♪♪ Republicans propose a major overhaul of Iowa's property tax system.

We have legislators from both chambers and both parties joining us to talk about what's on the table on this edition of Iowa Press.

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Celebrating more than 50 years on statewide Iowa PBS, this is the Friday, March 21st edition of Iowa Press.

Here is Kay Henderson.

♪♪ [Henderson] A couple of weeks ago, the leaders of the House and Senate Ways and Means Committees, the committees that deal with tax policy, proposed changing Iowa's property tax system.

They say it's the biggest overhaul since the 1970s.

It involves more state support of schools at the local level to ease property taxes that Iowans pay to their local school districts and a lot more details that we're going to get into over the next half hour.

Our guests today are, Senator Dan Dawson.

He is a republican from Council Bluffs, one of the people that unveiled that plan.

He is the Chair of the Senate Ways and Means Committee.

Also joining us today is Representative Dave Jacoby.

He is a democrat from Coralville.

He is the ranking democrat on the House Ways and Means Committee.

Gentlemen, welcome back to Iowa Press.

[Dawson] Thanks.

[Jacoby] Thank you.

[Henderson] Joining the conversation, Erin Murphy.

He is the Des Moines Bureau Chief for the Gazette of Cedar Rapids.

[Murphy] So, let's dig into some of those details on this proposal.

And Senator Dawson, we'll start with you.

One of the elements is a 2% cap on the amount of new tax that local government, new tax revenue that local governments can collect from the growth of property tax values.

Help us understand how that will, I assume, accomplish the goal of limiting Iowa homeowners' property taxes.

[Dawson] Yeah, one of the biggest rubs in the last three to four decades in particular is where we have what we call a rate cap system here in the state of Iowa.

A city is capped at $8.10, a county at $3.50 and all these other different levees out there -- [Henderson] That's the levee, right?

[Dawson] Yes, the levee, which they can levee per thousand.

So, what has happened and we've seen in the last 20 years in particular is that when assessment valuation is high, all that comes into the local government, and many times local governments will leave that $8.10 levee where it's at.

So, they take a 5%, 10%, 15%, 20% windfall.

And where the property taxpayer gets confused is a local government official might say, I didn't raise my levee.

Well, if you took a 10% windfall on assessments, that's not really pro-property taxpayer.

The question should always be, when did you last lower your levee?

So, that's where the revenue limitation really is a pro-property taxpayer mechanism that we want to do and kind of migrate from this old system that is a statewide format that really isn't tailored for small cities, small counties, property poor areas and get to a more pro-property taxpayer system.

[Murphy] Representative Jacoby, I know democrats have expressed concerns for making sure that cities and counties, that Senator Dawson just described, are still able to make their budgets whole under these kinds of proposals.

But at the same time, property owners aren't saying, my property taxes are too high.

Do you think this is a way to thread that needle?

How do you feel it should be addressed?

[Jacoby] Well, I think even though the Senator mentions it's an overhaul, I think it's not that big of an overhaul.

What we're still doing is nibbling around the edges.

In fact, whenever we talk property taxes and we're going to fix property taxes, all of the Iowans I talk to, their bologna meter kind of goes off.

They go, we've heard this bologna since 2010, 2011, 2013 for the first major property tax bill, the one we did in the last general assembly.

To me, it's also a little ironic that we're looking at capping local government at 2%, when at the state level we're growing at 4% plus each year in our expenditures.

So, we don't practice exactly what we preach.

I think what's interesting in the proposal, the first round, is not the 2%, but the possible elimination of rollback.

[Henderson] Well, we'll get into that.

But we want to address the 2%.

[Jacoby] I'm sorry for jumping ahead.

But it's impossible not to talk about rollback when we're talking about the 2% also.

So, they're just intertwined and I think it's an important part of the conversation.

[Henderson] Well, the big chunk of this, I believe the estimate is this will save Iowa property owners more than $400 million.

