Iowa cities and counties would have new taxing authority under a plan recommended by a legislative study committee. Under the proposal, local governments would be allowed to charge a variety of new taxes and fees – on everything from utilities to tobacco and entertainment.
In return, cities and counties would have to use at least 75% of the money to cut property taxes. Democratic Senator Joe Bolkcom of Iowa City says the bulk of the relief would be for commercial businesses.
"We’ve seen over the last 30 years a significant tax shift from agricultural property to commercial property, so our effort here is really to say maybe one solution is to try and diversify revenues and use the majority of that money to try and lower property taxes," Bolkcom said.
Opponents of the idea say it only amounts to a tax "shift" and won’t produce actual relief. But, Bolkcom says it appears to be working in other states. "Iowa relies disproportionately on property taxes to pay for local government and our local schools when compared to other states," Bolkcom said. "So, we looked at what other states have done and came forward with a menu of ideas – which would have to be approved locally – and that local money that would be raised…most of it would have to go to reduce property taxes."
The committee’s recommendations followed a warning from a public policy expert from George Washington University. Professor David Brunori says while "user fees" are more popular than ever – they are not a cure all.
"There are inherent market limits on the use of user fees," Brunori said. "You can’t charge more than what people are willing to pay for a particular service or they won’t pay it and they won’t use it. If you were going to have a user fee on collecting trash and it was too high, they wouldn’t pay it and they’d do something else with their trash. They’d throw it in the back yard, they’d throw it in their neighbor’s yard, they’d throw it in the lake…who knows? The system would fall apart."
Brunori testified Wednesday before the legislative committee. "Theoretically, at least, the fee is supposed to pay for the cost of providing the service," Brunori explained. "So, there’s not supposed to be a spill over to give the government extra money to lower your property tax – which is what they’re looking for. So, while (user fees) are…not a replacement for property taxes by any stretch of the imagination."
The Property Tax Study Committee’s recommendations will now go before the full legislature to consider during the upcoming session.