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 now use LOST; the 2019 state change requires 50% of local receipts be dedicated to property tax relief; and many communities have moved away from sunsets. Lehman explained the county-level pooling and allocation formula used when jurisdictions opt in.

Lehman presented a starting ballot language and allocation split: 50% property tax relief (as required by state law), 20% housing initiatives (language provided in part by Greater Iowa City), 20% streets/parks/public facilities, and 10% community partnerships. He also recommended no sunset to preserve flexibility for long-term planning, while acknowledging some jurisdictions use sunsets to provide periodic voter accountability.

Councilors and the mayor pro tem raised several recurring themes: equity and regressivity, how to ensure LOST benefits lower-income residents who will disproportionately bear sales-tax costs, whether housing language should emphasize permanent affordability, whether the proposed split reflects community priorities, and how to balance specificity on the ballot with flexibility for future councils.

On equity, the mayor pro tem (speaking during public and council discussion) warned that LOST is “an option, but it’s not the best option. I think I believe it’s really regressive” and urged stronger protections so revenues directly benefit low-income residents and other vulnerable groups. Other councilors noted that a share of weekend and visitor spending comes from nonresidents and that LOST captures tax dollars that currently leave the county.

On housing, several councilors asked for clearer language to prioritize permanently affordable housing (for example, nonprofit-owned or permanently deed-restricted units) while leaving staff and the council flexibility to allocate funds annually through the city budget process. Lehman and council members discussed using a resolution of intent to signal how the current council plans to spend initial LOST receipts while keeping the ballot language broad enough to adapt over decades.

On timing, staff said the calendar is tight to reach the Nov. 4 ballot: the council would need a resolution by the Aug. 19 meeting and must notify the county auditor by Aug. 29. Staff noted alternatives (special elections or later ballots) but said earlier action would allow time for public education, which city staff can undertake in an informational capacity.

No formal vote; next steps Council members did not take a formal vote at the work session. Instead, they signaled general interest in moving forward while asking staff to prepare refined ballot language and options for the June 17 meeting and subsequent work sessions. Councilors specifically asked staff to: - return with proposed ballot language variations that change the level of specificity for housing and other categories; - present options on whether to include a sunset; and - develop materials and a potential resolution of intent that would lay out the council’s short-term spending priorities if voters approve LOST.

Direct quotes from the record include Lehman’s revenue estimate: “we would expect that LOST could bring in somewhere between 8 and $10,000,000 in revenue for the city,” and a councilor’s summary of a core concern: “it is definitely a regressive tax.”

What was not decided The council did not adopt ballot language, a revenue purpose statement, a sunset policy, or a final allocation. Council members agreed to continue discussion at future work sessions (next discussion items scheduled for the June 17 session) and to allow the public additional time to provide input before final decisions.

Clarifying details and figures cited in the meeting - LOST proposed: local 1% local option sales and service tax (LOST). - Estimated annual city revenue: $8 million–$10 million (staff estimate; actual amount depends on which Johnson County jurisdictions participate and on online sales reporting). - Required minimum for property tax relief: 50% (state requirement referenced by staff; described as coming from 2019 state changes). - Staff-recommended split (starting point): 50% property tax relief, 20% housing initiatives, 20% streets/parks/public facilities, 10% community partnerships. - Past LOST: Iowa City collected about $34 million during 2010–2013 (sunset-based LOST used for flood mitigation projects). - Pavement network: staff noted 237 miles of streets in the city and projected deterioration without added funding. - Timeline to reach November ballot: resolution by Aug. 19; auditor notification by Aug. 29; election Nov. 4; potential implementation could begin July 1 if approved.

Community relevance Staff and council emphasized impacts for Iowa City and Johnson County residents, with particular concern for low-income households, renters, seniors and immigrant communities that may be disproportionately affected by consumption taxes. Council discussion also referenced regional coordination with Coralville, North Liberty and University Heights and how county pooling affects allocations.

Next council work-session discussion was scheduled for June 17; staff will return with refined language and options for the council to vote on at a later meeting.