Iowa City likely to explore renewed sales tax

City likely will form exploratory committee to study potential uses

Gregg Hennigan
Published: February 27 2014 | 5:01 pm - Updated: 29 March 2014 | 4:15 am in

IOWA CITY – Iowa City officials are taking their interest in bringing back a special sales tax a step further.

The city likely will form a local-option sales tax exploratory committee to study potential uses and other questions surrounding an extra 1 percent tax on the sale of certain goods.

Iowa City voters in 2009 approved a local-option sales tax to generate money for flood-related projects. In the four years it was in place before expiring last summer, it brought in about $35 million.

During budget talks the past couple of months, city officials and City Council members said a local-option sales tax could diversify the city’s revenues and provide other benefits.

Mayor Matt Hayek said Thursday the city is highly reliant on property taxes to fund its operations and is missing out on revenue with  the significant amount of property owned by the tax-exempt University of Iowa and because of losses caused by state property tax reform.

“I think we have an obligation to consider revenue alternatives, and a LOST is certainly one of them,” he said, using the common acronym for local-option sales tax.

Dennis Bockenstedt, Iowa City’s finance director, recommended the creation of a local-option sales tax committee composed of city staffers and one City Council member in a memo to City Manager Tom Markus released Thursday.

Markus would have to approve the request, which Bockenstedt expects him to do. Markus was out of the office Thursday but in his budget proposal for the fiscal year that starts July 1, he said a 1 percent local-option sales tax could help offset the hit the city will take from state property tax reform.

He also said that a new tax could go toward road work, property tax relief, affordable housing, neighborhood school partnerships and sustainability projects.

Bockenstedt said the committee would evaluate the feasibility of the city’s ability to get a tax approved by voters, make recommendations on potential uses for the money and recommend ballot language.

“The financial impact of implementing a one-cent local option sales tax could be significant,” Bockenstedt wrote in his memo.

A rough estimate, he said in an interview, is the tax would generate $9 million a year.

The committee would submit a report to the City Manager’s Office by Oct. 1.

In 2009, Iowa City voters approved the sales tax by just seven votes. It also passed in several small towns in Johnson County but failed in Coralville by eight votes.

Last November, voters in Cedar Rapids and its neighboring cities approved a 1 percent local-option sales tax. Cedar Rapids will spend the $180 million the tax is estimated to bring in over 10 years on street repairs.

As of November, only 109 of Iowa’s 1,016 towns did not collect the tax, according to the Iowa Department of Revenue.

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