At least $400 million of that deals with schools.

So, the proposal would be that the state would increase its support of local public school districts by $400 million about statewide.

And that would mean that local property owners don't pay that money.

Explain why you're doing that.

And why not go farther?

[Dawson] Well, the biggest reason why we're doing it is if we're going to take an overall look at the system, which we're trying to do inside this bill here, there's a lot of property tax credits that have been layered in over the years and those have always been a bandage approach.

I've always said income taxes, our tax credit system is an apology for bad tax rates.

And the same for the property tax system as well too.

No one has ever been really willing to dig in and actually overhaul this system.

So, when we start to overhaul the system, we free up all of these credits.

And Chairman Kaufmann and I thought it was really important not just to pocket some of these credits, but to actually return them back to the property taxpayer.

And the best way we can in a broad swath do that is through the school mechanism that we have proposed in the bill.

[Henderson] So, what credits are going away?

[Dawson] Business property tax credit.

Homestead credit we're converting into an exemption for the homeowners.

We have a variety of other things as well out there too.

We layered in another appropriations, Senate File 191, that is another over $10 million.

There's all these little line items in the code that we have found throughout these years that, again, as we perform this system the need for those credits don't really necessarily hold that much importance.

And we thought it was important to return those back to the property taxpayer.

[Murphy] Senator Dawson, before we get Representative Jacoby's thoughts on this, I'm sure you've heard this, but there is some skepticism out there whenever the state proposes a plan to backfill, take relief away from the local level.

There's recent historical examples of the state starting to do that and then ultimately phasing that out -- [Henderson] On commercial property tax -- [Murphy] On commercial property taxes.

Why would this be different?

[Dawson] Well, I think there's two primary differences.

One, let's be clear on the backfilled commercial property.

You can pull up House commentary back when that thing was passed that said this was not a promise in perpetuity.

I also remind everyone during that 2021 bill, the local government was asking us for more support on mental health.

So, we repurposed those monies, we didn't pocket it, we repurposed all of those backfill monies for mental health and threw on tens of millions of dollars more to meet that need listing to local governments.

What we're looking at here, when we talk about these property tax credits, why would they be any different?

There's a history of them.

The business property tax credit, we've had on that on the books for over ten years now.

The homestead credit that has been on the book for decades.

These are longstanding appropriations in there that have been very sound.

And the reality is, again, if we're going to overhaul the system, we shouldn't be pocketing those at the state level, the taxpayer should be getting those back.

[Henderson] Representative Jacoby, democrats have talked about raising the amount of state income tax basically that finances local schools to help local property owners for years.

Do you support this element of the package?

[Jacoby] No, because going back to the earlier question, there's not a big trust with state government right now.

It's like when we passed the bill in 2013, I would agree it was not meant to be in perpetuity, but then again it was supposed to be based on some factors that the growth offset the loss.

There was no measurement of growth offsetting the losses for cities and local government.

So, that backfill went away.

I always worry any time we're talking about taking away a homestead tax, I even contend the $400 plus million, I cannot get anyone to confirm that, no one from LSA, no one from the Department of Revenue can confirm that figure that taxpayers would see a savings of over $400 million.

Frankly, I think if we really want to get money back into the pockets of taxpayers, there's one clear way to do it.

We do out of the Taxpayer Trust Fund a refund of $1000 for every homeowner in the state of Iowa.

We also do a $500 refund to every renter in the state of Iowa and we do it by September of this year.

We keep talking about property tax changes and again, none of them have been successful over the last 13 years.

If you're in a group of people and you ask them, raise your hand if your homeowners property taxes went down, you're not going to see anybody raise their hand.

[Murphy] So, what is the democrats' method to adjust property taxes then if not what's on the table or what has been passed in recent years?

[Jacoby] Well, first what we do is just what I mentioned, we do a property tax rebate to homeowners and to renters for five years while we work through a true overhaul of the property tax system.

