Here’s how Iowa City could spend an estimated $14M in local-option sales tax revenue

IOWA CITY — Iowa City will have an estimated $14 million in additional revenue next fiscal year after 84 percent of voters last fall approved a 1 percent local-option sales tax.

The additional revenue will allow the city to decrease the property tax rate, invest in community programs and in public infrastructure in light of recent changes from the Iowa Legislature that restrict the amount of property tax revenue a city can allocate.

The $14 million in new revenue is an estimate from the city staff as the sales tax, which takes effect July 1, is dependent on consumer spending. The sales tax that consumers pay on goods subject to the tax will increase from 6 percent to 7 percent.

Local-option sales tax revenue is collected at the county level and then distributed to participating cities using a formula from the Iowa Department of Revenue that takes into account population and property valuations. Because of last fall’s vote and previously approved proposals in some cities, every incorporated city in Johnson County will have the 1 percent local-option sales tax in effect July 1.

Fifty percent of the revenue must be used for property tax relief, under state law. In Iowa City, 25 percent will be directed toward affordable housing initiatives, 10 percent toward public infrastructure and 15 percent toward community partnerships.

The proposed spending is part of the fiscal 2027 budget, which still needs to be adopted by Iowa City Council.

$7M in property tax relief, capital improvement

The required property tax relief portion of the local-option sales tax can be achieved either through property tax reductions or “avoidance.” For example, the city could use the revenue from the tax to invest in improvements to sidewalks or roadways that the city otherwise would need to borrow money to finance.

The city plans to use about $1 million to be put directly toward a property tax levy decrease. The city is proposing a property tax levy of $15.433 per $1,000 of taxable valuation, a decrease of 20 cents from $15.633 in the current fiscal year. Iowa City’s property tax levy has remain unchanged for the past three fiscal years.

Beyond that, the city proposes to use some of the remaining funds for capital improvements:

$3.5M in affordable housing efforts

Of the estimated $3.5 million in new revenue, the city plans to direct $1.25 million to construction of affordable housing units at Summit Street in north Iowa City.

Ongoing permanent supportive housing support and emergency housing with Shelter House already are accounted for in the city budget.

Certain city assistance programs for down payments, home renovation and emergency rehab are also included in the projected new revenue. The proposed budget also calls for about $350,000 to be set aside.

“We are recommending that we don't budget for the full expenditure of those dollars, and that's again not knowing what those actual collections will be, and knowing that a lot of these expenditure lines are with third-party partners, we don't want to over commit …” City Manager Geoff Fruin said at a budget workshop session.

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$1.4M for infrastructure reserves

The $1.4 million set for public infrastructure improvements will be put into reserves for future projects on the way, including the estimated $70 million Burlington Street Bridge replacement project.

“We see these funds as critical for larger projects going forward, so we anticipate banking these dollars and using them for larger needs,” Fruin told the council.

$2.1M in community partnerships

The city’s community partnerships include city grant programs for human rights, arts and culture, climate action and the county’s child care wage enhancement program.

The largest expenditure is the Aid to Agencies Program which is budgeted at a little over $461,000 and is expected to grow in subsequent years.

“The more we can move some of these grants into (the local-option sales tax), I think the more stable those programs are going to be, because as that property tax squeeze hits cities over the next several years, there's going to be greater competition for those dollars,” Fruin said at the budget workshop session.

Community partnerships also include support for paratransit, pre-apprenticeship programs and the police department’s mental health liaison program.

Comments: megan.woolard@thegazette.com

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