Local officials warn city and county services will be drastically reduced if the legislature approves the governor’s plan to reduce commercial property taxes.
Unlike residential homes or agricultural land, commercial property is currently taxed at 100 percent of its value. Governor Branstad recommends reducing commercial tax rates to 60 percent for any new construction and, over the next five years, gradually reducing that rate for existing commercial property to 60 percent.
Alan Kemp, executive dirctor of the Iowa League of Cities, says cities agree that commercial property taxes need to be reduced, but he says Branstad’s proposal is too precipitous.
“All cities are going to lose, but generally speaking larger cities are going to lose a higher proportion just simply because they’ve got, as a percentage of their property, more commercial property valuation,” he says.
The Iowa League of Cities estimates the City of Des Moines would collect $56 million less in commercial property taxes over the next five years and Cedar Rapids would collect $38 million less in commercial property taxes during that period. Scott Sanders, the finance director for the City of West Des Moines, doubts his growing suburb would grow enough to off-set the $32 million it would lose in commercial property tax payments over the next five years.
“West Des Moines, obviously, is known as a high-growth community,” he says. “If West Des Moines is going to struggle to grow out of this proposal, I can’t imagine how other cities would.”
John Gilliland of the Iowa Association of Business and Industry says his group is disappointed industrial property isn’t included in the governor’s tax-reduction plan. But Gilliland suggests Branstad’s proposal may be a worthy first step as commercial property taxes have increase by 51 percent over the past 10 years and businesses are over-burdened.
“That equates to $1.5 billion in just 10 years,” Gilliland says. “So clearly we’re in a model is just simply not sustainable.”
House Republicans are considering other property tax reduction schemes, including one that would reduce the rates on all classes of property — residential, agricultural, commercial and industrial. To accomplish that, the state would pick up a larger share of school district costs which are now borne by property taxpayers.