revenues do increase, it would be an opportune time to divert revenue growth to property tax relief.
This plan is rather simplistic, and it would be tough to get enough support to pass. However, it is one of few ways to actually provide tax relief without creating new taxes. I would certainly welcome your input, and would gladly adjust my plan if you have a better idea.
Thanks for listening!
Cool Link of the Day
Iowa Property Tax 101.
Iowa Commercial Property Tax Reform? Part 3
Sunday, January 18, 2009
This study committee was an excuse to do nothing.In my previous two entries, I have detailed some of the reasons why I am frustrated with the results of a two year effort by the Iowa Legislature to study the property tax issue.
As mentioned before, I am part of the Professional Developers of Iowa, and we have asked the legislature to do something about commercial and industrial property taxes each and every year. For two years now, legislative leadership has stalled the issue "because a committee is looking at it. We are anxious to see what they come up with."
The results: 9 new revenue streams.
I am frustrated because this study committee was used as an excuse to do noting. Further, it took two years to brainstorm nine new revenue streams. Two years.
We must demand more from the Iowa Legislature and Governor Culver.
Cool Link of the Day
Check out one blogger's prediction of the new congressional districts that are possible in 2012.
Iowa Commercial Property Tax Reform? Part 2
Thursday, January 15, 2009
75% Diversification, 25% New Spending. This is my second of three postings regarding the Legislative Property Tax Study Committee recommendations. Yesterday, I expressed my opinion that solving a tax problem with a new slate of taxes is not a solution.
Another problem that I have with the recommendations is this selection of text:
At least 75 percent of the new revenue will be used to reduce property taxes. Of that new revenue, at least two-thirds will be used to reduce commercial property taxes, and the remainder will be used to reduce taxes on other classes of property.
The remaining revenue will be used for:
o Public Safety
o Disaster Recovery and Prevention
o Infrastructure
o Energy Efficiency Improvements
o Service sharing that reduces the cost of government
Let's say some combination of these 9 new taxes and fees generates $10,000,000 in new revenue for a city. Of that, only $5,025,000 would go towards commercial property tax relief. The rest would go elsewhere. About $2.5 million would go to reduce residential property taxes and the other $2.5 million would go to new spending.
This is a fabulous example of how we continue to get taken. In other words, the legislature doesn't really want to do anything about property taxes. Rather, they want to bait us into a new revenue scheme. This taxpayer isn't getting taken this time.
Cool Link of the Day
See the new Republican Party of Iowa Chairman's Response to Culver's Condition of the State Address
Iowa Commercial Property Tax Reform? Part 1
Wednesday, January 14, 2009
Real reform must be combined with fiscal restraint.For the last two years, the Iowa legislature has outsourced Iowa's property tax imbalance to a legislative study committee. Frankly, I am quite disappointed in the results.
For the last few years, I have been part of a group of Iowa economic developers that has lobbied in Des Moines for commercial property tax relief. As a brief overview, commercial and industrial properties in Iowa carry the burden of county and local government. Because of the residential rollback, homes are taxed at approximately 50% of their value. Businesses are taxed at virtually 100% of their value. Just as an example, a small retail store in a building worth $200,000 might pay the equivalent of $670 per month just in property taxes. That is a lot of overhead for a small business.
One of the problems is that Iowa's property taxes are uncompetitive. It puts Iowa at a competitive disadvantage when courting new companies to Iowa.
The study committee came back with a list of recommendations to mitigate the property tax problem. Unfortunately, the bulk of the recommendations called for revenue diversification. Essentially, they detailed 9 new taxes that could be levied for the purposes of commercial property tax relief.
I'm glad the legislature realizes that the property tax burden is a problem. However, I'm quite disappointed that the recommended solution to a tax problem is a new tax.
Cool Link of the Day
Read the Legislative Property Tax Committee Recommendations