DES MOINES (AP) – Gov. Terry Branstad unveiled a budget proposal Tuesday that would substantially cut Iowa's commercial property taxes, saying it was time for the state to take "bold action" to attract businesses and create jobs.
Branstad's roughly $6.5 billion financial plan also attempts to limit property tax increases for residents, allocates new spending for education and establishes incentives to keep more medical school graduates in the state.
"Iowans are entering a period of unprecedented opportunity, and we in this chamber have it within our grasp to help foster this state's greatest economic expansion and quality of life improvement in modern history," Branstad said during his annual "Condition of the State" address.
Branstad said his tax plan will cost $400 million over the next five years, the bulk of that going to commercial property tax cuts. His proposal would gradually reduce the taxable portion of a commercial property's value, so those owners would eventually pay taxes on just 80 percent of the assessed property value. The state would provide funding to local governments to make up any lost tax revenue.
"Our plan to reform and reduce property taxes is an investment in Iowa families and small businesses, but not at the expense of Iowa's local governments," Branstad said.
State lawmakers will assess the budget plan in the coming months. In previous years, the Republican governor has unsuccessfully sought commercial property tax cuts and education reforms. He is hoping that a more collaborative tone, coupled with new blood in the Legislature and a nearly $1 billion surplus might help the case for all his proposals, but response from lawmakers was mixed on Tuesday.
House Speaker Kraig Paulsen, R-Hiawatha, expressed support for Branstad's budget proposal, though he said lawmakers would have to review the details. Branstad's plan did not include any income tax reductions, which House Republicans have sought, but Paulsen said that could still be part of a final deal.
"I don't think that's off the table," Paulsen said. "There's a lot of open doors right now."
On Monday, Branstad announced his proposal to raise teacher starting salaries from $28,000 to $35,000, add incentive pay for teachers and make other reforms. The K-12 education package would cost $187 million over five years. Branstad's budget also includes funding to enable the state's public universities to freeze tuition rates for in-state undergraduate students.
House Democratic Leader Kevin McCarthy of Des Moines questioned Branstad's statement during a speech Tuesday, saying he wants legislative approval of his K-12 education plan before lawmakers determine the general level of state financial support for public schools.
"He kind of issued an ultimatum," McCarthy said. "We're willing to work with you on your reform proposals, but let's not hurt our teachers and schools in the process. That was the low point of the speech."
Under his plan to keep more medical school graduates in the state, Branstad proposed spending $2 million to increase medical residency programs in Iowa. He also hopes to reform Iowa law to limit the damages paid out in medical lawsuits, though previous attempts at similar legislation have failed.
The property tax proposals were the centerpiece of Branstad's budget plan. Branstad has long held that commercial property taxes in Iowa are higher than neighboring states, putting Iowa at a competitive disadvantage. His staff pointed to a report last year from the Minnesota Taxpayers Association and the Lincoln Institute of Land Policy, which ranks Iowa as having the second highest urban and rural commercial property taxes in the nation.
But Peter Fisher, research director of the left-leaning Iowa Policy Project, said the overall business climate in Iowa is in line with other states.
"We've argued in the past and shown the data to support that overall business taxes are not out of whack, that we're about average. That's the context you need to look at this," Fisher said.
Fisher also questioned how the caps on property value increases could impact local governments, which use property tax dollars for roads, police and schools.
"It's not clear how he means to reimburse local governments and if this is something they can rely on," Fisher said.
The head of the state's largest public worker union also criticized Branstad's budget proposals Tuesday.
"Gov. Branstad is using the surplus to award his friends and cronies rather than investing in Iowa neighborhoods," said Danny Homan, president of American Federation of State, County and Municipal Employees Council 61, which is negotiating a new two-year contract and is fighting Branstad's proposal to have state workers pay a portion of their health care costs.