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A few words in new law on local-option sales tax hurt unincorporated Linn, help Marion, change little for Cedar Rapids

In City Hall, Linn County government, Marion on February 23, 2009 at 2:50 pm

There is a small, little-noticed line in a special piece of state legislation, legislation that has permitted a fast track to the March 3 vote on a 1-percent local-option sales tax.

Should the sales tax pass throughout the county, that line in the new law will have a notable, negative dollar impact on the Linn County Board of Supervisors and the unincorporated area of Linn County for which it is responsible. And at the same time, the law change will have a nice positive impact for the city of Marion.

Other jurisdictions in the county will notice little difference.

The reason for the notable change in expected sales-tax revenue for the Linn supervisors and the city of Marion is a change in the data used in the formula dictating how the tax is dispensed within a county.

The formula is based on two things: each jurisdiction’s percentage of total property-tax revenue in the county and each jurisdiction’s percentage of total population in the county. One quarter of the weight of the formula is given to the former, three quarters to the latter.

State law has based the property-tax revenue on taxes collected in the years from 1983-1985. Every local-option sales tax in the state – only six county seat cities don’t have the tax — has its distribution formula based on that three-year period in the 1980s.

However, that three-year period of property-tax revenue was changed to 2005-2007 in the recent special legislation, steered through the Statehouse by Sen. Rob Hogg, D-Cedar Rapids.

Hogg on Monday said the intent of changing the years in the formula was to accurately reflect how communities have developed in the last 25 years.

In Linn County, what changed between 1983-85 and 2005-07 is that the metro-area cities have grown into parts of what had been unincorporated Linn County, and as a result, the relative property-tax revenue has shifted a bit to the city from the country.

This is why unincorporated Linn County fares less well in the new computation of the distribution formula and why fast-growing Marion has fared better.

The 1-percent local-option sales tax is expected to bring in about $30 million a year in all of Linn County if every jurisdiction in the county passes the tax on March 3.

If that happens, the Linn County Board of Supervisors and unincorporated Linn County will receive an estimated $4,899,000 a year. However, that is an amount $483,000 a year less than it would have been under the formula’s old computation. In total, that’s $2,535,750 less over the course of five years and three months. In that time, the tax will raise $25,719,750 for the unincorporated area of the county.

For Marion, the change will be in the other direction. Over five years and three months, the tax is expected to bring in $19,719,000 for Marion, an amount that is $306,000 a year more or $1,606,500 more over the life of the tax than it would have been using the earlier property-tax years in the distribution formula.

The city of Cedar Rapids now will receive 59.9 percent of the tax revenue – about $18 million — in the new formula and it would have received 59.79 percent if the 1980s property-tax revenue had been used.

With the new formula, unincorporated Linn County will receive 16.33 percent of the tax revenue, but it would have received 17.94 percent using the 1980s property-tax revenue figures, according to the Iowa Department of Revenue.

Marion now will obtain 12.52 percent of the revenue, up from 11.5 percent under the old formula while Hiawatha will get 3.04 percent up from 2.74 percent.

SEE this chart to see how each Linn jurisdiction will fare now and each would have fared under the old arrangement.

Sen. Hogg said the city of Coralville, in particular, pushed for the change of the years used in the formula as a way to take into account the changes in development in the last 25 years. Johnson County jurisdictions vote on a sales tax in May.


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