CHICAGO – Iowa Gov. Terry Branstad unveiled a proposed $6.5 billion fiscal 2014 budget that offers property tax relief he said the state can afford with an $800 million surplus after several years of belt-tightening and debt avoidance.
“We stand at a place in history where many other states are burdened with debt and looming uncertainty while Iowa is well positioned for unprecedented growth,” Branstad said Tuesday during his annual condition of the state speech.
He used the occasion to highlight the state’s solid fiscal condition and economic development projects including two major new fertilizer plants, one financed with more than $1 billion in Midwestern Disaster Area Bonds. “As a result of the tough choices we made, Iowa is currently in the best financial position in our state’s long and proud history,” he said.
Branstad proposed in his budget across the board property tax reforms that would provide $400 million in relief over a five-year period. The relief is provided by fully funded special tax credits in the next budget, halting future tax shifts between classes of property, and permanently changing the school finance formula so that allowable growth in local taxes is replaced by 100% of state aid.
“No longer will the school aid formula trigger automatic increases in local property taxes,” he said. The reforms include a measure that cuts the current 4% cap on valuation growth for residential property and agricultural land down to 2%. It would apply to all classes of property.
Branstad has pushed for property tax reforms before only to see them staff in a divided legislature. Democrats on Tuesday had little positive to say about the latest plan, although they did say the surplus provided room for some targeted tax relief.
Iowa fared better during the most recent recession than many of its neighbors and has maintained healthy reserves. The primary budget fight last year between Iowa’s Democratic-controlled Senate and Republican-controlled House was over spending levels while the Republican Branstad pushed for a two-year budget instead of the traditional one-year plan. He unveiled both a fiscal 2014 and fiscal 2015 budget plan Tuesday.
During Branstad’s term he has not floated any new state borrowing. State debt has risen primarily to fund former Gov. Chet Culver’s $750 million Iowa Jobs program and a new prison.
The state’s special obligation bonds are rated AA by Standard & Poor’s and Aa2 by Moody’s Investors Service. The state, which does not issue direct general obligation bonds, carries top issuer credit ratings from both agencies.