If you're going to eliminate the homestead tax credit, which I'm not in favor of, you have to look at taxes as a whole of 141 tax credits that are on the books right now.

We need to have a review of each and every one of those tax credits today.

And we haven't done that over the last few years.

The tax expenditure committee has actually been eliminated and that is the committee that were supposed to look at those.

Second of all, what we need to do is honor our state responsibility.

The state responsibility is not passing on costs to local government.

One of the largest costs to local government is the Department of Human Services.

Not many people realize or understand that local government is paying the bricks and mortar for the state Department of Human Services.

And lastly, what democrats would like to look at is the state honoring an age-old pension fund that we did years ago before we reformed 411 and enhanced IPERS, whereas the state met the match for retirement for our public safety officers.

If the state meets the retirement match for public safety, it opens the door for cities and counties to hire more officers and also it also puts more money into the retirement for all of our public safety members.

[Henderson] Senator Dawson, those ideas have been discussed and they're not part of your package.

Why?

[Dawson] Those are tax shifts.

Ultimately, overall, when we talk about property tax reform, we have to do two things.

One, reform the base system on how the tax dollar is taken from the property taxpayer to the local government.

And two, understand and reform the cost of local government.

Everything you just heard there is just basically taking money from one pot and moving it to the other.

Even if we filled up the IPERS pot or built the retirement system pots here, that doesn't change the structure of local government and people's bills will still keep on getting bigger and bigger and bigger, whereas what we're proposing right here is to go back to the bricks in the system, eliminate the rollbacks, get to a revenue restriction.

The biggest concern with property taxes out there is for the fact that every year, and I agree with Representative Jacoby, every year the counties blame the cities, the cities blame the schools, the schools blame the assessors, the assessors blame the state.

And so, like the movie National Lampoon's European Vacation, we go around the clock and say look kids, Big Ben.

That's where Representative Kaufmann and I came back here this year and we started conversations in November because every year when it lands back at the legislature, it's always a bandage approach.

And we have a badly broken system right now.

And that's when we've said, no more bandages, we're going to go back to the brick and mortar and we're going to rebuild this thing from scratch.

[Jacoby] And we agree, that was a good movie, European Vacation.

[Murphy] Is that the roundabout scene you're talking about?

Classic.

We promised Representative Jacoby, we'd come back to it, you mentioned the rollback rate.

That was created in the '70s I believe and partially to deal with inflation without that in place because this plan would repeal that.

What impact does that have?

[Dawson] Yeah, that was built for a different time.

And to be fair to the legislators back then, it was actually probably a very good mechanism.

But the reality is what we've seen across Iowa and particularly in the past two decades, our population slowly increased over the years, but if you look at the rural versus the urban areas there has been massive population moves.

Just in the last census alone we've had 80 counties that actually lost population.

So, when you're still using a statewide tabulation of what the rollback was back in the '70s, that doesn't quite get to the accurate picture of what is happening at the local level.

Some of the biggest complaints we got in House File 718 just two years ago, we saw a lot of cause and effects out of that, but some of the bigger complaints was just what happened to the rollback?

There were a lot of small communities and small counties out there that that was extremely hard for them, which is kind of why we want to get to this new system there, just more of an even revenue limitation across the board.

We can't help small county's growth as property tax, but we certainly don't want to see them penalized versus statewide average.

So, it's more of a customized system I think in the end.

[Murphy] And Representative Jacoby, you said the cap and the rollback are tied.

How so?

[Jacoby] Well, the rollback, as you mentioned, in the late '70s, early '80s, not only due to inflation but due to a farm crisis because that was also the time period that residential was coupled with ag, which is something we really need to look at structurally do decouple residential from agricultural land valuations.

If we look at eliminating rollback, and rollback last year was at 46.34, now it went up to 47.5 or whatever, in essence what it does is you're paying your taxes on half the valuation of your home.

