Sales tax extension not currently needed, Iowa City staffers say

The penny should stop here – at least for now.

That's the word from Iowa City staff in recommending that the City Council at this time not seek a continuance of the 1 percent local-option sales tax approved by voters in 2009 to pay for flood-related projects.

The tax, which increases the sales tax from 6 percent to 7 percent for purchases in Iowa City, was approved for four years and has a sunset date of June 30, 2013.

Getting the sales tax on the November ballot would require action from the City Council by Aug. 14.

A state law passed in 2009 allowed for special rules for communities that sustained significant damage in the Floods of 2008 and did not already have a local-option sales tax, commonly referred to as LOST.

One of those was a reprieve from the requirement that contiguous, or touching, cities are treated as one taxing jurisdiction and the majority of voters in it must vote for the tax for it to take effect.

The tax passed in Iowa City by just seven votes. It failed in Coralville by eight votes, was more handily defeated in North Liberty and was approved by the majority of the smaller surrounding towns.

Finance Director Kevin O'Malley, in a memo to City Manager Tom Markus released Thursday outlining the staff's recommendation, noted that close margin in Iowa City occurred despite the flood being fresh in people's minds.

He said an argument could be made for a continuation of the tax to provide additional funding for flood projects, but staff has no hard numbers for what kind of money is needed.

The extra 1 percent sales tax generates about $8.5 million a year for the city, O'Malley wrote.

He also noted that while the call from state lawmakers for commercial property tax reform could affect the city's budget, it's not known what the state may do, and that would not be a compelling reason for voters to approve another LOST.

O'Malley said that as the city starts preparing its budget for the fiscal year that starts July 1, 2013, and when the next Legislative starts in January 2013, a “clearer picture may present itself” to help determine the needs for LOST funding.