Iowa City Council discusses 1% local option sales tax, staff proposes ballot language and spending split

Iowa City Council members spent the June 3 work session reviewing a staff proposal to place a 1% local option sales and service tax (LOST) on a future ballot, with staff estimating the city’s share at roughly $8 million to $10 million annually depending on county participation.

The issue was introduced by Kirk Lehman, assistant city manager, who told the council that “we would expect that LOST could bring in somewhere between 8 and $10,000,000 in revenue for the city.” He outlined how state law requires that at least 50% of LOST revenue be used for property tax relief and described a staff-recommended distribution of the remaining funds: 20% for housing initiatives, 20% for streets, parks and public facilities, and 10% for community partnerships. Lehman said the city would need a resolution by the Aug. 19 council meeting to place a measure on the Nov. 4 ballot and must notify the county auditor by Aug. 29 for the November timeline to work.

Why it matters: City staff presented LOST as a tool to diversify revenue as Iowa City faces constrained growth in taxable property valuation and higher inflationary pressures. Staff argued LOST can fund capital projects and reduce reliance on property taxes while noting sales tax revenue is more volatile than property tax revenue and therefore is generally better suited to capital projects than ongoing operating expenses.

What staff proposed and the council’s response Staff recapped Iowa City’s prior LOST experience (2010–2013, when the city collected about $34 million for flood mitigation projects including the Dubuque Street/Gateway project, wastewater improvements and Riverfront Crossings Park) and described statewide trends: most eligible Iowa jurisdictions…