Groups to propose property tax overhaul to Legislature
Commercial property owners would be among the biggest beneficiaries, but non-profit groups would have to begin paying some taxes under a property tax proposal being put forth by lobbying groups representing Iowa’s cities and counties.
As the first week of the Iowa legislative session opens today, legislators will be hearing about the plan, devised by the Iowa League of Cities and the Iowa State Association of Counties, to reform the state’s property tax system. The groups are seeking to have the measure introduced as a committee bill, said Tom Bredeweg, executive director of the Iowa League of Cities.
The proposal, drafted by a 30-member group with equal representation by city and county officials from across the state, calls for a new system that would eliminate the “rollback,” which is designed to limit increases in residential property taxes to no more than 4 percent annually. Instead, most homeowners would have their properties assessed at full value but receive a 50 percent homeowner’s exemption.
“We are getting a very favorable reception from cities and counties across the state,” Bredeweg said. “We tried to put together what we thought was a compromise approach. We didn’t like the idea of caps (an inflation-based ceiling recommended under the proposal), but the ‘rollback’ really wasn’t working.”
Under the plan, the homestead credit would be converted to a homeowner’s exemption equal to:
– 50 percent of the assessed value of homes valued between $20,000 and $300,000;
– $10,000 or their full value, whichever is less, for homes valued at less than $20,000;
– $150,000 for residential properties valued higher than $300,000.
“Because of these changes, it is the estimation of the League and ISAC that the vast majority of non-agricultural businesses will pay less in property taxes,” according to the proposal’s executive summary. “Additionally, because of an expanding tax base, we expect most homeowners to pay less property tax or see no significant change.”
For business owners, Bredeweg estimated that the owner of a $100,000 commercial property would pay, on average, approximately $200 less per year in property taxes, or about a 12 percent decrease. Currently, commercial property owners pay taxes on 100 percent of their properties’ assessed values.
The ability to stabilize or lower rates comes primarily from two sources: higher taxes on high-end homes and new taxes imposed on land owned by non-profit organizations including churches, hospitals and charitable organizations, whose properties are currently exempt from property taxes. Under the proposal, the city and county portion of taxes on the land would be subject to tax, though a city or county could opt to impose a public safety fee on the land in lieu of the tax.
“It’s really an outgrowth of the constraints on local governments imposed by the Legislature,” said Kirk Norris, executive director of the Iowa Hospital Association, which opposes the proposal.
“We don’t deny there’s a pressure there, but we feel the way to go about (finding more revenue) is not to tax the land under hospitals,” he said. In many counties, among them Polk, hospitals are among the highest-taxed entities of property tax payers because many categories of real estate they own, such as clinics, are categorized as non-charitable and are subject to tax, Norris said.
Jeff Riese, executive director of the Polk-Des Moines Taxpayers Association, said his group has no specific position on the proposal, but generally supports elimination of the rollback in favor of a more workable system.
From attending the committee meetings, however, he realizes there is opposition, both among interest groups and legislators. However, some legislators from Greater Des Moines he’s talked with support the plan, he said.
In the 2003 session, legislators approved a plan that had resulted in a committee recommending replacement of the rollback with a system based on square footage of value. That proposed system, however, proved unworkable.
“We had a strong suspicion that wasn’t going to work,” Bredeweg said, “but decided to let it work its course. The league board came to us and said, ‘We need to come together,’ so in March 2004 when the committee started washing its hands of that approach, we set up a process to come up with this approach. That culminated with a draft in July and a proposal released in October.”
The proposal also calls for cities and counties to adopt standard forms to use to present proposed property tax changes to residents, including examples of the proposed tax levy on each property class. It also calls for an inflation-based ceiling on property taxes levied by cities and counties, adjusted annually to reflect growth in assessed valuation from new construction.
Sen. Larry McKibben, a Marshalltown Republican and outgoing chair of the Senate Ways and Means Committee, called the proposal “a platform for discussion.”
“It certainly indicates the high level of interest there is in achieving a compromise and fixing a system that everyone believes is broken,” he said.