Now, if we eliminate rollback from my first read of the bill, that's going to double because we're going to go from around the 50% mark to 100% mark that we're going to be paying on the valuation of our homes.

That isn't simplifying, that's going to make it more complicated because also part of the bill is to offset the doubling with a reduction.

[Henderson] Let's shift gears and talk about some other tax related issues.

We don't have much time left.

The state is holding in reserves about $6.5 billion, Senator Dawson.

In the past, you have suggested using some of that money in a different way.

Why is that not part of this particular package?

[Dawson] Well, what you're referring to in some of those monies is the Taxpayer Relief Fund.

[Henderson] Which Representative Jacoby has referenced.

Yeah so -- [Dawson] And by code, per the letter of the law, the taxpayer relief fund is supposed to be used for income tax relief.

Property taxes is one of the most important issues we heard in this last campaign cycle and it's a very complicated issue as well too.

And not to convolute all of these different issues out there, those monies are secure there, those monies are going to be used to help pay for this tax cut that we just went and accelerated to 3.8%.

That is still something that Chairman Kaufmann and I actually just spoke about this last week on that sovereign well fund idea.

But I think to really just try to get all of the participants, local government, everyone else at the state level to focus on how to rebuild the property tax system this year, it's just a property tax year.

[Murphy] Another plan that has been introduced would deal with the and would create another sales tax, a property tax relief fund, would be to ask the voters to approve an elimination of the IWILL, the natural resources trust fund that was approved by voters in 2010 but has never been filled because it is triggered by a sales tax increase, which hasn't happened since that was approved.

Senator Dawson, I'm going to start with you and I'll get Representative Jacoby's thoughts.

But the voters approved this.

Why is your plan to say, never mind on that, and create instead of putting that funding into natural resources, water quality, recreation, etcetera and creating another taxpayer trust fund?

[Dawson] Well, to be clear, I was not a cosponsor on that bill and I am not in favor of that bill.

And there's a variety of opinions and variety of viewpoints on property taxes as you just heard here.

I would say when it comes to that, that the Water and Land Legacy Trust was something that was passed bipartisan through two different General Assemblies.

It was supported by 63% of the voters in a red wave year.

I think Iowa has spoken on that issue.

Related to the property tax fund created there in that proposal as well too, I totally understand the spirit of that, but just back to my previous comments, I am not in favor of tax shifts and I certainly would not be in favor of constitutionalizing a tax shift which is proposed in that legislation.

[Murphy] So, I apologize for that, for my lack of homework on that.

Thank you for clarifying.

Representative Jacoby, just real quick on this, I assume you're not in favor of this proposal.

But at the same time, this is something that has been sitting there for fifteen years.

Is it not time to come up with something different?

[Jacoby] I'm going to take the opportunity to agree with Dan on this one because it's very important that the people voted for that over the two cycles.

I'm disappointed.

Even though I don't think a proposal like this has legs, I think it sends an awful message to the people of Iowa.

It sends a message that your vote didn't count, that we're not listening to you, we're not doing anything to help improve the environment even though you gave us the go ahead over a decade ago.

So, I think we need to, on a bipartisan note, push forward for that IWlLL to be invested the way it was supposed to be invested, the way people voted for it.

[Henderson] There's a lot of discussion about the research activities tax credit, which is claimed by some of the state's largest businesses.

It's often a refund to them that is larger than the tax that they actually pay to the state of Iowa.

Senator Dawson, there has been discussion about changing that.

How might it change?

[Dawson] Well, the Iowa Economic Development Authority has actually proposed legislation this year and I think it's a very interesting idea of what they have brought forward to us as opposed to just a credit you claim on your taxes for all of these different entities, more of an application based, to actually show what kind of research you're going to do here in the state of Iowa, putting it down on paper, articulating it year by year.

And if that application is granted, then those monies would be awarded.

We're still taking a lot of input from different stakeholders here.

