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Home My WebLink About10-14-2014 Local Option Sales Tax referendum presentationI % LOCAL OPTION SALES TAX REFERENDUM COMMITTEE MEMBE Susan Mims, Mayor Pro-tem Tom Markus, City Manager Eleanor Dilkes, City Attorney Marian Karr, City Clerk Dennis Bockenstedt, Finance Director Support: Simon Andrew, Administrative Analyst Cyndi Ambrose, Finance Secretary Room COMMITTEE'S PURPOSE To evaluate the overall feasibility of a I Identify essential factors, including regional and legal considerations, Make recommendation whether the City should pursue a local option sales tax. To make recommendations on tax should be used. how a I % local option sales Consider the City's use of existing resources, Consider potential financial, economic, and operational risks, Consider the inclusive and sustainable values and priorities expressed in the City's Strategic Plan. To make recommendations on the sales and the timing of a public referendum. ESSENTIAL FACTORS IDENTIFIED Iowa City Strategic Plan PropertyTax Reform Legislation State, Regional, and Local Considerations CITY COUNCIL STRATEGIC PLAN Council's major priorities are fostering a more inclusive and sustainable Iowa City through a commitment to: 1) healthy neighborhoods, 2) a strong urban core, 3) strategic economic development activities, 4) a solid financial foundation, and 5) enhanced communication and marketing. PROPERTYTAX REFORM LEGISLATION In May 2013, the State of Iowa passed property tax reform legislation. Fiscal year 2015 was the first year the bill began to take effect; True impact will materialize over the next ten years as the bill's provisions are phased in. The estimated impact to Iowa City is: Reduced property tax revenue of $37 million over the next ten years Additional $14.7 million of revenues to be replaced by State funding. State has history of not meeting its backfill commitments (ex: personal property tax replacement, machinery & equipment replacement) COMPONENTS DIRECTLY IMPACTING CITY REVENUES Residential assessment limitation Commercial/industrial rollback Multi -residential property classification Telecommunication property exemption Summary: Statewide residential growth limited to 3% rather than 4% Effect:Taxable percentage of residential property will grow slower Summary: Commercial & Industrial property valuation rollback set to 95% in FYI 5 and to 90% thereafter Effect: Commercial & Industrial property taxed at a lower percentage; State to backfill losses to City Summary: Establishes new multi -residential class of property for apartments, assisted living facilities, mobile home parks, etc. to take effect in FYI 7 Effect: Re-classifies these properties from commercial to be taxed as residential; 8 year phase -in; No State backfill of reduced revenue Summary: Creates exemption for certain types of telecommunication property Effect: Reduces property taxes for telecommunication companies PROPERTYTAX REFORM SUMMARY Slows taxable growth of residential property Lowers taxable values of commercial & industrial property Treats commercial multi -residential property as residential Exempts portions of telecom property Property tax revenues reduced by$51,694,623 in Iowa City over next 10 years; maximum backfill from State is $14,732,059 .......................... .......................... CITY STRATEGIES FOR REFORM-k LEGISLATION Revenue diversification — to reduce the City's reliance on property tax Contingency/emergency funding —to provide flexibility to react to financial uncertainty Controlled spending and operating efficiency — to reduce overall growth of the City's expenditures that will coincide with the expected slower growth of property tax revenue .................................. .............................. .......................... FEASIBILITY - STATEWIDE Sales Tax Use: Iowa City and Des Moines are the only major metro areas in the state without a I % LOST Des Moines faces additional challenges not present in Johnson County Over 91 % of Iowa jurisdictions have a LOST Ames example FY 14: $7.1 million estimated revenue .... 60% property tax relief reduced levy by $1.84 (nearly $4.3 million in property tax relief) $2.8 million budgeted to fund community betterment projects including human service agency funding a Property Tax Rate Comparison (Levy Rate per $1,000 Taxable Valuation) FY14 FY14/FY13 City Tax Rate % Change Council Bluffs $17.75 -0.56% Waterloo $17.49 -3.95% Des Moines $16.92 0.00% Iowa City $16.81 -2.66% Davenport $16.78 0.00% Sioux City $16.25 1.63% Cedar Rapids $15.22 0.00% Coralville $13.53 0.00% West Des Moines $12.05 0.00% North Liberty $11.03 0.00% Dubuque $11.02 2.23% University Heights $10.90 -0.44% Ames $10.86 1.31% Tiffin $10.62 -11.28% UTILITY FRANCHISETAX RATES cityFee Franchise Rate Davenport West Des Moines Ames Iowa City Sioux City Cedar Rapids Council Bluffs Waterloo Dubuque Des Moines OTHER SIGNIFICANT REVENUES Gambling casino revenues — Sioux City, Davenport, Council Bluffs, Waterloo, Dubuque Electric utility revenues —Ames FEASIBILITY - COUN Voting Procedure A County -wide vote can be called for by a motion or motions of jurisdictions representing at least half of the County's population 2010 Census: Iowa City = 52% of Johnson County population The five contiguous cities vote as a block ........ ........ A simple majority of all voters in those five cities irrespective of jurisdiction will determine if there is a LOST in all five cities The six remaining cities and the unincorporated County will each vote I to determine if there is a LOST in their own jurisdictions r' This process recognizes the negative consequences of having differing tax rates in adjacent jurisdictions �; FEASIBILITY - COUN Distribution of Revenue LOST revenue collected in Johnson County jurisdictions that approve the tax goes into one pool Funds are distributed only to jurisdictions approving the tax Funds are distributed by the following formula: 75% population (most recent census) / 25% property taxes collected (FY83-85) This formula recognizes the regional aspects of who pays sales taxes and the negative consequences of adjacent communities prioritizing competition for retail development Encourages economic development cooperation Examples of distribution formula: a LOST Distribution - All Jurisdictions Approve Jursidiction LOST Revenue I owa City $9,986,000 Unincorporated $4,690,000 Coralville $2,510,000 North Liberty $1,594,000 Solon $262,000 Tiffin $234,000 Lone Tree $174,000 University Heights $144,000 Swisher $116,000 Oxford $108,000 Hills $98,000 Shueyville $70,000 West Branch $10,000 Johnson County LrL ug A a LOST Distribution - Contiguous Cities Only City LOST Revenue I owa City $13,578,620 Coralville $3,287,272 North Liberty $1,994,807 Tiffin $294,094 University Heights $193,483 Metro Area F� 1 and u- rti ev.E N A ..................... .................... .................... ................... .......... ................. ................. IOWA CITY COUNCILACTION Local Options Sales Tax should be pursued and is best revenue alternative to property tax City Council approved the following uses for a local option sales tax: 1) 50% - street and trail improvements, 2) 40% - property tax relief 3) 10% - affordable housing opportunities Annual budget process will determine detailed appropriation of funds within the allowed uses ................................ .............................. ............................ RECOMMENDATIONS Street and trail improvements (50%): Consistent with the City's strategic plan priorities: A strong urban core Healthy neighborhoods Annual revenue could be $4.5 to $6.0 million for street maintenance, annual overlay programs, and street re -construction ICMA Resident survey — only 37% rated City street repairs as good or excellent which was `much below' national benchmark for other communities Streets have suffered deferred maintenance due to the struggling Road Use Tax fund. Current annual street overlay program - $642,665; annual trail program - $50,000; ADA curb/ramp program - $100,000 every other year City ADA curb/ramp replacement program benefits elderly and handicapped individuals as well as bicycles and similar forms of transportation :: RECOMMENDATIONS (CONTINUED) Property tax relief (40%): Consistent with the City's strategic plan priorities: A solid financial foundation Strategic economic development activities Annual revenue could be $3.6 to $4.8 million for property tax relief Could potentially lower the City's property tax rate by $1 value Diminish the need for future property tax rate increases GENERAL FUNDING POTENTIAL $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 2016 2017 2018 2019 2020 2021 2022 2023 Property Tax Revenue ■ Other revenues Revenue Shortfall GENERAL FUNDING WITH LOST $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $ 4- 2016 2017 2018 2019 2020 2021 202: Property Tax Revenue ■ Other revenues ■ Sales Tax Revenue ................................ .............................. ............................ RECOMMENDATIONS (CONTINUED) ......:: : Affordable housing opportunities (10%): Consistent with the City's strategic plan priorities: Inclusive values Healthy neighborhoods Annual revenue could be $.9 to $1.2 million for affordable housing opportunities 75% of funds to be used for housing for households with income at or below 80% of median income as defined annually by federal regulations ICMA Resident survey — only 36% rated City's availability of affordable quality housing as good or excellent which was `below' the national benchmark for other communities Could be dispersed to housing agencies, used for affordable housing projects, or be used by the Iowa City Housing Authority OTHER ISSUES CONSIDERED Sunset clause - I OYears recommended Gives voters a chance to renew Enough time to determine impact of sales tax General public would be more comfortable with end date Referendum timing — General Election in November Better voter turnout/participation than special election Election already scheduled Less expense to taxpayers