Polk County 1-cent sales tax bump: What will it cost you?
An average Polk County family will pay an additional $134 a year if voters approve a 1-cent sales tax increase, according to an Iowa State University analysis.
But homeowners could save anywhere from zero to $127 in property tax cuts that some cities have promised.
Voters decide Tuesday whether to increase the county's sales tax from 6 cents to 7 cents.
Supporters say it would lessen the burden on property taxpayers and open a revenue stream for cities to pay for quality-of-life projects that residents desire.
Without it, Des Moines officials say they will raise property taxes.
Opponents say it's a regressive tax that shifts more of the burden to lower-income families who can least afford it.
This isn't the first time Polk County voters have been asked to increase the local sales tax. Most recently, voters overwhelmingly shot down a 2007 effort dubbed Project Destiny.
The extra penny would generate $79 million annually and there's no sunset, so if voters give their approval, it's here to stay.
Des Moines would receive about $37 million in the first year. Without that additional revenue, the city will increase property tax by 20 cents for the budget year starting July 1, Des Moines City Manager Scott Sanders said.
And that's just the beginning.
Property taxes will keep going up, another $1.50 over the next 10 years if the city doesn't find additional revenue sources, Sanders said.
"There are a lot more difficult decisions long-term" if it doesn't pass, he said.
However, if the sales tax increase is approved, Des Moines and other cities have vowed to lower property taxes and invest in items residents covet.
Des Moines officials say property taxes would drop 40 cents starting July 1.
The city has prepared two budgets: one with the 20-cent increase and another with the 40-cent decrease. It will vote on one of those options within 48 hours of Tuesday's vote.
Most of the suburbs have said the sales tax vote won't affect property taxes for the upcoming year. But most plan to devote at least 50 percent of the sales tax revenue toward property tax relief in future budget years.
How much will you pay? Depends on whom you ask.
Polk County and Johnson County in eastern Iowa are the only two counties in Iowa without a 1-cent local option sales tax.
Dallas County voters in November approved a 1-cent increase. It's expected to generate about $11.5 million a year once it takes effect July 1.
Neighbors for Growth and Public Safety, a political action committee, raised $87,000 to spend on fliers and other advertising urging residents to vote yes.
Its donors include some of Des Moines' biggest names in construction, real estate and insurance, including Jim Cownie, Hubbell Realty Co., The Weitz Co. and Wellmark, according to records from the Iowa Campaign Ethics Disclosure Board.
The group is headed by former Des Moines City Council members Christine Hensley and Bob Mahaffey, Somerset neighborhood leader Mel Pins and retired Des Moines police Lt. Joe Gonzalez.
Using data from the Iowa Public Policy Project, the group estimates a family of four — with one child in day care and one child in school — would pay an additional $48 a year in sales tax.
"They're going to pay a very small increase, but that's going to support making our community very vibrant," said Emily Westergaard, the PAC's secretary. "We're all going to benefit from this in a lot of different ways."
However, Iowa State University economist Dave Swenson estimates a much bigger impact. The same family of four from the PAC's example would pay closer to $108 more per year in sales tax, he said.
The average person spends about 22.2 percent of his or her income on items that are subject to sales tax, according to the Bureau of Labor Statistics' Consumer Expenditure Survey. Assuming a family spends about 80 percent of its money in Polk County — and not online or out-of-state — Swenson estimates:
- A family making $75,427 — the median family income for Polk County — would pay an additional $134 a year in sales tax.
- A family making $58,564 — the median family income for Des Moines — would pay an additional $104 a year.
'It's harder on poor people'
Opponents say the county's poorest residents would feel the biggest impact from the sales tax increase. And since they are often renters, the poor are the least likely to benefit from lower property taxes.
According to the Institute on Taxation and Economic Policy, sales tax takes a larger share of income from low- and middle-income families than from rich families because it is levied at a flat rate.
"There's no argument about that. It's a regressive tax, and it's harder on poor people," Swenson said.
