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Iowa considering a massive, multibillion-dollar economic-development plan that includes imposing a statewide property tax t raise serious money for growth projects

The governor and top Iowa lawmakers are considering a massive, multibillion-dollar economic-development plan that includes imposing a statewide property tax to help bring equity to property taxes and to raise serious money for growth projects.

By:
David Yepsen
Des Moines Register

According to Statehouse policy-makers familiar with the discussions, the idea is to borrow around $6 billion and repay it with a statewide property tax of 4.5 cents per $1,000 of taxable valuation on all property. In return, the state would buy out local tax-increment financing districts where property taxes are used for economic-development projects in the areas. The state would assume debts of all these places, but then cap local property taxes in them.

The state would also use some of the money for onetime economic-development projects, such as Gov. Tom Vilsack’s proposed $500 million Iowa Values Fund. It could also be used to finance other economic-development infrastructure projects such as life-science labs or recreational programs. And some would provide additional money for local school construction to ease disparities created by the local-option sales tax.

According to Statehouse insiders, the plan is the brainchild of David Lyons, the former director of the state Department of Economic Development. He is now employed by the Iowa Farm Bureau Federation, where he works on growth projects for the group. He declined to provide details of his plan.

But one top policy-maker familiar with the proposal said, "It is the boldest idea I’ve seen in all my years in state government." Right. It may be too much.

Farmers have come to hate TIF districts because cities and counties are giving tax breaks to certain areas of their community, which farmers feel shifts the tax burden to them. State subsides to local schools are also required to make up for lost school property tax revenues.

A growing number of state officials are complaining that too many TIF districts are created to build things like malls, car washes and golf courses and not the manufacturing or high-tech industries they envisioned helping.

The Lyons plan would, in effect, spread the cost of such development programs to all Iowa taxpayers, but halt the future use of such abatements. Some of the borrowed money would also go for other development programs, such as Vilsack’s values fund.

At one level, the plan has merit. Haven’t we all been grumbling how "we’ve got to do something" to get things going in our state?

One of Iowa’s biggest problems is our antiquated attitude toward borrowing money. We don’t like to do it. As a result, we have some of the lowest per-capita levels of public debt of any state. But this pay-as-you-go ethic means we haven’t gone. Other states and communities have borrowed money, and today have the recreational infrastructure that makes them more desirable places to live. They also built labs and development parks.

Government officials in Iowa must learn that it’s OK to borrow money to build onetime projects, just as individuals do every day when we borrow to buy or build a home or purchase a farm or business. And now may be the time for Iowa to strike. Interest rates are low. Inflation may be coming back. That means we can borrow money now and put it to work while repaying it with cheaper dollars later.

But there is bad news to this plan. First, it’s a tax increase. Politicians promised not to do that, and it will take an artful selling job for Statehouse leaders to explain how we can tax our way to prosperity.

Secondly, this pops out in the middle of a legislative session. Lawmakers and Iowans should be wary of deals that are too good to be true when they come roaring out of nowhere like this. Such ideas are often back-of-the-napkin deals that are poorly thought-out. The two best examples are the construction of a so-called "laser center" at the University of Iowa or the Iowa Communications Network boondoggle.

Also, money should not be borrowed to pay any recurring expenses, such as salaries. And TIFs have proved to be a useful tool for communities to spark development. Maybe the cure is to restrict TIFs, not eliminate them.

And finally, this idea comes from the Farm Bureau, one of Iowa’s most powerful special-interest groups. It’s real easy for any group to suggest someone else pay more so their taxes can be lowered. Historically, farmers have been particularly adroit at getting tax exemptions. (We got a sales tax during the 1930s because someone thought it was a way to lower property taxes. Yeah, right.) We should all realize by now that raising one tax to lower another never works because the tax eaters always nab a piece in the exchange.

But let’s be open-minded here.

In recent years, the Farm Bureau has shown a willingness to do things differently in Iowa, and Lyons has a reputation for being a practical thinker.

The idea is worthy of more study.

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