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Home My WebLink AboutWS4 - Local Option Sales Tax Presentation and DiscussionLocal Option Sales Tax JUNE 31 2025 City Council FY23-28 Strategic Plan Financial Strategies: Grow the tax base, consider alternative revenue sources, and leverage outside funding to maintain core services and pursue community priorities while maintaining equitable property tax rates. Action Step 7.9: Consider alternative revenue sources such as a Local Option Sales Tax ... that can help achieve strategic plan goals, fund infrastructure and facility needs, and reduce reliance on property tax. Target Date: FY26-28 Financial Headwinds Revenue diversification provides flexibility to react to the challenging budgetary environment facing the City Local Option Sales Tax (LOST) 101 The State of Iowa has a 6% Sales Tax Consumption tax levied on most sales Several items are exempt from sales taxes i Legislature discussed exemptions for other items this year (toilet paper, laundry soap, vitamins) Local jurisdictions may implement an additional 1% sales tax on local sales Requires approval by majority of voters o Ballot must describe use of LOST revenue o 50% must be allocated for property tax relief 1,000+ jurisdictions (93%) in Iowa use LOST 1A i W E W X W X H �4 0 WMM Rent/Mortgage Groceries Vehicles Utilities Gasoline Hotels/Motels Prescription Drugs/Health Products Potential in Iowa City $1,400.0 C 0 $1,200.0 o 51.000.0 a N $800.0 0 $600.0 $400.0 $200.0 X 9 $0.0 Real Annual Taxable Retail Sales in Iowa City O r--1 cV m Z:t Ln � 0 r- oo M 0 r-i N m � Ln � 0 r- oo M 0 -1 O O O O O O O O O O -1 -1 -1 -1 -1 r.1 r.1 r.1 r -I r -I N N O O O O O O O O O O O O O O O O O O O O O O C"i C"i C"i r1q PV f V f V f V f V PV PV PV PV PV PV N N N N N N N LOST Calculations Revenue is collected in one pool for participating jurisdictions in the County Funds are allocated by a distribution formula based on population and property values $8-10 million est. revenue for Iowa City Changes based on communities in County that participate Based on estimates vs. actuals for N m other communities, may be 0 0 o higher History in Iowa 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 (50.3% yes) However, majority of voters in the contiguous cities had to approve at that time and majority voted against =I r � r Ink- -�. LOST: Compa UrJG==un: Des Moines Cedar Rapids Davenport Sioux City West Des Moines Waterloo Ames Council Bluffs Dubuque rison of Metro Cities 2019 None 2009 2034 1989 None 1987 None 2018 None 1991 None 1987 None 1990 None 1988 None $59,462,764 50% Property Tax Relief; 50% Street, Neighborhood, Infrastructure, and Public Safety Improvements $27,891,953 100% Street Repair $23,353,938 60% Property Tax Relief; 40% Capital Improvements and Equipment $18,231,230 60% Property Tax Relief, 20% Infrastructure Projects, 10% City Facilities, 10% Economic Development 50% Property Tax Relief; 50% Public Safety, Infrastructure, $10,234,176 & Quality of Life Projects $13,757,793 20% Property Tax Relief; 80% Infrastructure Improvement $12,033,283 $13,953,738 $12,440,663 60% Property Tax Relief; 40% Community Betterment 100% Streets and Sewers 50% Property Tax Relief; 20% City Facilities Maintenance; 30% Special Assessment Relief LOST: Comparison within Johnson County �IMMM 4 Revenue qwPurpose Tiffin 2024 None $442,891* 50% Property Tax Relief; 50% Any Lawful Purpose Solon 2015 None $846,569 100% Infrastructure Improvements & Recreation and Public Safety Facilities Lone Tree 2015 None $462,327 50% Property Tax Relief; 50% Community Improvements University Heights 2025 None ** 50% Property Tax Relief; 50% Any Lawful Purpose Swisher 2015 None $304,415 50% Property Tax Relief; 50% Any Lawful Purpose Hills 2015 None $297,561 100% Any Lawful Purpose West Branch 2015 None $21,987 100% Park Improvements, Public Safety, and Public Infrastructure *In effect 6 months **No Data Yet Special Considerations for LOST Facilitates large projects that would otherwise require a greater reliance on property taxes (borrowing) or utility rates and possibly voter referendum: Street, bridge and utility projects o Park and trail modernization and expansion o Development of modern public facilities (rec centers, libraries, pools, sport complexes, etc.) Government facility renovation and construction to meet demands of a growing community and modernization of