Abshir Omar, who ran for Des Moines City Council in the fall, said the city needs additional money, but it shouldn't come on "the backs of the poorest in our community."
He said the city needs to have a serious discussion about "tax giveaways."
Des Moines is shouldering more long-term debt than ever as it fulfills economic incentive deals with developers and major employers — roughly $309.1 million in 2016, a Des Moines Register analysis found.
"Instead of taking a look at the cause of the problem and try to remedy that, we're looking at putting a tax on the poorest and middle classes," Omar said.
Nineteen percent of Des Moines residents — about 41,000 people — live below the federal poverty level, according to a report published by ISU. A family of four making $24,600 a year is considered impoverished, according to the U.S. Bureau of Labor Statistics.
"It's shifting the tax burden to people who don't own property, (so) people who aren't as well off don't get relief," said Tara Tarnowski, a Drake neighborhood resident. She received a flier last week from Neighbors for Growth and Public Safety claiming she could save money on her property taxes by voting yes to the sales tax increase.
How will cities spend the money?
Residents from 17 cities and unincorporated Polk County will take part in Tuesday's election.
Only Polk City and Sheldahl won't vote. Those cities have had a 1-cent local option sales tax in place since the 1980s.
Twelve cities have promised to dedicate at least 50 percent of the sales tax revenue toward property tax reduction.
Ankeny would put 65 percent of the money it receives from the sale tax to reducing property taxes — the biggest percentage among metro cities.
That would equate to a $1.20 property tax rate cut, or about $127 per year for the owner of a $186,200 home, the median value for an Ankeny home, according to the U.S. Census Bureau.
A 40-cent rate cut in Des Moines, would result in a $27 property tax cut for a resident with a home home valued at $119,800, the city's median home value.
West Des Moines has promised a 74-cent rate cut. A resident with a $195,500 home — the median home value in that city — would see an $82 property tax cut.
Each city has released details of how it would spend the remaining sales tax revenue.
Des Moines would use it to speed up street repairs, demolish abandoned homes and pay for 13 firefighter positions currently covered by a federal grant.
West Des Moines would put the money toward its 10-year, $32 million parks plan that would add new amenities like a marathon-distance trail loop, a boathouse and an outdoor amphitheater.
A local option sales tax allows cities to pay for amenities without raising property taxes, said Biswa Das, assistant professor and extension specialist at ISU.
Das studies municipal revenue and spending across the state.
"It definitely is used to improve the community in ways that people who live there can actually feel it," he said.
Cedar Rapids, which passed a local option sales tax in 2009, spends a portion of the money on street improvements. Ames devotes a portion of sales tax revenue to programs that support the arts. It has had a local option sales tax since 1987.
"And if a place attracts a lot of people, those dollars are a windfall for the community," Das said.
About $20 million of the $79 million annual revenue generated by the penny increase would come from visitors to Polk County, according to ISU's Swenson.
What do retailers and restaurateurs think about the sales tax?
Polk County retailers and restaurateurs surveyed by the Des Moines Register had mixed feelings about the penny tax increase.
Rebekah Risbeck, the owner of Mint LA, an East Village women's clothing boutique, worries it will deter customers from purchasing as many items as they might today.
Risbeck said customers routinely bring five or six items to the register to get a total with sales tax and put back one or two items to stay within their budget.
A higher tax rate may make them forgo additional items, she said.
"I feel like it would be a negative impact on my business where women are influenced easily by their total sale," Risbeck said. "That might hinder them buying something from me."
Raygun owner Mike Draper said he doesn't believe the tax will affect consumers' shopping habits.
Raygun has locations in Iowa City, Cedar Rapids, where the sales tax is 7 percent, and in Kansas City, where the sales tax is 8.25 percent. Iowa City had a temporary 1-cent sales tax from 2009 to 2013 to help the city pay for flood cleanup efforts.
"We accidentally kept charging 7 percent for a few months (after it expired) before someone even noticed," Draper said. "People don't really pay attention to the sales tax."
