HomeMy WebLinkAboutLocal Option Sales Tax.pptCOMMITTEE
Report on Findings and
Recommendations
June 17, 2014
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
COMMITTEE'S PURPOSE
To evaluate the overall feasibility of a local option sales tax
Identify essential factors, including regional and legal considerations,
Make recommendation whether the City should pursue a local option
sales tax.
To make recommendations on
should be used.
how a local option sales tax
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)
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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
► Emergency property tax levy:
► $0.27 levy available
► Would generate approximately $840,798 annually
► Given the City's goal to reduce property tax rates for economic development
competitiveness, this revenue option would be inconsistent with that strategic plan
priority
Trust and Agency property tax levy:
All employee benefits not levied
Would generate $1,791,756 or more annually
Also a property tax levy increase and therefore is not consistent with the City's
strategic plan priorities
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REVEN U E ALTERNATIVES
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(CONTINUED)
Utility Franchise Fee: ..............
I% enacted, 5% allowed
A 4% increase in the fee would generate approximately $3,672,916 annually
► Can be passed by the City Council without requiring an election
► A citizen petition could require that it be submitted to the voters
► Franchise fee was originally adopted in 2009 at 2% and then lowered to I% in 2010
in order to maintain the City's economic development competitiveness
► Local Option Sales Tax:
► 1% sales tax available
► Could generate anywhere from $9,000,000 to $12,000,000 annually
► Referendum with other jurisdictions is required
Potential revenue is significantly higher than the other options
Tax revenue also generated from non -city residents
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FEASIBILITY - STATEWI D
Sales Tax Use:
Iowa City and Des Moines are the only major metro areas in the state
without a 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
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FEASIBILITY - STATEWIDE
Property Tax Comparison
Iowa City's property tax rate is on the
high end of major metros in Iowa
Iowa City's rate is significantly higher
than our closest neighboring cities
Cities using LOST are able to invest
infrastructure and community R
amenities and /or lower property tax
rates to attract new residents andq
businesses
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
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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
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A
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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.
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A
LOST Distribution - Contiguous Cities, Solon, Swisher
City
LOST Revenue
I owa City
$13,517,347
Coralville
$3,268,321
North Liberty
$1,981,518
Solon
$335,516
Tiffin
$292,096
University Heights
$191,441
Swisher
$151,969
Metro Area
FEASIBILITY - LOCAL
Flood recovery LOST 2009 -2013
Approximately $35 million generated for South Wastewater Plant and the Gateway
Project
Public communications were remarkably consistent, accurate, and transparent
Prior to the election, staff estimated $36 million in revenue (the number of participating
jurisdictions was then unknown)
Communications consistently stated revenue was for the two projects noted above
Communications also stated that LOST revenue would not fund these projects in their
entirety and that other revenue sources were required
Project estimates have been consistent and accurate
Subsequent LOST votes tend to be more successful, especially when
prior experience instills confidence
RECOMMENDATIONS
Local Options Sales Tax should be pursued and is best
revenue alternative to property tax
Committee recommends the following
option sales tax:
1) 60% - property tax relief,
2) 30% - street improvements,
3) 10% - affordable housing opportunities
RECOMMENDATIONS
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Property tax relief (60%):
Consistent with the City's strategic plan priorities:
A solid financial foundation
► Strategic economic development activities
► Annual revenue could be $5.4 to $7.2 million for property tax relief
► Could potentially lower the City's property tax rate by $1.75 to $2.35 per $1,000 of
value
► Could place Iowa City's property tax rate lower than Cedar Rapids and more
competitive with Coralville
RECOMMENDATIONS
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Street improvements (30%):
Consistent with the City's strategic plan priorities:
A strong urban core
i Healthy neighborhoods
► Annual revenue could be $2.7 to $3.6 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.:::::::
► Funds could also be used for City's ADA curb /ramp replacement program which
would benefit elderly and handicapped individuals as well as bicycles and similar . • . .
forms of transportation �:::
RECOMMENDATION
(CONTINUED)
Affordable housing opportunities (10 %):
Consistent with the City's strategic plan priorities:
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Inclusive values
Healthy neighborhoods
Annual revenue could be $.9 to $1.2 million for affordable housing opportunities
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
Council would need to approve resolution by August 27 :::
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CONCLUSION
1) Adoption of a local option sales tax fits within the priorities of the City's
strategic plan, the community's service level needs, and the City's financial
uncertainties, and the sales tax would have a substantial impact on the City's
ability to achieve its initiatives and goals in these areas;
2) The local option sales tax generally has support amongst the residents
due to the prior successful passage and use by the City;
3) The local option sales tax provides the greatest potential for an
alternative revenue source with the least direct impact on residents due to
part of the sales tax being collected from non -city residents;
4) A local option sales tax recommended to be split 60% for property tax I'
reduction, 30% for street improvements, and 10% for affordable housing;
5) The local option sales tax referendum should be held on the November
general election.