Central Iowa city administrators are seeking solutions after the Iowa Legislature voted to end the backfill, part of a 2013 law requiring the state to refund local governments for commercial property tax cuts.
The backfill represented $152.1 million annually across the state. Local governments would treat the funds like property tax revenue. Undera major tax bill passed by the Legislature, those payments will phase out over the course of four to seven years, depending on the growth of the tax base.
John Edwards, a Clive City Council member, said the removal of the backfill would have a “huge” impact on smaller communities. He estimated Clive will lose about $525,000 in backfill payments that had been promised by the state.
“The state has lots of money,” he said. “But the cities are the ones who are taking it in the shorts.”
Des Moines will see a $5.3 million annual loss from the backfill, according to City Manager Scott Sanders. That will essentially eliminate the effect of a 2019 sales tax hike that allowed the city to decrease property taxes by 60 cents.
“One step forward, one step back,” Sanders said. “It’s just very unfortunate.”
But some other communities, like Bondurant, expect property development will balance out the loss. City Administrator Marketa Oliver estimated that the backfill represented about $81,000 of the city’s $3.58 million property tax collection.
“We will likely be fine to grow our way out of that without any need for adjustment,” she said. “But for communities across the state who are not so fortunate … effectively, (they) might not have a choice but to adjust their property tax levy.”
Legislative Republicans said in debate on the bill that the property tax backfill was never meant to be a promise in perpetuity. Rep. Dustin Hite, R-New Sharon, justified the change in the closing days of session as a “compromise between property tax payers as well as the rest of the taxpayers that fund the state budget.”
Sen. Claire Celsi, D-West Des Moines, attended Wednesday’s meeting. She criticized the Republican-led decision to remove the backfill, especially as the same tax bill makes a new promise to fund mental health services through a state appropriation.
“They make promises and then a new legislature will come in and sweep them away,” she said. “That’s really what makes me skeptical.”
This article was republished from the Iowa Capital Dispatch.
