Linn sales-tax change makes for winners and losers

CEDAR RAPIDS - Getting voters to approve the 1 percent local-option sales tax in the metro area here has been no picnic.

When in place, though, the tax has delivered a pretty predictable, stable stream of annual income to cities in Linn County and to the Linn County Board of Supervisors.

Until now.

A little noticed change in how the revenue is distributed among Linn County jurisdictions suddenly has found some learning this month that they are winners or losers.

Unincorporated Linn County, which is represented by the Linn County Board of Supervisors, is the big winner. Metro area cities of Marion and Hiawatha, which have seen healthy population and property-tax growth, are the biggest losers.

Even so, Marion City Manager Lon Pluckhahn said the sky isn't falling.

'I thought it would be worse,” he said.

According to the Iowa Department of Revenue's latest estimates, it will distribute $4,186,221 to Marion in the current fiscal year as the city's share of the Linn County total LOST pot of $30,711,243.

That is $303,234 or 6.75 percent less than the state agency said it would send to Marion at this time a year ago.

Next door, the state agency will distribute $834,763 to the city of Hiawatha in the current fiscal year, down $88,921 or 9.65 percent from what the estimate at this time a year ago.

On the other hand, the Linn County Board of Supervisors will see its share of LOST revenue jump $427,948 or 8.7 percent, to $5,331,189.

'I was not aware of this. What great news,” Dan Biechler, director of the Linn County Conservation Department, said this week.

Of the distribution to the supervisors, 25 percent of the total goes to Biechler's department, 50 percent to Linn County secondary roads and 25 percent to property-tax relief for those in unincorporated Linn County.

'It's hard to make an engineer happy,” County Engineer Steve Gannon said this week. 'This comes close.”

The Iowa Department of Revenue's dollar figures represent 95 percent of what the agency estimates each jurisdiction will receive during the fiscal year, which ends June 30.

The state holds back 5 percent of the projected revenue in the event that sales-tax collections don't meet projections.

Jurisdictions have not been informed of actual total payout for the fiscal year ending June 30, 2014. Casey Drew, Cedar Rapids's finance director, said Friday.

Property and revenue

In the new estimates, the city of Cedar Rapids will receive $17,724,971 for the current fiscal year, up $39,875 from what said it would receive at this time a year for the fiscal year that ended June 30, 2014.

Coggon, Walker, Bertram, Prairieburg and the Linn County portion of Walford will see a small projected increase in LOST this fiscal year, while Center Point, Lisbon, Mount Vernon, Fairfax, Springville, Alburnett, Ely and Robins will see less.

Marion, Hiawatha and the others are seeing less because of their relative healthy growth.

Here's why:

State law dictates that revenue from the LOST collected within a county is distributed to jurisdictions in the county by a formula with two factors - 75 percent of a jurisdiction's population in the last official census and 25 percent of the property-tax revenue collected by the jurisdiction in the fiscal years 1984, 1985 and 1986.

In 2009, the Iowa Legislature approved special legislation for Linn and Johnson counties - both of which were recovering from floods in 2008. The legislation changed the property-tax years in the formula to fiscal years 2004, 2005, 2006.

This benefitted jurisdictions that had seen growth in the 20 years between 1984-1986 and 2004-2006, such as Marion and Hiawatha, and hurt unincorporated Linn County, which saw those cities as well as Cedar Rapids, Robins, Fairfax and others grow out into what had been unincorporated parts of the county.

The tax in Linn County, which was put in place in 2009 for the metro area communities, expired on June 30, 2014. However, in November 2013, those communities renewed the sales tax for 10 years, with the renewal to kick in on July 1.

On July 1, the formula upon which the distribution in Linn County is based reverted back to property-tax values from 30 years ago. It is a change that caught some jurisdictions by surprise when informed of the new revenue estimates this month by the Iowa Department of Revenue.

State Sen. Joe Bolkcom, D-Iowa City, the Senate's tax-writing Ways and Means Committee chairman, said this week that the tax years 1984 through 1986 were put in the formula when legislation for the local-option sales tax was put in place. He said it has become more difficult over the years to update the formula as more and more communities have approved the tax.

Any change, he said, would create winning and losing jurisdictions, which is what Linn County jurisdictions now are experiencing.

'So there hasn't been a groundswell of counties or cities coming forward, saying, ‘Change this,'” Bolkcom said. '…

What would seem to be the reasonable, common-sense thing to do has different communities advantaged or disadvantaged, so it's not an easy thing to do.”

Steve Tucker, Linn County's finance director, said this week that additional LOST revenue that comes to the Linn County Board of Supervisors will speed up work on projects already in the long-term plan for the Conservation and Secondary Roads departments.

The 25 percent of LOST revenue used by the county for property-tax relief for those living in unincorporated Linn County will be saved and used to grant additional relief in the fiscal year that begins July 1, 2015, Tucker said.

Marion's Pluckhahn said the city of Marion is planning to have the U.S. Census Bureau conduct a new, mid-decade census of the city. Pluckhahn said an additional 1,000 population should give the city $120,000 more of the Linn County LOST pot.

Historically, it has been tough to pass the LOST in the Cedar Rapids metro area.

That is so even though today every Iowa county and nearly every jurisdiction in those counties have the tax in place except for most jurisdictions in Polk County and all Johnson County jurisdictions.

Iowa City and a few communities in Johnson County put the LOST in place from 2009 to 2013 to help with flood recovery. In November, the Iowa City metro block - which consists of Iowa City, Coralville, North Liberty, University Heights and Tiffin - will vote on the LOST again.

In the Cedar Rapids metro area in May 2011 and again in March 2012, voters rejected an attempt to renew the LOST after the current LOST period ended on June 30 2014. They finally agreed on the renewal in November 2013.

In fact, in 2009 the Iowa Legislature provided special permission to Linn County and Johnson County to allow cities in the metro area to vote individually so flood-hit communities such as Cedar Rapids wouldn't need to depend on their neighbors to get the vote passed. Marion, Hiawatha and Robins turned down the tax while Cedar Rapids approved it.

Marion, Hiawatha and Robins then quickly voted again and approved it once Cedar Rapids - where most of the tax in Linn County actually is collected to be shared by the state's formula - approved it.