Restaurants that rely on credit card transactions could take an added hit.
Credit card companies charge a 2 percent to 4 percent fee each time a business swipes a card. That fee is charged on the total sale, including sales tax.
If the sales tax goes up, businesses can expect to pay more to credit card companies.
That could result in some restaurants raising prices, said Scott Carlson, the owner of Court Avenue Restaurant & Brewing Co. and Americana.
"In this market, we don't want to do that," he said.
Downtown Des Moines has seen a rash of recent restaurant closings, including Legend’s American Grill, Goldfinch, +39, and Guru BBQ.
"What businesses pay in credit card processing fees is literally thousands of dollars," said Jessica Dunker, president of the Iowa Restaurant Association. "That's the downside to raising the sales tax because in the state of Iowa, we don't get that money back for processing credit cards."
But Dunker said raising the sales tax would put Polk County on a level playing field with most of the state.
Consistency from county to county, whether it's wages or taxes, is important, she said.
"It's these kinds of county decisions that affect a business's decision about where to locate or how to price products," Dunker said.
The Iowa Restaurant Association isn't taking a formal position on the proposed tax.
How would cities spend $79 million?
The following list includes the estimated annual revenue Polk County cities can expect to receive from a 1-cent sales tax; the portion of sales tax revenue that would be devoted to property tax relief; and how the city would allocate the remaining money.
(The percentage dedicated to property tax relief is not an indication of how much property taxes would be reduced.)
Alleman: $70,000. Tax relief: 0 percent. 60 percent would go to pay down the city's long-term debt. 40 percent would go to capital projects.
Altoona: $2.1 million. Tax relief: 50 percent. The other half would go to capital projects including street improvements and a new city hall and police station.
Ankeny: $6.7 million. Tax relief: 65 percent. The rest would go toward capital projects including a new senior center, extending the High Trestle Trail and adding an overpass and underpass at Oralabor Road and Ankeny Boulevard.
Bondurant: $563,000. Tax relief: 60 percent. The remaining 40 percent would go toward street improvements including the $1.5 million replacement of the deteriorating 15th Street Southwest bridge.
Carlisle: $12,000. Tax relief: 0 percent. 100 percent would go toward capital projects.
Clive: $1.7 million. Tax relief: 50 percent. The other half would go toward street repairs, trail improvements and relocating the fire station.
Des Moines: $37 million. Tax relief: 50 percent. The remaining money would be spent on accelerating street improvements, eliminating blighted properties and retaining 13 firefighters positions.
Elkhart: $97,000. Tax relief: 50 percent. The other half would go toward quality-of-life projects.
Granger: $29,000. Tax relief: 25 percent. The remaining 75 percent would go toward capital and infrastructure projects.
Grimes: $1.2 million. Tax relief: 50 percent. The remaining 50 percent would be spent on "any other lawful purposes."
Johnston: $2.5 million. Tax relief: 50 percent. The other half would go toward capital improvements and quality-of-life projects.
Mitchellville: $342,000. Tax relief: 50 percent. The remaining 50 percent would go toward capital projects.
Pleasant Hill: $1.4 million. Tax relief: 0 percent. 100 percent would go toward projects, possibly a new police station.
Runnells: $74,000. Tax relief: 0 percent. 100 percent would go toward city projects.
Unincorporated areas: $11 million. Tax relief: 33⅓ percent. The remaining two-thirds of revenue would be split between capital projects and mental health services.
Urbandale: $5.2 million. Tax relief: 50 percent. Half would go to capital projects, possibly including an aquatic center at Walnut Creek Regional Park, or to pay down city debt.
West Des Moines: $7 million. Tax relief: 50 percent. The remaining 50 percent would be spent on parks, sports and recreational facilities, trails and improvements to the library.
Windsor Heights: $853,000. Tax relief: 50 percent. The remaining 50 percent would go toward street, sewer and storm water improvements, city buildings or other projects.