FY27 Proposed Budget

Opportunities with a Local Option Sales Tax

On November 4, 2025, Iowa City voters approved a 1% Local Option Sales Tax (LOST), which will increase the sales tax effective July 1, 2026 on taxable consumer purchases from 6% to 7% . LOST is expected to generate up to $14 million annually, which must be used in accordance with ballot language for the following purposes:  25% to preserve existing affordable housing, support shelter, transitional, and permanent housing, and increase access to and the supply of affordable housing for low income households.  15% for community partnerships that support intergovernmental, economic development, arts and culture, and social service priorities.  10% for maintaining and constructing public streets, sidewalks, trails, parks, and facilities. It is important to note that pursuit of alternative revenue sources, such as LOST, is an identified Strategic Plan action. Specifically, the plan calls for the City to “ Consider alternative revenue sources such as a Local Option Sales Tax or Franchise Fees that can help achieve strategic plan goals, fund infrastructure and facility needs, and reduce reliance on property tax.” This new funding source is essential because it can help reduce reliance on the General Fund which is stressed by past property tax reforms, ongoing inflation, and muted taxable property valuation growth. However, it also allows for a notable expansion or continuation of value-add initiatives in our Strategic Plan and adopted master plans. As such, this budget focuses LOST on three goals while staying within the parameters of the voter-approved ballot language: 1. Fund Strategic Plan objectives that are currently in a precarious funding position due to reliance on property taxes or that have not been previously funded; and 2. Sustain select successful programs launched with the American Rescue Plan Act or other federal dollars that do not have alternative funding sources identified; and 3. Provide critical relief to the General Fund to help solidify service levels and free up resources that help reduce existing strain on City employees serving a growing population. While staff has provided an estimate of LOST revenue, it is a new funding source. As such this budget does not allocate all anticipated revenue in the event receipts come in below expectations. It is also important to be mindful that funding will be received on a monthly basis, so the timing of funding commitments must reflect cashflow realities.  50% for property tax relief.

Property Tax Relief

State law requires that 50% of LOST revenues, which staff estimates at $7 million in FY 2027, must be dedicated to property tax relief. The most straight-forward way to accomplish this is through a property tax levy reduction, whereby LOST dollars replace funding previously levied through property taxes. The alternative to accomplish property tax relief is through tax avoidance, whereby LOST prevents an increase in property tax asking that would otherwise be required to

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