Yesterday Governor Terry Branstad traveled to Hiawatha, the home base of Iowa House Speaker Kraig Paulsen, to sign a wide-ranging bill on property taxes, income taxes, and the earned income tax credit. Senate File 295 passed both chambers of the Iowa legislature with bipartisan support. Every Republican voted for the bill, as did all but six Senate Democrats and thirteen House Democrats, named here. You can read the full text of Senate File 295 here. Bleeding Heartland covered the key points in the deal here.

The property tax law is one of the most important outcomes of this year’s legislative session. It will be a major theme in next year’s campaigns for governor and the state legislature. After the jump I offer five perspectives on this law: three from supporters of the deal and two with a gloomier view of its likely impact.

Governor Branstad: “The largest tax cut in Iowa history”

Although Branstad initially called for much larger commercial property tax cuts than what’s outlined in Senate File 295, he enthusiastically supported the compromise that emerged during the final days of this year’s legislative session. His office’s press release about the bill signing yesterday sets the tone for many re-election campaign advertisements:

Gov. Branstad today signed Senate File 295 into law, issuing the largest tax cut in Iowa history.

Branstad held the signing ceremony at Hawkeye Ready-Mix Concrete in Hiawatha, where he recognized the support of many individuals involved in this historic reform.

“Today, the largest tax cut in Iowa history will become law. I am proud to say this tax cut passed with bi-partisan support in both the Iowa House and Iowa Senate,” said Branstad. “This tax relief bill will put more money in the pockets of Iowa families and make it easier for Iowa businesses to invest and grow in our state. I am proud to say that today, we make it easier for Iowa families to grow and thrive in the Heartland of America.”

Lt. Gov. Kim Reynolds acknowledged the bi-partisan efforts.

“In Iowa, a group of thoughtful leaders differentiate themselves by a commitment to working together, and that commitment to working together is what helps make Iowa so great” said Reynolds. “This is a tax cut that will help Iowa families, farmers and businesses grow and prosper.”

Over ten years, this bill will provide an estimated 4.4 billion dollars in property tax relief for Iowa’s hardworking taxpayers. Every class of property will see permanent property tax relief, with agricultural and residential property tax payers saving an estimated $500 million annually by year ten. On top of all the property tax relief, the bill includes nearly 90 million dollars in annual income tax relief.

It’s worth noting that none of the Democratic state lawmakers considering a run for governor next year are in a position to challenge Branstad’s spin on this law. State Senator Jack Hatch, Senate Majority Leader Mike Gronstal, and State Representative Tyler Olson all voted for the final version of Senate File 295. None of the statehouse Democrats who voted no will run for governor.

Iowa House and Senate Republicans: Tax relief for every Iowan

House Speaker Kraig Paulsen and Senate Minority Leader Bill Dix hailed the property tax bill as the top achievement of the 2013 legislative session. Here’s an excerpt from Paulsen’s closing remarks to colleagues before adjournment.

At the start of the 2013 session, I outlined an action plan to promote a strong Iowa – one that encompasses a strong economy, strong budget leadership and strong schools and communities. As we close the session, I believe we have fulfilled this commitment to Iowans.

Iowa has the third highest commercial property taxes and the 16th highest residential property taxes in the nation. I pointed out at the beginning of session if nothing was done to address this problem, the hardworking taxpayers of Iowa were staring down the barrel of a $2.6 billion property tax increase over the next 10 years, with the majority of that falling to homeowners. Homeowners have been and would continue to be shouldering much of the burden as the rollback turns into the roll up.

Iowans have been very clear that they want property tax reform and relief and we were able to deliver for them in a way that has never been done before. For over a decade, the legislature has wrestled with this issue without success.

We passed bipartisan tax relief and reform that:

-Includes property tax relief for all classifications of property.

-Is meaningful, inclusive and reliable reform so taxpayers can count on relief from year to year.

-Ensures residential taxpayers receive as much relief as commercial taxpayers.

-Limits assessment growth from 4 percent to 3 percent on ag and residential taxpayers.

-Includes a 10 percent rollback on taxable value for commercial and industrial property.

-Is $560 million in property tax relief, once fully implemented.

-Additionally, this bill enacts a permanent mechanism for the taxpayer trust fund tax credit, giving any overpayment back to taxpayers.

This absolutely will make a difference for every Iowan.

Those points will be a central focus of House Republican re-election campaigns, and perhaps also Paulsen’s campaign for Congress in the first district.

Senate Minority Leader Dix isn’t running for higher office in 2014 but will make the property tax bill a big selling point for Republican senators. From his closing remarks:

I am particularly proud of the historic property tax reform we passed in this body today. We made good on a promise that has been repeatedly made to Iowa taxpayers.

Over the coming years, the property taxes on all Iowans will be reduced by more than a half a billion dollars. That money remaining in the pockets of Iowa small businesses and families will help create jobs and expand opportunities for people to decide how to invest and spend their hard earned dollars. I assure you, they will make good decisions and our great state will flourish.

