In order to maintain the many public services Iowa City provides to its residents, the proposed local-option sales tax would generate money that would be made from property taxes.

The local-option sales tax referendum, a 1-cent increase in the sales tax, will dedicate 40 percent of its revenue to property tax relief for Iowa City residents. 

The tax is predicted to generate $3.6 million to $4.8 million in annual revenue dedicated to property-tax relief.

Iowa City Mayor Pro-Tem Susan Mims said property-tax changes that the Legislature passed in 2013 could cause the city to lose up to $5 million annually by the 10th year it is in place.

The city proposed the referendum to combat the loss of funds.

“If we don’t pass this it will mean some reduction in services or more significant increases in property taxes, so I think it’s very important it passes,” Mims said.

Approximately 64 percent of Iowa City’s general-fund revenue was generated from property taxes last year.

“A lot of the people I have talked to are supportive,” Mims said. “Residents have seen information and understand. They don’t want to see services cut.”

She said the tax might make up for the lost revenue in early years but not in the long run.

Iowa City’s property-tax rate is higher than many surrounding towns because of the number of services it provides its residents. Services include a paid Fire Department, a bus system, a paid metropolitan planning organization, and police retirement systems.

It is not clear at this point which city services will be cut from the budget as a result of inadequate funds.

Iowa City already has the highest property tax rates in Johnson County with a tax rate of $16.81 per $1,000 in value. Coralville is second with a rate or $13.53, and North Liberty has a rate of $11.03.

Officials estimate the new tax would reduce Iowa City’s rate to between $15.28 and $15.66.

A lot of the revenue generated will come from people visiting Iowa City because they pay the sales tax with local purchases.

“When people see property tax relief, they’re like ‘how is this going to reduce my taxes,’ ” Johnson County Supervisor John Etheredge said. “It will make it so they don’t increase taxes by providing property-tax relief.”

He said Iowa City officials have been trying to create this tax for around 10 years.

“[The local-option sales tax] would reduce city’s reliance on property tax to help diversify the city’s revenue structure, which is heavily weighted toward property tax currently,” said Dennis Bockenstedt, Iowa City’s finance director.

More than 91 percent of Iowa cities have a local-option sales tax.

Iowa City and Des Moines are the only large metropolitan areas in the state without one.

Despite the money generated, Johnson County Assessor Bill Greazel was reluctant to say the tax would have a large effect on Iowa City residents’ long-term tax rates. 

“It sounds good, but I don’t think that it’s enough for anybody to really notice where people will say, ‘Wow, I’m glad we passed that,’ ” Greazel said.

Local-Option Sales Tax

The local-option sales tax, which will be on the general-election ballot, will allocate funding to several different areas.

The Daily Iowan is delving into a four-part series on what this tax means and how the funds will be distributed.

• Monday: What does local-option sales tax mean