By Chris Rants
“I laid off half of the guys in the shop. Everyone in management had their pay cut by a third. But I’m still expected to pay more in property taxes. How am I supposed to do that? ”
That was just a part of the story being told to me by a friend who manages a plant in the steel industry here in Iowa. Unfortunately, it’s not an uncommon tale these days.
Our state faces many challenges today; from a billion dollar budget shortfall to record high unemployment, to the feeling families get that our way of life that we hoped to pass on to our children is somehow slipping away. All of those topics deserve attention – but just for today this article will focus on that question posed by my friend in the steel industry, and every other farmer, business or home owner – what can be done about Iowa’s property taxes.
The National Taxpayers Conference’s 50-state property tax comparison study released last months shows that Iowa’s taxes on commercial property rank in the top 5 in the nation, industrial property in the top 10, and residential property in the top 15. With a tax burden like that, it is no wonder Iowa consistently ranks at the bottom for new business start ups.
There is no silver bullet to fix Iowa’s problem. It’s become too complicated over too long a period time to fix in one step. But there are four smart steps that Iowa’s next Governor could take to start us on the road back to a smarter and smaller property tax system.
First, stop making the problem more difficult to fix. If left unabated, over the next five years residential property taxes will increase by $238 million – with NO levy rate changes. Farmers will pay $239 million more. This is due to the effect of increased taxable values on ag land, and its tie to the residential rollback. The solution is to tie all four classifications (residential, ag, commercial & industrial) together so that the shifting stops. Failure to do so will see almost half a billion in more taxes paid during the next Governor’s term.
Second, create a Property Tax Relief Fund. Additional tax revenue collected by the state would be deposited into the PTRF to be used to lower property taxes in the following steps three and four. Rather than grow the state general fund exponentially as has been done the last three years, lowering property taxes should become a priority.
Third, the fastest and surest way for the state to lift the property tax burden, is to have the state pick up more of the cost of K-12 education. Iowa’s school aid formula essentially consists of the $5.40 base levy, state aid, and an additional levy rate that varies between districts. This year those three combine to generate $5,883 per student. The “additional levy” is dependent upon local property values. Iowa should reduce the amount of the “additional levy” by using a portion of the monies collected in the PTRF. Because total school aid spending is capped at the per pupil amount, such a move would result in a dollar for dollar reduction in local property taxes levied by school districts.
An added benefit of such a move is that it would help equalize the property tax rates between school districts – the chief obstacle of voluntary school reorganization.
Finally, the long term answer to Iowa’s property tax challenges lies in reducing and eliminating what those taxes pay for. We all expect that when we pick up the phone and punch in 911, a police officer or sheriff’s deputy will respond. But is it really necessary to have multiple law enforcement agencies per county? We want to have local schools and nearby attendance centers. But is it really necessary to have multiple superintendents and the amount of administrative staff?
The secondary purpose of the PTRF should be to empower local taxpayers to find new ways to reduce administrative costs while maintaining services. No county, city or school district would be required to participate in this effort to eliminate repetitive layers of bureaucracy – but the power would rest with local taxpayers to decide if they want to experiment with a more streamlined county wide array of services.
To start, Iowa should allow at least five taxpayer initiated countywide referendums on plans to merge administrative services within a county, with the PTRF funding the remaining cost of the consolidated bureaucratic function, while the local property taxes go to actual services.
For example, if the voters of a county decided they would be better served by having only one superintendent of schools for all of their existing attendance centers within the county, then the state would provide the funding for that superintendent, and the local tax dollars would either fund classroom operations, or reduce the local tax burden.
Iowa has a history of offering “sharing incentives” to local school districts; but the past plans have been flawed because they didn’t empower taxpayers to make the decision, have been too small, and too temporary in nature. In addition, they have only been focused on schools, while other forms of local bureaucratic duplication have been ignored. The PTRF would be used to aid local taxpayers in making significant and permanent examples of how Iowa can look in the future.
These steps are not the end, but the beginning of changing Iowa’s property tax system. I’m running for Governor to deliver that kind of meaningful change. My campaign is one of positive ideas on how to improve Iowa. Visit our web page at http://www.rants2010.com over the coming months to learn more and share your feedback. Working together, I know we can get Iowa back on track.
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