Iowa Senate Democrats: Working together to solve a long-term problem

Senate Democratic leaders welcomed the property tax deal, but in a more nuanced way. This compromise wasn’t the top point mentioned in an end of session wrap-up, and it got third billing in Gronstal’s closing remarks to colleagues. Excerpt:

Last November, Iowans elected a Democratic Senate and a Republican House and Governor.

Iowans voted for divided state government, and when this session started, many people predicted gridlock.

But gridlock is not what Iowans want, and gridlock is NOT what they got.

Iowans voted for divided government, not dysfunctional government.

No Iowan wants our state government to imitate what’s happening in Washington, DC.

That doesn’t mean this session has been easy.  Each caucus has its own priorities.

Senate Democrats, for example, are focused on strengthening and expanding Iowa’s middle class.

We believe that the more Iowans with good jobs, stable homes, great neighborhood schools, and affordable health insurance, the better Iowa’s future will be.

Because we all have our own priorities, governing is about finding common ground-especially finding common ground with people you do not agree with.

Find common ground, and you will be successful.  Find common ground, and you move your state forward. It is that simple.

I want to thank President Jochum, Speaker Paulsen, House Majority Leader Upmeyer, Senate Republican Leader Dix, House Democratic Leader McCarthy and every member of the Iowa House and Senate.

I want to thank you, because this year, as the results of this session make absolutely clear, we did find common ground, we were successful, and we are moving Iowa forward.

The 2013 session of the Iowa Legislature will be remembered as one of the most productive in recent history.  Here’s why:

Education reform:

Last year, we passed education reforms to help children learn to read by the end of third grade, but it wasn’t funded.  This year, we not only funded those reforms, we also increased basic state support for local schools for the next TWO years while raising standards, improving teaching, and encouraging innovation.  The funding we provided to the Regents will allow Iowa State, the University of Iowa and the University of Northern Iowa will freeze tuition for the first time in 30 years

Health Reform:

Thanks to the health care compromise which created the Iowa Health and Wellness Plan, 150,000 working Iowans will finally be able to go to a doctor in their community when they need to. We also approved 42 million dollars to continue the reform of Iowa’s mental health delivery system.

Tax Reform:

For 35 years, Iowa legislators tried and failed to address property tax inequities.  This year, we did. We approved the largest property tax cut in state history.  It includes a Main Street commercial property tax cut which is especially helpful to small businesses and a tax cut for the working families that are home to almost 40% of the Iowa’s children.  We also fully funded all property tax credits.

In other interviews Gronstal has similarly emphasized that all sides had to give and take to get a tax deal.

Henderson: Mr. Gronstal, is this significant tax relief or incremental tax relief?

Gronstal: I’d say it is maybe half way between significant and incremental. It is the biggest tax cut in the history of the state to my knowledge. So, it is significant in that respect but are people going to, you know, file their income taxes and go, you know, wow, it’s time to buy a new boat? No, probably not. So in that respect it’s moderate, but we also have — we built in an earned income tax credit for the working poor in the state of Iowa. Targeted tax cuts for commercial property for the state of Iowa. Commercial property taxes have been identified as a problem for the last 35 years and this legislature is the first one in 35 years that was actually able to do something about it and then there are elements that all three entities got. The governor got across the board reduction in the value; we created small business tax credit on commercial property. We have apartment taxes that are now going to match residential over time.

Iowa Fiscal Partnership: A costly giveaway to businesses that didn’t need it

The Iowa Fiscal Partnership, a collaboration between the Iowa Policy Project and the Child and Family Policy Center, opposed the property tax deal and released this statement after lawmakers approved Senate File 295.

IOWA CITY, Iowa (May 23, 2013) – The nonpartisan Iowa Fiscal Partnership today released the following statement about the close of the Iowa General Assembly 2013 regular session. This statement is from Peter Fisher, research director of the Iowa Policy Project:

“Over the long term, the late-session deals may force lower expectations in Iowa for critical services. Forward steps were clear: The Medicaid expansion will address needs and protect state revenues, while the Earned Income Tax Credit expansion is an important but small nod to a more equitable income-tax structure.

“The property-tax reform package, however, will be costly and will challenge cities, counties and schools to deliver what Iowans have come to expect. It offers big breaks to business property owners – while costing significant sums in local services at a time of continually improving state revenues.

“As we have maintained, the argument for property-tax reductions has been politically inspired, rather than an economic necessity. Business tax cuts have become standard operating procedure at the Statehouse. In fact, it is quite likely that next session we will see calls for a new round of business tax cuts, this time through the income-tax code, which already barely touches big business. All this comes despite the fact that Iowa already is very competitive in its business tax environment.

