Business leaders praise Reynolds’ budget proposal, including new transit funding plan

By: - May 5, 2021 5:19 pm

DART, the Des Moines Area Regional Transit Authority, runs bus routes and other mobility services. (Photo courtesy of DART)

A budget compromise proposed by Gov. Kim Reynolds Wednesday contains many of the legislative priorities of Iowa business groups and a plan to fund transit systems in part with hotel-motel taxes.

Reynolds’ plan would set up a new round of tax cuts by removing economic thresholds, or “triggers,” required under previous legislation. It also would shift funding for mental health away from property taxes. 

The governor’s proposal also would raise workforce housing tax credits, create a new energy infrastructure loan program and add language that would allow local government transit agencies to seek a hotel-motel tax increase to offset property taxes. 

“The Iowa Business Council is very enthused at the compromise proposal the governor unveiled today,” said IBC Executive Director Joe Murphy. “Expanding programs that provide increased child care eligibility and increased housing opportunities is critically important as Iowans continue to recover from the pandemic.

“Additionally, removing the triggers from the 2018 tax reform legislation will make Iowa more competitive and allow businesses to better plan and allocate capital,” Murphy added. “We believe this compromise sets the foundation for future economic opportunity and success for all Iowans.”

Andrea Woodard, senior vice president of government relations for the Greater Des Moines Partnership, welcomed the proposed additional funding for workforce housing and investor tax credits, along with the push for improved child care access.

“The proposed compromise outlined by Gov. Reynolds included a number of Partnership priorities including workforce housing investment, consideration for child care access, addressing the waiting list for the angel investor tax credits and an additional revenue option for public transportation,” Woodard said. “We have also seen a strong commitment to broadband investment when the governor signed House File 848 and are encouraged by the proposed appropriation by the Legislature.”

Hotel-motel taxes proposed for transit systems

Erin Hockman, chief external affairs officer for the Des Moines Area Regional Transit Authority (DART), said the proposal would allow the systems to set a transit-related hotel-motel tax of up to 5%, if local voters approve in a referendum. For DART, that would mean as much a projected $7.8 million that would help member cities hold the line on property tax levies. As the area recovers fully from the pandemic, receipts likely would grow as hotels and motels get busier, she added. 

Hockman said the idea isn’t to raise more money for DART. The agency has been pushing lawmakers to allow DART to diversify its income so it doesn’t add to what local leaders consider heavy burdens on local property taxes. In some cases, cities are near a state-imposed limit on property taxes.

Few metro systems around the country are so heavily reliant on property taxes, which are the major source of DART revenue along with fares, Hockman said. Many others use hotel-motel taxes or sales taxes to run their systems. 

DART has had the power to levy property taxes since 2006. Those taxes cover 63% of DART’s annual $37 million budget.

The member cities all have their own tax rates, which would be offset by 5 cents per $1,000 taxable valuation to 42 cents per $1,000, Hockman said. 

The hotel-motel tax discussion came after lawmakers made it clear they want to take away “backfill” funding related to previous tax cuts. That would mean a loss of $780,000 a year in revenue for DART.

If lawmakers approve the proposal and Reynolds signs it, the DART commission will consider calling for a referendum, which could be as early as November, Hockman said. The hotel-motel taxes would come into play in the fiscal year 2023 budget.

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Perry Beeman
Perry Beeman

Senior reporter Perry Beeman has nearly 40 years of experience in Iowa journalism and has won national awards for environmental and business writing. He has written for The Des Moines Register and the Business Record, where he also served as managing editor. He also is former editorial director of Grinnell College. He co-authored the recently published book, "The $80 Billion Gamble," which details the lottery-rigging case of Eddie Tipton.