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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) .......................... .......................... 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 . ............................... . ............................... .............................. ............................ REVEN U E ALTERNATIVES ..................... (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 ... ............................... .............................. .......... 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 1NWNWWC=0M-M 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 ........ ........ 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 u° 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 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 (CONTINUED) 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 ............... ............... (CONTINUED) 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: ............ 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 ::: . ............................... .............................. 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.