CEDAR RAPIDS - Every county-seat city in Iowa collects a local-option sales tax for their city except six.
Last night, the City Council elected to remain among those six, declining to pursue such a sales tax for Cedar Rapids.
Mayor Kay Halloran and council member Brian Fagan credited council member Justin Shields for calling for a local-option sales tax last week. But they left Shields all-but alone in backing such a tax.
City officials say a 1 percent tax would generate between $18 million and $23 million per year for the city.
Halloran said Shields had "political courage." And Fagan, speaking directly to Shields, said he understood that Shields had been taking "a beating and a hammering" for even suggesting a local-option tax as a step in trying to address the massive flood recovery costs facing the city.
Shields did not back down about the tax last night.
"We are going to have to have some money in this community," he said, adding it won't all come from the federal and state government.
Council members Kris Gulick, Tom Podzimek, Halloran and Fagan all sounded the familiar "revenue diversification" theme — that the Iowa Legislature needs to give cities the ability to raise money in a variety of ways rather than relying on property taxes.
For that to happen, though, action by state lawmakers is needed, even though the City Council can seek a 1-percent local-option sales tax now without state action. The local-option sales tax does require local citizen support.
Only council member Monica Vernon last night said that the city shouldn't depend only on what the Iowa Legislature might or might not do and has been reluctant to do in the past. Vernon said the council needs diversified approaches, as well as a diversification of revenue. And she said local citizens can be asked to help with part of the city's revenue problems by voting on a local-option sales tax.
Vernon said people have told her they would support such a tax. They have said they don't feel they've done enough for flood recovery, Vernon said.
But her argument and Shields' continued advocacy did not gain any steam.
Gulick, who sits on the board of the Iowa League of Cities, pointed out again last night that Cedar Rapids is joined by many cities in Iowa in pleading with state government for more local control of their own taxing authority.
He imagined a setup in which each city could pick from a package of taxes to fit its own needs. Now, property taxes provide 70 percent of the city's revenue. He imagined a time when the city could slash property taxes by 70 percent and replace that revenue with a combination of, for instance, a sales tax, an employment tax, a wheel tax and others.
Council member Tom Podzimek noted that the city of Cedar Rapids, with 125,000 people, swells to about 200,000 a day as people come here to work. All those extra people use the city streets, parks, cultural attractions and much more and don't pay any taxes to support them, he said.
Small cities around Cedar Rapids, he said, don't see an influx of people each day. "Our city swells during the day," he said.
Supporters of the local-option sales tax point to its ability to capture revenue from those who shop in a city but live elsewhere.
Besides Cedar Rapids, the only other county-seat cities in Iowa without a local-option sales tax for cities are Iowa City, Des Moines, Indianola (in Warren County next to Des Moines), Adel (in Dallas County next to metro Des Moines) and Ida Grove, according to the Iowa Department of Revenue.
The state sales tax is 5 percent. The state now collects an additional 1 percent for all counties for use by schools.
Council member Shields prompted the council discussion on the local-option sales tax last night when Shields last week suggested a 2-percent local option sales tax. Several council members last week said they wanted to talk about a local-option sales tax, and they had been hinting at trying to ask voters for such a tax for a few months.
The council has asked the Iowa Legislature to allow cities to enact a local-option sales tax without a citizen vote, but it's unclear if lawmakers have any interest in that.
City officials have said a local-option sales tax would raise about $23 million for Cedar Rapids if other major cities and Linn County did not pass the tax. If all jurisdictions in the county passed the tax, the city would raise about $18 million with a 1-percent tax.
With city budget discussions looming, the council already knows that it will lose some revenue because of property damaged or destroyed in the June flood, even as it faces new flood recovery costs.
At a preliminary budget hearing, the council learned it could be facing a $22 million funding gap, about the amount a 1 percent local-option tax could bring in.
