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Cedar Rapids, Iowa 52401
DES MOINES — A Senate subcommittee started work Wednesday on a massive property tax revamp that gradually would shift the cost of mental health services from Iowa's 99 counties to the state and phase out the $152 million 'backfill' to cities, counties and schools that was part of a 2013 compromise to replace local revenue lost when commercial and industrial property tax rates were cut by 10 percent.
'We need to find a new way to fund this system,' said Sen. Dan Dawson, R-Council Bluffs, chairman of the Senate Ways and Means Committee, at the start of a subcommittee meeting on the multipronged tax overhaul measure. 'We're not saying this is a perfect bill, but we're trying to get to something better and deliver a better system for the state of Iowa.'
Provisions of Senate Study Bill 1253 would gradually repeal local mental health property tax levies and refashion the funding and management of the state's mental health and disabilities services systems, with counties maintaining autonomy. Other elements would phase out the commercial and industrial property tax replacement funding for local governments while adjusting the school foundation percentage to account for lost revenue because of school districts' share of the backfill; eliminate the public education and recreation levy for school districts; establish an additional elderly property tax credit for those above the age of 70; remove the 2018 income tax 'triggers' already included in a previously passed Senate bill; repeal the charitable conservation contribution income tax credit; and require the state to certify the management of property enrolled in the forest and fruit tree reservation property tax exemption program and renew the exemption every five years.
'The question has always been when do we start the phase-out of the backfill. I believe and my colleagues believe that now is the time to begin that discussion,' Dawson told the subcommittee.
Dawson said lawmakers are trying to address longtime, vexing tax policy issues this session because Iowa's economic conditions and surplus budget position — coupled with additional federal relief money — has created 'some capacity to start to do some of these things.' He also noted changes may be needed to offset a possible increase in property taxes due to 'skyrocketing' residential home sales that may portend a record spike in valuations and tax liabilities.
Representatives of county mental health agencies and service providers gave cautious support to the proposed changes if the state followed through on its commitments. One advocate expressed concern the bill did not directly address new commitments the state has made for children's mental health services as a stand-alone program area.
'When a state has a bad economic year, one of the first things that gets cut is mental health services,' said Leslie Carpenter of Iowa Mental Health Advocacy. 'I would much prefer to have a hybrid with some of the local stakeholders involved as well as the state.'
Representatives from the Iowa League of Cities and the Iowa State Association of Counties opposed the 'backfill' elimination, saying the change would undo a key component of the 2013 compromise and result in a tax burden shift to homeowners and rural residents.
SSB 1253 seeks to eliminate the mental health property tax levy over a two-year period, with all county levies reduced to no more than $21.14 per capita for fiscal 2022 and reduced to zero beginning in fiscal 2023.
The bill provides a state appropriation of $60 million in fiscal 2022 — $50 million goes directly to the state's mental health regions on a per capita basis and $10 million goes to a mental health risk pool fund.
In fiscal 2023, the bill provides an additional $65.4 million in state appropriations for a total of $125.4 million. About $120.3 million will be distributed to the regions and an additional $5.1 million will go to the risk pool.
The bill also eliminates the commercial and industrial property tax replacement payments to most local governments over a period of four to six years as the state increases its share of funding for the mental health system. The bill increases the school aid foundation level from 87.5 percent to 88.4 percent, meaning schools would get an additional $65.4 million in state aid to offset the loss of backfill payment and ending the voter-approved Public Educational and Recreational Levy.
Matt Steinfeldt, a lobbyist for the Iowa Farm Bureau Federation, said the bill addressed many topics of concern for his organization, particularly basing regional mental health services on varying property tax collections at the local level.
'Our members believe the state should make mental health a priority in their budget and assume the cost of the system, removing this from the backs of property taxpayers,' Steinfeldt said.
Subcommittee member Sen. Joe Bolkcom, D-Iowa City, said the 'massive' study bill contained a 'hodgepodge' of issues and proposals 'that obviously haven't been vetted adequately,' but was being offered 'because Senate Republicans want to get the attention of the House Republicans to address their tax policy issues, especially the issue of kicking into place the income tax cut that was passed in 2018.'
Bolkcom expressed concern the GOP plan proposed to 'walk away' from a stable, reliable source for mental health funding and replace it with a 'promise' from the state. He said ending the 2013 'backfill' commitment likely will raise some property taxes or force schools, counties and cities to reduce services — including public safety.
'I think eliminating the backfill is going to amount to defunding the police,' Bolkcom said.
Dawson said he was disappointed an effort to address a long-standing issue was greeted by 'politics and cheap shots.'
The bill now goes to the full Senate Ways and Means Committee.
After Wednesday's subcommittee meeting, Senate Majority Leader Jack Whitver, R-Ankeny, called the measure 'one of the more significant bills that we could possibly do' during the 2021 session. He called it a win-win because it would provide $100 million in property tax relief while creating a sustainable source of increased funding for mental health.
'This does that, and it also starts getting that property tax levy off property taxpayers and brings it to the state where we believe it is more sustainable and will have an automatic growth to meet the needs of mental health patients here in the state of Iowa,' he added.
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