“The greatest impact of the property-tax share of the legislation will be ultimately to reduce services – or increase taxes on individuals – because of these latest giveaways to business. It is ironic to see cities, counties and schools taking a hit when state revenues are coming in so strongly. While some of the local revenue losses will be tempered by state reimbursements, there is a projected net loss to local services of $741 million over 10 years beginning in Fiscal 2015 – about three-quarters of a billion dollars.

“The legislation ties the hands of local officials whom taxpayers elect to provide the level of services they need and want. It further sends a message that local governments can be expected to need to cut services the next time we head toward a recession. Iowa’s legacy over the last decade-plus has been to scale back, in good times or bad.

“One important and positive step offered by the legislation was a provision to expand Iowa’s Earned Income Tax Credit (EITC), which is both good fiscal policy as it eases the tendency of Iowa’s income tax system to overly tax low-wage workers, and good economic policy as it encourages work and puts money into the local economy.

“While that piece of the bill – which is projected to cost $30 million next year – addresses a real issue in Iowa’s tax structure, the so-called ‘Taxpayer Trust Fund Tax Credit’ that has been added does not, and is more costly. The credit next year is projected to cost almost three times the EITC increase ($88 million), but is not necessary.

“Many issues with budget impacts are covered by the major deals struck at the end of the session. These will require further examination in the coming weeks and months to understand their effects.”

Local government officials: Big cuts in public services coming

The Iowa League of Cities and State Association of Counties were unable to stop Senate File 295. They favored the approach offered by Senate Democrats, which would have protected local governments from revenue losses. Many local officials are now worried about the impact on their budgets. Few are as outspoken as Johnson County Supervisor Rod Sullivan, who gave me permission to repost this “salvo” from his blog.

*Property Tax Reform

        The Iowa Legislature adjourned, but not before making the biggest changes to Iowa’s property tax system in decades!

        You can read the details several other places, but here is the scoop from an Iowa City/Johnson County perspective:

        Johnson County will lose about $650,000 in year one; Iowa City will lose about $1.5 million. It gets much worse as the years go on. Last year, we had $650,000 in new revenues, but $1.2 million in built in expenses (contracts and insurances). We bridged the gap with reserves. We cannot do that another year without resorting to cuts. Though I will be fighting against it, I expect all (or almost all) of our block grants to local nonprofits to be cut. Again, I’ll vote against it, but it seems inevitable.

With the new caps on growth and the impact of TIFs [tax-increment financing districts], we simply have nothing we can do except cut.

        So businesses got property tax cuts they did not need. In exchange, the public gets cuts to public safety, roads, public health, human services, transportation, and all the rest. It is not a good trade.

        I was angry to see the local Chamber of Commerce trumpeting this legislation, including saying it was “too modest”. I hope they will still take credit for the cuts this fall when 25 of their member organizations (Neighborhood Centers, DVIP [domestic violence intervention program], Big Brothers Big Sisters, Crisis Center, Shelter House, etc.) experience huge cuts in income, then lay off staff. We will see how proud they are then.

        The single person most to blame for this debacle is Senate Majority Leader Mike Gronstal. He ruined his own legacy, and for what?

        There are three REALLY important things to understand in this whole debate:

1.) There was no crisis. You can spin the tax issue several different ways, but allow me to quote the experts at the Iowa Policy Project: “A recent study by Ernst and Young for the Council on State Taxation found Iowa’s overall state and local taxes on business are lower than average, and that we were tied for 29th among the states – only 20 states had lower taxes. This includes corporate income, individual income, sales, and property taxes falling on businesses of all kinds.”

“For property taxes, the complaint has little merit because footloose companies are routinely provided large rebates and other incentives through tax increment financing that offset a major share of their property tax bill.”

In short? Iowa’s businesses did not need a tax cut. And out of state corporations such as Wal-Mart CERTAINLY did not! Just think – we traded funding for DVIP [domestic violence prevention] in exchange for a tax cut for Wal-Mart. And the local Chamber applauds. Wow!

2.) Let’s say you have never listened to Peter Fisher – or any economist – discuss rents. Let’s say I haven’t run their stuff here many times over. Here is your reminder: rents are a function of supply and demand, NOT taxes! It is that simple. Taxes affect rents so minimally as to not even matter. It has been proven worldwide and locally time and time and time again. Mobile home park owners will not be passing their tax cuts down to folks who rent lots. Apartment owners will not be passing their tax cuts down to folks who rent apartments. Nursing home owners will not be passing their tax cuts down to their residents. Doesn’t happen. Won’t happen. So if that was your reason for supporting this legislation, you are a fool.

3.) There WAS a much better way. Senator Bolkcom and the Senate Democrats have long had a proposal out there to offer commercial property tax cuts through a system of state credits. While this would not have fixed the whole tax system, it would have cut commercial property taxes while leaving local governments whole.

So the Legislature dealt a critical blow to Iowa City and Johnson County. Thanks to Senators Bolkcom and Dvorsky and Representatives Mascher, Lensing, and Jacoby for voting to protect local government!