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Home My WebLink AboutWS4 - LOST & Alternative Revenue PresentationItem: WS-4. STAFF PRESENTATION TO FOLLOW: CITY OF lOVVA CITY 41 ❑ East Washington Street Iowa City, Iowa 52240- 1826 (319) 356-5000 Q 19) 356-5009 FAX www.icgov.org Alternative City Revenue Sources DECEMBER 10, 2024 Background FY2023-28 Strategic Plan: "Consider alternative revenue sources ... that can help achieve strategic plan goals, fund infrastructure and facility needs, and reduce reliance on property tax" Revenue diversification provides flexibility to react to the challenging budgetary environment facing the City Property Tax Reforms 2013 Reform: • Rolled back commercial and industrial taxable valuation from 100% to 90% and reduced multi -family property taxability from 100% to the residential rollback rate (currently 46.34%) • "Backfilled" a portion of lost revenue with State funding. Last backfill payment will be in FY26 2022 Modifications: Reduced commercial and industrial taxable valuation rate for first $150,000 and implemented a backfill payment that is projected to be short of actual revenue loss 2023 Reform: • New military and senior homestead exemptions approved (estimated $439k loss in FY26) • Consolidation and phase out of Library and Emergency levies for Iowa City (approximately $2 million in annual revenue loss when fully implemented) • Forces reduced Combined General Fund levy based on taxable valuation growth rate Statehouse is prioritizing further property tax reform this year me Rollback by Assessment Year 90% 81% 78% 80% 68% 70% 60% 64% 50% 40% 30% 20% 10% 56% 55% 53/ 0 56% 54% 8% 440 54% - 46 0% M O N R* l0 M O N R* l0 M O N R* l0 M O N R* l0 M O N 01 01 01 01 01 01 01 01 01 01 01 O O O O O O O O O O O O ri ri ri ri ri ri ri ri ri ri ri N N N N N N N N N N N N 0 State Rollback Rate Residential properties have a reduced taxable rate (now includes multifamily properties) Subject to annual fluctuations based on state-wide property valuation trends 8% decrease in 2023 (1%=—$1.1 million in tax revenue) Over 80 percent of the City's total assessed valuation is subject to the volatility of the rollback Available Revenue Options Charges/Fees for Service Gas/Electric Franchise Fees Local Option Sales Tax Charges/Fees for Service Revenue paid to the City to cover the cost of a good or service The state does not dictate charges/fees The amount charged should not exceed the cost of providing the service May be structured to recoup the full cost, such as with City Enterprises May also cover a percentage of the cost of providing a service (can create cost recovery goals such as fees should cover 50% of the cost) Can explore a variety of changes Increase existing fees: rental inspection permit fees, public facility rental fees, program registration fees, etc. Create new fees: services that do not require a fee Gas/Electric Franchise Fees Council may pass up to 5% gas/electric franchise fees 1% used for fire operations and public works/forestry investment Anticipate using another 1% to help continue fare free transit 3% remains available; each 1% provides just over $980,000 A relatively flat source of revenue that has historically not maintained inflationary growth of public services Must meet specified purposes: Property tax relief Improvement of streets/pedestrian ways and public facilities Hazard mitigation and energy conservation Public safety Investment in public works, public utilities, and public transportation Economic development Franchis W� I Rat,. - Davenport 0% West Des Moines 0% Ames Oho Coralville 1% Iowa City 170 Council Bluffs 2% North Liberty 3% Cedar Rapids 3% Waterloo 4% Dubuque 5% Sioux City 5% Des Moines 5% Local Option Sales Tax (LOST) Annual Taxable Retail Sales in Iowa City 1,400,000,000 c 1,200,000,000 0 4-1 1,000,000,000 L 800,000,000 a 600,000,000 IU Ln v 400,000,000 X x 9 200,000,000 0 o° oti Q° o° ° ti� ti° titi May levy a sales tax of up to 1% Requires approval by majority of voters Ballot must list use of LOST revenue 50% must be allocated for property tax relief Estimate $8.8 million in revenue Set by distribution formula which uses population and property values Revenue is collected in one pool for participating jurisdictions in the County Amount can change depending on communities in County that participate 93% of jurisdictions in Iowa use LOST Real Taxable Sales in Iowa City 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 LOST: Comparison of Metro Cities City dh Started Sunset FY23 Revenue Purpose ]EEK; Des Moines 2019 None $48,456,182 50% Property Tax Relief; 50% Street, Neighborhood and Public Safety Improvements Cedar Rapids 2009 2034 $23,307,090 100% Street Repair Davenport 1989 None $20,026,236 60% Property Tax Relief; 40% Capital Improvements and Equipment Sioux City 1987 None $14,526,602 60% Property Tax Relief, 20% Infrastructure Projects, 10% City Facilities, 10% EDX West Des Moines 2018 None $4,073,188 50% Property Tax Relief; 50% Quality of Life Projects Waterloo 1991 2025 $11,078,429 100% Street Repair Ames 1987 None $9,571,197 60% Property Tax Relief; 40% Community Betterment Council Bluffs 1990 None $10,737,297 100% Streets and Sewers Dubuque 1988 None $10,446,834 50% Property Tax Relief; 20% City Facilities Maintenance; 30% Special Assessment Relief *All cities with 50,000 or more residents currently hove a 1% LOST, except Iowa City and Ankeny LOST in Iowa City 2010-2013: Collected over $34m for flood mitigation projects Dubuque Street reconstruction (i.e. Gateway project) Expansion of the South Wastewater Treatment Facility Riverfront Crossings Park 2014: Failed attempt to re-establish LOST • City initiated vote for all communities in Johnson County • Iowa City proposed 50% for streets/trails, 40% for property tax relief, and 10% for affordable housing Narrowly passed among Iowa City voters, but majority of voters in the contiguous cities had to approve at that time, and majority voted against r LOST: Polco Survey Results How much would you support, if at all, a local 1% sales tax for the following public purposes? Investment in streets, bridges, and sidewalks (repair and new construction) Investment in affordable housing . • Provision of new and modernized parks, trails, and natural areas Investment in nonprofit social services Modernization and expansion of recreation centers and athletic fields Public facility construction and modernization (police, fire, and general government) Property tax relief 0% 20 % 40 % 60% 80% 100% *Margin of Error: 5.9% ■Support Neither ■Oppose Previously Identified Need for Funding FY 2020-24 Pavement Management Program 237 miles of streets Road network Pavement Condition Index (PCI) indicates "Good Condition" performing ahead of most large city peers Findings Projects current revenues, i.e. Road Use Tax, are insufficient to maintain network average pavement condition Delaying projects creates more expensive repairs Identified LOST as a revenue source large enough to maintain pavement condition N ityPCI Projection (LOST) 1DU.0 0D.0 aa.0 713.0 13D 0 DL 5[}.0 413.10 3D.0 2D.0 1 a.0 a.0 -$2.5 Million (Base) �Tz4.25 Million (a.5% LOST) -$13.25 Million (0_5% LOST+Base)�V.5 Million (I% LOST) -I% 1-05T wf Grawth Max Budget {Base + I%LOSTj Other Unique LOST Considerations Large infrastructure projects that would otherwise require a greater reliance on property taxes (borrowing) or utility rates and possibly voter referendum: Road, bridge and utility projects Park and trail modernization and expansion Development of modernization of recreational facilitates (rec centers, libraries, pools, sport complexes, etc.) Government facility renovation or construction to meet demands of a growing community Sales tax can have extreme volatility that can make use for operations more risky A sunset date may complicate the ability to use LOST for internal or external operations Comparison of Revenue Options Charges/Fees for 0 May be changed or initiated by Council and/or 0 Can have an exclusionary effect and/or reduce Service administratively participation • Flexible (e.g. can choose which programs are 0 Revenue impact is typically small and can affected, provide discounts for targeted fluctuate depending on usage and provide less populations, etc.) budget certainty Gas/Electric 0 Can be enacted by Council 0 Regressive (i.e. lower income residents pay more Franchise Fees 0 Somewhat flexible (can apply different rates for as a share of their income) gas and electric, or for different kinds of property Can impact economic competitiveness of the like residential) business environment Local Option Sales Produces significantly more revenue and allows 0 Referendum threshold can be challenging Tax (LOST) for completion of larger projects 0 Regressive, though food for human consumption, • Lowers property tax burden and reduces housing rent/mortgage payments, and prescription drugs costs for some are exempt • Flexible (can allocate to priority needs) • Visitors would help fund services Summary Additional revenue opportunities can help address budgetary pressure Pros and cons for each Need to identify desired strategy There are no silver bullets Inflationary pressures will still likely outpace new revenues eventually Focusing on core services and infrastructure investment is a critical need STAFF PRESENTATION CONCLUDED CITY OF IOWA CITY 410 East Washington Street Iowa City, Iowa 52240- 1 826 (319) 356-5000 (319) 356-5009 FAX www.icgov.org