Editor’s note: An interesting piece about Burlington, Iowa which discusses the pro’s and con’s of the local option sales tax there. Burlington, about the size of Mason City, will be voting on their local option sales tax this Tuesday. Mason City is looking to set a vote on the local option sales tax soon, as it is set to expire here as well. The item may show up on this November’s ballot. Do you support the local option sales tax?
Penny tax up for renewal in Tuesday vote
Michael Anderson, The Hawk Eye, Burlington, Iowa –
As voters ponder the local option sales tax renewal this Tuesday, opinions abound about the penny tax’s vitality, or lack thereof, to the city’s ailing finances.
Set to expire this year, the local option sales tax is a 1 percent tax on purchases in Burlington and West Burlington amounting to about $4.1 million in revenue budgeted for the next fiscal year. With a budget deep in the red, city council members not surprisingly support the tax, which ends Tuesday unless it is renewed at the special election.
“No. 1, I don’t look at this as a tax, per se,” Councilman Christopher Reed said. “The local option sales tax affects everybody, and not just the people in Burlington. It’s affects anybody who purchases anything in Burlington.”
He is optimistic voters will choose to keep the tax in place.
“People see the big picture on how much it helps the citizens of Burlington,” he said.
Tax relief vs. tax reduction
Leon Shahan has another perspective.
About half of the penny tax’s $4.1 million estimated revenue for this fiscal year has been allocated for property tax relief, but Shahan, a persistent city hall critic, takes issue with the phraseology surrounding that description.
“If anyone can show me where we ever got anywhere close to 50 percent property tax relief in any one year, I’ll pay $100,” he said.
Shahan said it’s disingenuous of city officials to describe the local option sales tax as bringing about a reduction in property taxes. He points to the total amount of funds collected from the city’s property tax levy in 1994, the year the local option sales tax was implemented. About $6.7 million was collected that year.
Against Shahan’s expectations for what constitutes a tax reduction, the amount of funds collected from the property tax levy increased the following year to about $7.1 million.
“Somewhere in this range, property taxes should have gone down $1.4 million to $1.3 million. It never happened,” Shahan said.
Shahan also contends the main use of revenue generated by the local option sales tax goes to pay off previous debts. The city recently allocated $447,642 from the economic development portion of the penny-tax fund to pay off 80 percent of the debt left from the agreement to purchase the Dresser-Rand complex.
What Shahan’s main argument boils down to is the implementation of the local option sales tax never resulted in a “property tax cut,” as the words “property tax relief” might suggest. While he doesn’t doubt the money generated by the tax is spent on the city’s expenses, he just doesn’t think it’s appropriate to call it a property tax relief when property taxes aren’t being reduced.
Pennies a day
While the penny tax hasn’t resulted in regular tax reductions, City Manager Jim Ferneau said property taxes nonetheless are relieved in the sense that half the revenue generated by the local option sales tax automatically is injected into the general fund.
Property owners may not receive rebates or notice a regular reduction in their taxes, but local option sales tax revenue effectively lessens the burden on their property tax dollars, he said. By keeping the local option sales tax in place, the city can continue to function without having to increase the property tax levy to meet the rising costs of operation.
As one of the few funds in the city’s budget carrying a positive balance, the local-option sales tax has become the source to fund a variety of city operations and functions. Losing such a significant source of revenue would force the city council to consider cuts in services and raise property taxes to offset the $4.1 million hole in the budget.
“You either reduce services or you increase property taxes by that much,” Ferneau said. “And that’s a huge amount to change it by.”
Ferneau said the local option sales tax saves the owner of a home valued at $100,000 about $191 a year in property taxes. He added that doing away with the tax would result in a $3.35 increase in the tax levy rate, raising it from $15.05 to $18.40.
“We choose not to do that,” Ferneau said. “We choose to use the local option sales tax to cover that $3.35 levy.”
“If we don’t vote that in, it’s going to affect other things,” Councilman Shane McCampbell said. “We’re going to have to cut other things to make up for that money.
“The last thing I want to see people do is lose their jobs.”
Since its last sunset in 2002, the economic development portion of the fund has been used for a number of projects, including a $30,000 donation for the Capitol Theater and $80,000 toward the three-year permit and feasibility study for the proposed hydroelectric plant at Lock and Dam 18.
This year, about $656,000 from the penny tax will pay the salaries of eight police officers, and an additional $110,000 for two squad cars. Some of the city’s engineering costs also will be paid for with $50,000 from the fund, and $41,200 has been allocated to pay for the city’s geographic information system.
About $205,000 will go toward economic development projects, including $50,00 for the maintenance of Community Field, and an additional $50,000 for computer equipment. Street projects will draw about $648,000 from the fund, $120,000 for street equipment and $40,000 for the city’s housing demolition program.
The parking ramp at Third and Washington streets requires about $31,400 for a resealing project, and the city’s sidewalk improvement program will draw another $18,000 from the fund.
Mayor Jim Davidson pointed out that doing away with the penny tax in Burlington will not affect West Burlington and the rest of the county, which also implement a one percent tax on purchases. More importantly, with the city’s budget having seen better days, Davidson said the continuance of the penny tax is crucial to correcting the course of the city’s financial trajectory.
“We have, as a council, put ourselves on a path to get our financial house in order,” Davidson said. “And we’ve committed ourselves to finding over $1 million in the next budget cycle somehow to try to make this right-sized. So if we don’t have the local option sales tax, then that’s another $2 million in property tax relief that we’d have to come up with somewhere in the general fund.”
The $1 million Davidson referred to is a portion of $10 million Ferneau projected as the necessary amount to put the city on the path to correcting its negative fund balances over the next five years. Ferneau has said those funds likely will need to be generated through a combination of tax increases and service reductions.
Despite the doubts of nay-sayers like Shahan, McCampbell remains optimistic voters will pass the tax for another 10 years.
“I actually feel like the citizens realize we need it at this point,” he said.
Burlington residents can vote on whether the tax should be renewed at one of three designated polling places from 7 a.m. to 8 p.m. Tuesday.