Lawmakers look to cut backfill payments to communities and schools

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State budget shortfall could spell property tax bump

rA proposed bill in the Iowa Legislature could bring about a raise in property taxes, as lawmakers look to scale back funds to local governments, communities and school districts.

In 2013, the legislature passed sweeping tax cuts to commercial and industrial property taxes. The cuts were a bi-partisan effort by legislators at the time to help grow businesses and stimulate Iowa’s economy.

At the time, the legislature decided it would replace or “backfill” the tax revenue cities and schools lost due to the cuts by paying them back with state dollars.  

However, according to a report from the Des Moines Register, businesses expected to benefit most through these lower taxes saved about half as much as the state projected, which in turn, has contributed to the budget shortfalls Iowa legislators now face.

The report says Iowa commercial properties paid about $125 million less in property taxes in 2017 as a result of the 2013 tax cuts. However, that’s $93 million less than the state projected when the legislation was approved.

Over the last three years, the legislature gave $391 million to Iowa’s cities, counties and school districts. But because of the shortfalls, those communities have missed out on $107.2 million during that span.r

rBecause the tax cuts have failed to deliver the projected revenues, officials at the capitol say legislators are forced to make cuts due to the state’s budget situation. 

House Study Bill 678 recently proposed by Rep. Pat Grassley, R-New Hartford, chairman of the House Appropriations Committee, would begin to take away those “backfill” payments to cities and schools starting fiscal year 2018-2019. 

Currently, the backfill payments are capped at $152.1million annually, and the proposed bill would decrease those payments to $25 million per year by 2021 — a total decrease of over $455 million over the next five years.

According to the Iowa Department of Management, St. Ansgar Schools received $146,588 of backfill money for the 2017 fiscal year, and over $305,000 over the last 3 years.

  “We would have to increase property taxes to make up the lost dollars,”  St. Ansgar Superintendent Jody Gray said.

The school would lose a total of $148,132 if the bill were passed and cuts to essential services such as public safety would also have to be made, according to school board documents. 

Gray said the proposed bill puts local schools and governments in a predicament, since their budgets for the following year have already been certified. 

The bill has yet to come out of comittee, but Rep. Jane Bloomingdale said she would vote no if the bill has any provisions to cut backfill funding before 2020. 

The timetable for the bill is still uncertain, as legislators are still trying to piece together budget and tax reform bills.