workspaces to improve employee health and safety Sales tax can have extreme volatility that can make use for operations more risky Identified Needs: Infrastructure IM.0 911.0 FY2020-24 Pavement Management Program 80.0 237 miles of streets 713.0 Road network Pavement Condition Index (PCI) 13a.0 indicates "Good Condition" performing ahead of most large city peers 0.0 �a.o Current revenues, i.e. Road Use Tax, projected to V be insufficient to maintain network average 3a.0 pavement condition 2a0 Delaying projects creates more expensive repairs 1a0 LOST identified as a revenue source iPI Projection (LOST) �$2.5 MIII ian (Base) � _25 MiLlion (151% LOST) �$G.25 Millk3n (0_5% LOST+Base) �$& 5 Million (1 % LOST} -1% LOST wf Growth -Max Budget (Base + 1%LOST) Identified Needs: Public Facilities Strategic Plan: "Design replacement and renovated facilities for operational efficiency, capacity for growth, employee safety and health, resilience, alignment with Climate Action goals, and civic pride." (Action Plan 5.6) Potential Projects Interior improvements at the Senior Center o Land acquisition and construction of a new Fire Station #1 o Recreation center modernization • Joint Public Safety Center with Johnson County Sheriff • City Hall modernization and expansion • Multiple smaller projects (roof replacements, generator replacement, HVAC, lighting, etc.) 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) *Margin of Error: 5.9% Property tax relief 0% 20% ■ Support Neither ■ Oppose 40% 60% 80% 100% rn August n 2025: Adopt Resolution August 29, 2025: Notify Auditor September 5,, 2025: Publish Notice November 4, 2025: Ballot Measure July 1, 2026: Potential Imposition of Tax Staffs Distribution Recommendation o Property Tax Relief ■ Housing Initiatives ■ Streets, Parks, and Public Facilities ■Community Partnerships *Without a sunset clause Property Tax Relief (50%) Proposed Language: "Property tax relief" State Code requires 50 % of LOST to be allocated to property tax relief as of 2019, which may include: Property tax reductions Property tax avoidance (i.e. minimizing future borrowing which would otherwise increase property tax rates or forgoing use of other available levies) Communities commonly achieve property tax relief with a combination of methods, including debt avoidance for infrastructure improvements Related to high level of support in Community Survey for "Investment in streets, bridges, and sidewalks (repair and new construction)" Housing Initiatives (20%) Proposed Language: "Programs and initiatives that increase housing supply and access, including, but not limited to, affordable housing funding, workforce housing gap support, neighborhood reinvestment programs, shelter supports, home improvement/ renovation grants, rental rehabilitation, and other housing projects designated by City Council" Rationale: Facilitates multiple actions in the Strategic Plan, such as implementation of the Affordable Housing Action Plan Greater Iowa City, Inc. is encouraging communities to dedicate 20% of LOST using this language Related to high level of support in Community Survey for "Investment in affordable housing" Streets, Parks, and Public Facilities (20%) Proposed Language: "Maintenance and construction of streets, sidewalks, trails, parks, and public facilities that support arts, culture, learning, recreation, and public safety as designated by City Council" Rationale: Supports Strategic Plan actions related to reinvestment in existing parks and the Senior Center, expansion of trails and parks, and provision of recreation throughout the community Related to high level of support in Community Survey for "Provision of new and modernized parks, trails, and natural areas" 4' �1 Community Partnerships (10%) Proposed Language: "Community partnerships, including, but not limited to, partnerships that support intergovernmental, economic development, arts and culture, and social service priorities as designated by City Council." Rationale: Empowers City to do more to fulfill its Strategic Plan Value of Partnership and Engagement, including increased collaboration with social service, community and economic development, and arts and culture nonprofits Related to high level of support in Community Survey for "Investment in nonprofit social services" Next Steps MAKE DECISION & FINALIZE BALLOT PREPARE EDUCATION SELECT DATE LANGUAGE MATERIALS ADOPT RESOLUTION