DES MOINES, Iowa (AP) - A substantial property tax cut approved in Iowa two years ago has become a major expense for the state budget and views differ on whether it was a good investment.
The business-focused tax cut, a bipartisan deal, is costing the state budget about $260 million in the current fiscal year, both in tax credits and dollars to help replace lost local tax revenues, according to state data. When he signed it into law, Gov. Terry Branstad hailed the effort as a “win-win” that would help families and make it easier for businesses to grow in Iowa.
But the expense was felt during the budget negotiations in the spring, when lawmakers haggled for months over a limited amount of available revenue. Democratic Sen. Joe Bolkcom, of Iowa City, who opposed this effort, said the cost of the tax cut affected Democratic spending goals.
“It’s pretty obvious that the property tax cut has taken away, at least in the short run, our ability to adequately fund our education priorities,” he said.
Branstad’s budget chief David Roederer called it an important investment. He also noted that the state had some reserve dollars, which helps pay for the program, and that they have built this cost into long term spending projections.
“I think had we not done this, the state would be becoming less and less competitive,” said Roederer, the director of the Department of Management.
Lawmakers in the Democratic-controlled Senate and Republican-majority House approved the tax cut in 2013 after years of failed efforts to lower property taxes.
Under the law, the state is cutting taxable assessments for commercial properties, reducing the tax burden for apartment buildings and limiting the amount that residential and agricultural property values can grow. It also provides a property tax credit for business owners.
The state general fund is spending about $161 million in the current fiscal year to replace some lost tax revenues for local governments. Nearly $99 million is going to the tax credits. The combined cost is expected to increase slightly in the coming fiscal year and then those expenses will hold steady.
It is difficult to assess exactly how many jobs have been created or businesses enhanced due to the tax cut. The state’s unemployment rate has declined over the past year, but the tax cut can’t be directly credited with that.
Peter Fisher, research director for the left-leaning Iowa Policy Project, questioned how much Iowa has benefited.
“A lot of small businesses don’t own their space and are they going to get benefits? Who clearly does benefit is the big box retailers,” Fisher said. “We’ve given away millions to the likes of Target and Walmart, for which we are making nothing.”
But Rep. Thomas Sands, of Wapello, said he had heard from business owner who appreciated the tax break.
“It was coming at a time when they needed the money and they could use it to reinvest,” he said. “I think it’s done what it was intended to do.”
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