Cedar Rapids Gazette
By: James Q. Lynch and Rick Smith
Article published: Apr 3, 2008
Pilot plan lets cities enact tax, skirt vote
Des Moines A state legislator from Cedar Rapids has introduced late-inning legislation that would permit up to 10 pilot cities in Iowa to levy an additional 1-percent sales tax without voter approval, enact a local tobacco tax without limit and set other fees — with all the money going to reduce property taxes.
Cedar Rapids city leaders have been advocating for such revenue diversification legislation for at least a year and have been lobbying this year for legislation similar to what was introduced Wednesday by Rep. Tyler Olson, D-Cedar Rapids.
Brian Fagan, Cedar Rapids City Council member and mayor pro tem, was at the Statehouse last night lobbying anew for the new enabling legislation.
Cedar Rapids certainly would line up to be one of the pilot cities.
The proposed bill also would permit the pilot cities to impose local franchise taxes on utilities of no more than 5 percent, to raise hotel-motel taxes from the current 7 percent to 9 percent and to charge tax-exempt properties, except for religious institutions, a fee for police and fire protection.
As proposed, 70 percent of the revenue raised through the new fees would be used to offset commercial and industrial property taxes in the city.
State lawmakers have been talking for years about overhauling the state’s property-tax system, which taxes commercial and industrial property owners more heavily than residential owners.
The other 30 percent of new revenue raised by new fees would be used to provide property relief for all classes of property, including homeowners.
“Cities know they rely too heavily on property taxes, and this will allow them to tailor their revenue sources to better fit their area,” said Olson. “Cedar Rapids is different than Des Moines or Iowa City or any other city.” Olson noted that Cedar Rapids gets about 75 percent of its general-fund operating revenue from property taxes.
Prospects for the bill are doubtful.
Some lobbyists commended Olson for the dollar-for-dollar property tax relief in his bill, but those familiar with the legislative process called it next to impossible to move bills introduced this late in the session.
But House Majority Leader Kevin McCarthy, D-Des Moines, said Olson’s plan “has legs.” “While the global issue of property taxes won’t be dealt with this year, a pilot project, that’s doable,” McCarthy said. Interest groups aren’t as optimistic but say there’s hope because it might be as much as the Legislature does this year in the area of property tax relief.
At the same time, they said there appears to be little interest on the part of leadership — legislative or executive — to address property tax relief this year.
“It’s a difficult issue for us to deal with,” Senate Majority Leader Mike Gronstal, DCouncil Bluffs, said.
Fagan called Olson’s 31-page bill to provide cities with a new mix or revenue options an indication that some in the Legislature are listening to a fundamental issue that is confronting Iowa cities. An analysis done by Cedar Rapids city staffers has shown that cities nationwide count on property taxes on average for about 30 to 35 percent of their operating revenue while Cedar Rapids depends on it for 75 percent of its budget.
Property taxes hit the commercial sectors particularly hard because residential homeowners pay tax on less than 50 percent of the value of their property because of the rollback, Fagan noted.
That means, he said, that the commercial and industrial sectors are subsidizing the residential sector and all those other users of city services who don’t pay any property taxes.
Allowing a local revenueraising experiment will be a first step in making Iowa and the cities in it more competitive, he said.
It’s a good practice, Fagan added, to tie those who use services to the cost of providing them.
Fagan noted that representatives from Cedar Rapids’ major employers, AEGON USA, Rockwell Collins and Alliant, have traveled to Des Moines to lobby on behalf of the city.
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