We want there to be good research here in the state of Iowa, it kind of builds out that ecoprint whether it be technology or other things to really diversify our economy.

But we'll have to find the pathway for it and see if that ultimately succeeds in the end.

But I do think it's a very interesting idea to make it more of an application based as opposed to just a credit anyone can claim.

[Henderson] Representative Jacoby, are you in favor of it?

[Jacoby] I think we need to review all tax credits and the research and development tax credit is one of the largest that we have.

I don't think the bill that we have in front of us in the House right now is appropriate.

It's a penalizing bill saying we will stop R&D credits to the large companies that are using them right now.

One of them is John Deere.

[Henderson] Well, it's a different proposal than the one Senator -- [Jacoby] It is, but they're connected because what we're looking at revamping R&D, which is an after the fact tax credit refund, as opposed to companies that are going through mass layoffs right now, which in the state of Iowa we have over 2,000 people right now on warned notices for layoffs plus another 2,000 people.

I'm more concerned about keeping research and development going in Iowa while we're going through this tough time.

The economy is not good.

The Trump Reynolds economy is not favorable towards Iowans.

And now is not the time to back off our research and development.

[Henderson] Senator Dawson, should the state claw back some of the tax credits that have been awarded to John Deere if they have layoffs?

[Dawson] I think those are probably two different pots.

You have your research wing and you have your manufacturing wing.

I totally understand the spirit on that.

And let me be clear, what Dave said earlier on, all these credits need to be reviewed.

Any time a credit is on autopilot it's not good for the taxpayer, it's not good for the state of Iowa.

But when it comes to terms of claw backs it's part of the discussion there, we'll take a harder look at that.

But those are two different wings in these business models.

[Murphy] We're in our last couple of minutes here, a couple of last things that we'd like to get to.

There is a bill that would limit the state economic development funding that would go to the state's four most populous counties.

I believe that was introduced in the House.

So, I'm curious what your perspective is on that, Senator Dawson, if you've had a chance to look at that one?

[Dawson] Yeah, I haven't had a chance to look at that one yet so I probably won't be able to comment on that.

[Murphy] Okay, Representative Jacoby, it was in your chamber.

What is your initial reaction to that one?

[Jacoby] Well, I think it's absolutely goofy that we're penalizing four or five counties that are quite frankly the biggest GDP in the state of Iowa.

Those counties are what I call giver counties, not taker counties.

They generate more tax base than they bring in compared to 92 other counties in the state of Iowa.

[Henderson] Should the state tax vapes the same way they tax cigarettes?

Yes or no?

[Jacoby] Yes.

[Dawson] I think there's two different levels there of taxation that we're looking at.

But there definitely should be a separate taxation on those.

[Henderson] Recently a group of experts evaluated Iowa's taxes and said that the state will collect fewer taxes than is being spent in the current fiscal year.

When you look at that, Dave Dawson, in one sentence what do you see?

[Dawson] It was pre-planned.

We have a plan.

And we are going to have a successful tax code for Iowans at the end of this.

[Henderson] Dave Jacoby, what do you see?

[Jacoby] I see it's robbing the Taxpayer Trust Fund to pay for ongoing expenses with one-time money and it's sad that the money isn't going straight back to the taxpayer.

[Henderson] The other thing that is being considered is changing limits on what counties can spend these EMS referendum on.

Is that going to happen his year or is that a discussion for the future?

[Dawson] We've actually passed a bill out of the Senate on that to maybe loosen things up a little bit.

I think in terms of EMS, that is going to be an important conversation going forward, again, as we have these population shifts.

We have to look at that system there.

We need to provide rural Iowans quality service.

[Henderson] Speaking of time, we are out of it for this discussion.

Thanks to both of you for being here today.

[Jacoby] Thank you.

[Dawson] Thank you.

[Henderson] You may watch every episode of Iowa Press at iowapbs.org.

For everyone here at Iowa PBS, thanks for watching today.

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