Hiding in the Soup – Property Tax Reform

Making legislation is famously compared to making sausage, but in practice it more resembles hobo stew – everyone throws in whatever they’ve got until it looks somewhat edible. And when it comes to legislative soup-making, nobody’s better at the old “stone soup” con than Terry Branstad.

So we get Senate File 295. Everyone “knows” this commercial property tax reform is a huge benefit to out-of-state corporations, which legislators signed on to with the sort of glee that only runaway bipartisanship can create.

In fact, our commercial property tax soup is almost as much a residential property tax reform, and certainly more of a high-rise apartments tax cut windfall.

When you say all that really fast, it sounds a lot like this.

Here are the major parts of Senate File 295:

1) Commercial property will be taxed at 90% of its value. Not a huge cut, actually, but nothing to sneeze at. For years, commercial & industrial property has been taxed at 100% of its value, while residential has been taxed roughly between 50-60%. Fully implemented, it adds up to about $150 million/year, and the Legislature has promised so hard to use money from the state general fund to reimburse local governments for this lost revenue.

2) Taxable value for residential and agricultural can now grow at only 3% per year rather than 4%. You may have heard that the actual value of your home can go up or down quite dramatically, but your taxes can only increase by a steady amount. More about this in our previous post. This is not a direct or immediate tax cut, it just means that the already scheduled tax increase will be less than it would have been. You probably won’t notice, because your taxes will still go up, but compounded over say the next ten years, it is in fact quite a significant savings. The Legislature won’t reimburse local governments for this.

3) A new “multi-residential” class of property. This isn’t just apartments, but anywhere people pay rent to live. Mobile home parks, yes, but most importantly all senior housing such as “retirement communities,” assisted living facilities, etc, which as you can imagine are a growing share of housing in Iowa. Over the next decade, these properties will see their taxes gradually lowered from the current 100% commerical level to the residential level, which at that point will be 63.75%. That is a 36% cut, by far the largest single cut, percentage-wise, in the whole bill. Volume-wise, it works out to about $50 million statewide, and the Legislature will not reimburse local governments for this. Apartment heavy areas such as Iowa City are especially in trouble.

What does it mean for Des Moines?

Well, the best way to grow the property tax base is to grow the city. Surrounded by suburbs as Des Moines is, this means growing up rather than out. A 36% cut in apartment taxes means apartments have to grow way up. You need about 50% more building to get the same amount of revenue – what would have been a 6 story building now has to be 9 stories. Its time to start a conversation about what could be a transformational moment. Should we encourage that sort of growth? Are we ready for it if it happens? Are we ready to be a real city and not just a collection of suburbs?

William Rock