Johnson County cities plan to advance 1% local-option sales tax to voters

Johnson County’s three most populous cities are all moving forward with plans to put a 1 percent local-option sales tax on the ballot for the November general election in an effort to diversify revenue sources in light of property tax reform at the state level.

Under Iowa law, 50 percent of local-option sales tax revenue must be put toward property tax relief. How the other 50 percent of revenue is used is up to municipalities to decide. A simple majority vote is required to pass the tax, which would go into effect July 1, 2026.

Coralville, Iowa City and North Liberty all plan to put language in front of voters that would allow for the other 50 percent of revenue to be used for a mix of public infrastructure projects and social service efforts, without a sunset date on the tax. The language and exact uses varies across the municipalities.

All local-option sales taxes are collected at the county level and then distributed to participating cities using a formula from the Iowa Department of Revenue that takes into account population and property valuations. That means the expected revenue each city can collect from the tax depends on which cities’ voters approve the tax.

In Johnson County, voters in Swisher, Solon, Lone Tree and Hills passed local-option sales tax measures in the mid-2010s. Tiffin passed a local-option sales tax in fall 2023, and University Heights in fall 2024.

In 2014, due to state laws at the time, the cities of Iowa City, Coralville, North Liberty, Tiffin and University Heights voted on a local-option sales tax as one bloc. The measure was rejected by 54 percent of voters.

North Liberty

The North Liberty City Council is the first of the three cities to pass a formal resolution putting the tax on the ballot in November, without a sunset date. City staff estimate the sales tax could provide North Liberty with $1.7 million to $3.9 million in revenue each year.

The ballot language states that tax revenue will be put toward “50% for Property Tax Relief; and 50% for capital projects, including but not limited to, fire stations, community center upgrades, parks, trails, and other projects identified in the City’s Capital Improvements Plan; and for programs and initiatives that increase affordable housing supply and support neighborhood reinvestment projects, home improvement/renovation grants, rental rehabilitation, and other housing projects designated by City Council.”

The resolution passed in a 5-1 vote, with council member Erek Sitting casting the lone nay vote. While Sitting said he was in support of LOST efforts his “no” vote was because a minimum percentage for affordable housing efforts was not established.

“We need to get this passed and having the language in there that we do, and not setting forth some restrictions or something that's more suited for one group in our community is going to help get it passed and that's what, to me, is most important,” said council member Brent Smith.

Iowa City

The Iowa City Council members all voiced approval of the proposed ballot language that the council put together at a work session last month. The council will vote on a formal resolution to put the measure on the November ballot at its Aug. 5 meeting.

Iowa City’s language reads, “50% of such revenues to be allocated for property tax relief; and the specific purpose(s) for which the revenues shall otherwise be expended is: 25% of such revenues shall be used to preserve existing affordable housing stock, increase shelter and transitional housing supports, and increase access to and the supply of affordable housing for households with low incomes. 10% of such revenues shall be used for maintenance and construction of public streets, sidewalks, trails, parks, and facilities as designated by City Council. 15% of such revenues shall be used for 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.”

City Council also finalized their plans to put the tax on the ballot without a sunset date. City staff estimate the tax could bring in $8-10 million in annual revenue.

“I think the language that you have is going to serve the city well for a very, very long time … I would be concerned if you continue to tighten that language up a little bit to say … only a certain type of housing. But this is still incredibly broad, and these challenges and solutions that LOST attempts to address, I think, are going to be here with us for a long time,” said City Manager Geoff Fruin.

Coralville

The Coralville City Council had been considering the idea of a March 2026 special election, with the deadline of Aug. 29 to approve ballot language for the November election looming.

In addition, the council had been considering the different scenarios and projected tax revenue depending on which cities approve the tax. Some residents of Coralville have expressed concerns that the state’s formula for LOST revenue distribution relies on population rather than where the sales that generated the revenue took place. City staff, using retail sales from FY24, presented revenue scenarios that ranged from $3.6 to $7.3 million.

The council decided to move forward with a local-option sales tax, and use North Liberty’s approved language as a guide when developing their own. The city likely would use some of the revenue to pay for construction of a new recreation center.

“What I like about this North Liberty language is that it encompasses a lot … I think that we need to allocate a chunk of it to for affordable housing. Obviously we're having a lot of conversations about the rec center, but I also think that having that kind of broad language does give us flexibility, because who knows what we're going to see coming out of the legislature,” Coralville Mayor Meghann Foster said at a council work session.

The city will continue developing ballot language and look to have council formally approve the language at its Aug. 26 meeting.

Comments: megan.woolard@thegazette.com

Get a weekly roundup of Johnson County news by signing up for my Johnson County Update newsletter.