Iowa City committee recommends asking voters for special sales tax

IOWA CITY - A city of Iowa City committee is recommending area voters be asked in November to increase the sales tax.

The so-called 1 percent local-option sales tax would generate an extra $9 million to $12 million a year for the city at a time officials are worried about losing revenue from state-enacted property tax reform and competition from neighboring cities with lower property tax rates.

City Council member Susan Mims noted that the city estimates it could lose $37 million over the next decade as commercial properties are taxed at lower rates.

'I think that makes it imperative for the city to look at alternative revenue sources, and this being one of them,” she said of the local-option sales tax.

Mims was part of the seven-person committee, the rest city staffers, who studied the issue the past few months.

The City Council ultimately will decide whether to put the matter on the Nov. 4 ballot. It will discuss it at a work session on Tuesday. A council vote calling for a referendum would have to occur by Aug. 27, according to the city.

Voter approval would send the sales tax from 6 percent to 7 percent.

The proposal has implications outside of Iowa City. By state law, cities that share a border must vote on the measure together, and it must get more than 50 percent of the total votes cast to pass.

For Iowa City, the voting block would include Coralville, North Liberty, University Heights and Tiffin.

Kelly Hayworth and Ryan Heiar, the city administrators in Coralville and North Liberty, respectively, said Thursday the sales tax had not been discussed by their city councils.

Heiar said he could not speak for his council, but with Coral Ridge Mall being in Coralville and attracting shoppers from across the region, a local-option sales tax would be a good thing for North Liberty.

'We would certainly get more revenue out of it than we would be putting in, so I think from that standpoint it's a positive,” he said.

Hayworth raised that issue, but in a different light.

In an email, he said the Coralville City Council would have to weigh the benefit of having the extra sales tax money versus 'the negative aspects” of how it's distributed.

The tax collected within a county is placed in a special fund and distributed based on population and property tax levies, according to the Iowa Department of Revenue

'Coralville generates a significant amount of sales tax dollars and would not get anywhere close to that back on an annual basis,” Hayworth wrote.

Without naming Coralville, Tom Markus, the city manager in Iowa City and also a member of the committee, said 'neighboring jurisdictions” with lots of retail are dependent on Iowa City residents, as well as shoppers from outside Johnson County.

Johnson County communities voted on a local-option sales tax in May 2009. Each city voted for itself, rather than a block, under special state legislation meant to help communities recover from the historic floods the year before.

Iowa City and several smaller Johnson County communities, including University Heights and Tiffin, approved the tax - Iowa City by just seven votes - and it was in effect until last summer. It failed in Coralville by eight votes and North Liberty by 163 votes.

Iowa City collected $35 million from the tax over four years, which it put toward flood-related projects.

If the tax is renewed, the Iowa City committee recommends spending 60 percent of the revenue on property tax relief, 30 percent on street improvements and 10 percent on affordable housing.

It suggests the tax be in effect for 10 years.

Nearly all of Iowa's towns have a local-option sales tax. Among metro areas, Iowa City and Des Moines are the only ones without it.

Voters in Cedar Rapids and its bordering cities approved a 10-year sales tax last November.

Markus believes that the tax being prevalent in Iowa, along with the reduction of tax revenue from the state reform, would help win votes.

'Taxes in general are a tough sell,” he said. 'But if people understand ...

you have major property tax reform coming our direction, and this is a way to relieve that pressure, I think people can be convinced this is a good thing to consider.”

If the sales tax ends up on the ballot, it would join a $30.8 million bond referendum for a Johnson County courthouse project.

Terrence Neuzil, chairman of the county's Board of Supervisors, said because of Iowa City's potential use of the sales tax revenue for property tax relief, he's not concerned about having two requests for money on the ballot.

'There's a lot of community needs, this is a progressive community, and I think knowing that this request was coming, we'll do what we can at the county level to convince people that we hope it's not a one-or-the-other (decision), but that people will weigh each of the arguments,” he said.