Council mulls sales tax option

BY PAUL OSGERBY | JUNE 18, 2014 5:00 AM

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Recent state tax reforms have Iowa City officials questioning whether a new tax levy that they say would provide an adequate source of revenue should be placed on the November ballot.

And while city councilors were engaged in back-and-forth discussions at Tuesday evening’s work session, they did not reach a decision on the levy, which is meant to be in lieu of raising property taxes.

Mayor Matt Hayek said the logistics behind the proposed tax are still in their infancy, and so they need to be reconsidered further.

Last year, the state of Iowa passed tax reforms that will begin to take effect July 1, the beginning of fiscal 2015.

Many predict that the new regulations will hinder the city’s financial ability for maintaining public infrastructure.

By adopting a local-option sales tax, said Dennis Bockenstedt, who serves as the city’s finance director and serves on the Local-Option Sales Tax Exploratory Committee, the 1 percent additional sales tax could potentially generate $9 million to $12 million annually.

The model could be later adopted by neighboring Johnson County communities, which would create a larger pool of revenue.

The money would then be distributed evenly across the participating municipalities based on population and revenue earned. Each local government, including Iowa City, would decide on how the money would be spent.

Bockenstedt proposed a model that could allocate the collected revenue specifically across Iowa City into three areas: Property-tax relief would account for 60 percent, while street maintenance and affordable housing would account for 30 percent and 10 percent, respectively, he said.

But the preliminary numbers left some of the councilors in dissent.

Councilor Jim Throgmorton argued that there was an ambiguity in the language about how money would be allocated for street repairs and potential construction of new city streets.

Having previously voiced support for expanding affordable housing in the city, Councilor Kingsley Botchway said he would like to see more funding devoted to new affordable projects. 

City Manager Tom Markus said allocations for expanded affordable housing should remain at 10 percent under the proposal.

He called the option of not adopting a new local-options sales tax alongside other area communities the “biggest threat” facing the city.

The proposed figures, he maintained, are only preliminary, and they will need to be inviting for voters to approve them.

“[Most importantly] what’s palatable to the public,” Markus said about the allocations.

The City Council plans to hold another special work session meeting in the coming weeks to further investigate the language and details of the proposed tax in attempts to put it on the November general-election ballot.

The next City Council meeting is scheduled for July 1.

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