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LOST in the shuffle

By Lori Lindner
Solon Economist

JOHNSON COUNTY– The City of Iowa City has set in motion the chance for Johnson County and its municipalities to open a new revenue stream.
Iowa City’s council has proposed a one-cent Local Option Sales Tax (LOST) referendum be placed countywide on the Nov. 4 general election ballot.
Concerned about the impacts of several state tax reform measures– including new tax rollbacks on commercial and industrial properties, a limitation on residential assessments, the change in tax classification of multi-family housing from commercial to residential, and a tax exemption for telecommunications properties– Iowa City created a committee to address an estimated $37 million reduction in property tax revenues over the next 10 years. The committee recommended an increase of one cent in the sales tax for a 10-year period, taking it from 6 cents to 7 cents on the dollar.
Under the proposal, the five contiguous cities of Iowa City, Coralville, North Liberty, University Heights and Tiffin would vote as a single block, and a simple majority of all voters in that block would determine the fate of a LOST effective for all five cities. The cities of Solon, Lone Tree, Hills, Shueyville, Swisher, Oxford, a portion of West Branch and the unincorporated areas of the county would each vote to pass or fail the LOST referendum in their own jurisdictions.
While local municipal governments have held brief discussions about the proposal, none have taken formal action. Iowa law requires each jurisdiction to create its own ballot language specifying how the revenues would be spent.
At a joint-government meeting Monday, July 28, Tiffin City Hall was packed with officials from all over Johnson County, listening intently as Iowa City Council member Susan Mims presented the details of the LOST proposal.
She offered an example of the sales tax impact; a typical family of two living in the 52240 zip code with a household income of between $40,000 and $50,000 would pay an extra $104.64 per year in local option sales taxes.
“When people talk about this in terms of being a regressive tax, it’s important that people look at what is not taxed under sales tax,” Mims said. “Things like food, your rent, your utilities if there is a franchise fee, medicine, medical procedures… there is a very long list of everyday necessities that people spend their money on that are not subject to sales tax.” Vehicle purchases, while subject to a one-time 5 percent registration fee, are not subject to state sales tax.
LOST tax revenues would be collected in all passing jurisdictions and put into a pool, then distributed back using a state formula: 75 percent based on population, and 25 percent based on the amount of property taxes collected from fiscal years 1983 to 1985. If passed, the estimated pool of revenue totals about $20 million, with Iowa City getting just under $10 million of it.
Iowa City and Des Moines are the only major metropolitan areas in the state of Iowa that do not implement a local option sales tax, while Johnson, Polk and Warren are the only Iowa counties wherein a major portion of their municipalities do not have a LOST.
“Businesses don’t pay sales tax, people pay sales tax,” said Mims. “When you look at the sales tax paid in Johnson County, a lot is paid by people who do not live here. Many of those people are coming from out of county, but when we go to other counties, guess what? We are paying that local option sales tax and they are keeping it.
A countywide vote can be called by a jurisdiction or combination of jurisdictions representing at least half of the county’s population. The 2012 U.S. Census indicated Iowa City is home to 52 percent of Johnson County’s population. It’s also the reason Iowa City would get nearly half of the new LOST revenues should the measure pass.
Coralville City Council member Tom Gill said he does not support a LOST vote because the proposed allotment was not fair. More equitable was the way the local option tax revenues imposed for flood mitigation from 2009 to 2013 were regulated by a 28E agreement and collected by each impacted community, he said.
“Why is it we can have a flood tax and divide it up by communities, but you come back (with this proposal), and we didn’t even discuss this,” said Gill. “It is not equitable.”
Mims disagreed.
“To me, when so much of the sales tax in this county is paid by out of county residents, and when we pay that local option sales tax when we go to Dubuque or Cedar Rapids and shop, we are just giving away money by not collecting a local option sales tax here. It could benefit this county incredibly for us to do that,” she reiterated.
LOST revenues can be dedicated to any lawful purpose, including street projects, sewers and water plant improvements, disaster mitigation, city facilities, equipment purchases, and property tax relief.
Kingsley Botchway, Deputy Auditor for Johnson County, made a plea for city governments to consider pledging a portion of their LOST revenues to affordable housing, as well.
“With the growing jurisdictions, it would be a very good thing to see some of that money now set aside to look toward affordable housing,” said Botchway. “If we were able to generate money, it might not be enough to solve the problem, but it would help leverage other dollars.”
Johnson County Supervisor Janelle Rettig noted that LOST revenues could be allocated to affordable housing through local nonprofit agencies such as the Johnson County Housing Trust Fund, and that each community could independently decide to do so.
The City of Iowa City has tentatively moved to put 50 percent of its LOST revenues toward property tax relief, 40 percent to street improvements, and 10 percent to affordable housing, though that plan is subject to change, depending on what other cities do with a request made by the Johnson County Board of Supervisors to share LOST revenues.
The county board will place a $30.8 million bond initiative on the November ballot, with the purpose of funding a courthouse annexation and renovation to increase safety and functionality of the existing 112-year-old courthouse. The supervisors have now asked cities to contribute 10 percent of their LOST collections back to the county to help pay off that bond.
“We have a space, safety and security issue for both our courthouse and our jail, so if we are going to ask taxpayers for assistance, is there an opportunity to join together as a community?” posed supervisor Terrence Neuzil. “To take 10 percent of your tax asking and put it toward paying off the bond earlier is a win-win for the community.”
The county’s request would be contingent on 60 percent of voters approving the courthouse bond. Originally, the supervisors planned for a 20-year bond, but that could be shortened if cities decide to designate their LOST revenues to the county.
“Either way, it’s going to go toward property tax relief, either (indirectly) by reducing the increase for a courthouse, or directly,” said supervisor Rettig.
Preliminary discussions by the smaller community governments have leaned against such contributions, particularly when cities have their own obligations.
“Our council talked about it general terms about what we’d like to see on the project list,” said North Liberty Mayor Gerry Kuhl. “I will tell you our list includes about $80 million of capital projects, and our first priority is to get roads and infrastructure in place so the new high school opens on time.”
Johnson County Auditor Travis Weipert said if the large five-city block passes the LOST vote, but the smaller communities do not, “they’re definitely going to come back and want another ballot immediately,” said Weipert. “I hate to say all or nothing– and if you’re upset about the 10 percent, that’s understandable– but if the larger block passes it and the outlying cities don’t, you’re going to miss out on the cut to your communities. And when you want to get back on the ballot, it’s not the county paying for (a special election), it’s the cities.”
Neuzil said it would be helpful, as individual city councils discuss their LOST ballot language that it wasn’t presented with an us-versus-them mentality.
“Yes, it’s the board of supervisor’s responsibility to provide space for things like a courthouse or jail, but it’s not just a Johnson County government problem,” said Neuzil. “Every community can help us. You are either going to pay for it with a sales tax, or if (the courthouse bond) passes, residents are going to pay more through property tax.”
Individual jurisdictions have until Aug. 27 to submit the ballot language to the Johnson County Auditor’s office, but the Johnson County Board of Supervisors by law determines the LOST’s sunset. The supervisors are planning to discuss the ballot initiative this Thursday, Aug. 7, will hold a public hearing on Thursday, Aug. 14, and will likely take formal action the following Thursday, Aug. 21, said supervisor Rod Sullivan.
“Ideally, we’ll hear what everyone has to say prior to August 14,” Sullivan added.