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Iowa Republicans defend commercial property tax cut

Iowa capitol

DES MOINES – Iowa Republicans this week are defending a property tax relief bill approved by lawmakers and signed into law in 2013 by former Governor Terry Branstad, saying the bill saved taxpayers money and did not have a detrimental affect on local government tax revenues.

Senate File 295 was the largest property tax cut in the history of Iowa, Iowa Republicans said this week in a newsletter:

It was one of Governor Branstad’s key priorities, took several sessions to pass, and was approved with the votes of Democrats and Republicans alike. The bill was projected to save commercial property taxpayers millions. Part of the bill required the state to reimburse or “backfill” local governments for the revenues they stood to lose because of the reduction. Whether those local governments still need the budget boost is an argument for another day, the backfill was part of the bill, and to date, the state has made those payments.

Recently, it seems local governments are worried that their budget-boosting tool might not be there in the future, and they are laying the groundwork to defend its necessity. The debate over that necessity is also an argument for another day.

The GOP says that a news article in the Des Moines Register focuses on a theme that appeared in various publications, including The Register, last month, centering on the assertion that the bill did not save commercial property taxpayers as much as the Legislative Services Agency (LSA) predicted it would. Those articles also stated that local governments lost more in property tax revenue than LSA said they would. It is important to note that the articles seem to be based on the fiscal note for Senate File 295 and on a January 2017 Issue Review (both authored by the same LSA fiscal staff person). It is also important to note that the author of those documents was not contacted to explain, verify, or provide context for those documents in the articles in question.

So could both of those assertions be true? Could the bill not save as much money for commercial taxpayers as predicted, and at the same time cost local governments more than projected? Seems like rational minds would conclude those two premises cannot be true at the same time. So let us examine them separately.

Did commercial property taxpayers see the savings the bill projected?

Yes. The articles make a significant error of understanding when they say that the bill was predicted to save commercial property taxpayers $218 million in FY 17 and that it only saved $125 million. The only way that is true is if one conveniently leaves out the fact that the legislation also had a Division One. So what did that particular division of the bill do? Well, it gave commercial property taxpayers a tax credit totaling $123.9 million in FY 17. Since that would seem to save commercial taxpayers quite a lot of money—it should have been included in the “savings” calculation the authors utilized. Then the articles would have no choice but to draw the conclusion that the legislation did in fact save commercial property tax payers exactly what it was projected. The articles essentially ignored half of the actual property tax relief.

Was the impact on local governments more than the bill predicted?

No. The articles erroneously concluded that the revenue loss to local governments was well above the projection. To reach that conclusion they compared the Fiscal Note’s estimate of the revenue loss to the Issue Review’s calculation of the maximum revenue loss that could have occurred (from the Issue Review, the maximum was $107.2 million). Those two are not the same thing.

The Issue Review (had it been properly understood) clearly states that the loss described is the maximum. The loss minimum is actually $0. What local governments actually lost is somewhere in-between, and likely very close to the loss projected in the fiscal note ($25.9 million from table 4 of the fiscal note). The Fiscal Note estimate assumes local governments set higher rates than they otherwise would have in response to having less taxable value than they otherwise would have. The Issue Review assumed nobody raised rates (which we know is not true). The Issue Review and Fiscal Note had a different methodology on this issue and clearly stated that.

The articles would have undoubtedly been compelled to explain all of this had they actually contacted the author of these documents or made the effort to understand the legislation. Property tax rates go up and down as cities see fit. There is no “legislated” rate increase. Some articles would seem to imply that the legislature has the authority to raise rates. That is just not true, it is the cities that have the expansive ability to raise rates on several types of levies they have control over. To imply that the legislature controls that is just erroneous.

If one is going to debate the impact of SF 295, it is important to interpret the data correctly and have an understanding of the entire bill while doing it.

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